-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BxFajRc/EgpWGjZxpx0g3OsMm1KVLH/05EgQQu6eo7zhFOcNUerYQmh6Z1CkhO98 Cbaj1vfXsQ4UoFTyzthFpA== 0000950134-03-010855.txt : 20030801 0000950134-03-010855.hdr.sgml : 20030801 20030801171557 ACCESSION NUMBER: 0000950134-03-010855 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030801 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TELEX COMMUNICATIONS INC /DE/ CENTRAL INDEX KEY: 0001038185 STANDARD INDUSTRIAL CLASSIFICATION: ELECTRONIC COMPONENTS, NEC [3679] IRS NUMBER: 381853300 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-27341 FILM NUMBER: 03818765 BUSINESS ADDRESS: STREET 1: 12000 PORTLAND AVENUE SOUTH STREET 2: -- CITY: BURNSVILLE STATE: MN ZIP: 55337 BUSINESS PHONE: 952-884-4051 MAIL ADDRESS: STREET 1: 12000 PORTLAND AVENUE SOUTH STREET 2: -- CITY: BURNSVILLE STATE: MN ZIP: 55337 FORMER COMPANY: FORMER CONFORMED NAME: EV INTERNATIONAL INC DATE OF NAME CHANGE: 19970422 10-Q 1 c78632e10vq.txt FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2003 Commission File No. 333-27341 TELEX COMMUNICATIONS, INC. (Exact name of Registrant as specified in its charter) DELAWARE 38-1853300 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12000 PORTLAND AVENUE SOUTH, BURNSVILLE, MINNESOTA 55337 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (952) 884-4051 Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------- --------- Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES NO X -------- --------- AS OF JULY 31, 2003, TELEX COMMUNICATIONS, INC. HAD OUTSTANDING 4,987,127 SHARES OF COMMON STOCK, $0.01 PAR VALUE. THIS DOCUMENT CONTAINS 23 PAGES. ================================================================================ PART I. --- FINANCIAL INFORMATION
Page(s) Item 1. Financial Statements Included herein is the following unaudited financial information: Condensed Consolidated Balance Sheets as of June 30, 2003 and December 31, 2002 3 Condensed Consolidated Statements of Operations for the three and six month periods ended June 30, 2003 and 2002 4 Condensed Consolidated Statements of Cash Flows for the six month periods ended June 30, 2003 and 2002 5 Notes to Condensed Consolidated Financial Statements 6-10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11-18 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 Item 4. Controls and Procedures 20
PART II. --- OTHER INFORMATION
Page(s) Item 6. Exhibits and Reports on Form 8-K 21 Signatures 22 Exhibit Index 23
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TELEX COMMUNICATIONS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, December 31, 2003 2002 ----------- ------------ (UNAUDITED) (SEE NOTE) ASSETS Current assets: Cash and cash equivalents $ 3,346 $ 3,374 Accounts receivable, net 49,766 44,644 Inventories 50,613 47,686 Other current assets 7,438 4,710 --------- ------------ Total current assets 111,163 100,414 Property, plant and equipment, net 28,918 28,995 Deferred financing costs, net 1,860 2,659 Goodwill 23,313 23,154 Other assets 2,689 2,656 --------- ------------ $ 167,943 $ 157,878 ========= ============ LIABILITIES AND SHAREHOLDERS' DEFICIT Current liabilities: Revolving lines of credit $ 21,258 $ 3,916 Current maturities of long-term debt 61,668 17,275 Accounts payable 13,844 10,954 Accrued wages and benefits 10,017 9,562 Other accrued liabilities 9,904 7,896 Income taxes payable 6,407 7,960 --------- ------------ Total current liabilities 123,098 57,563 Long-term debt 105,790 154,630 Other long-term liabilities 15,550 13,693 --------- ------------ Total liabilities 244,438 225,886 --------- ------------ Shareholders' deficit: Common stock and capital in excess of par 80,180 80,180 Accumulated other comprehensive loss (9,800) (7,029) Accumulated deficit (146,875) (141,159) --------- ------------ Total shareholders' deficit (76,495) (68,008) --------- ------------ $ 167,943 $ 157,878 ========= ============
See notes to condensed consolidated financial statements. Note: The balance sheet at December 31, 2002 has been derived from the Company's audited financial statements at that date. 3 TELEX COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except share and per share data) (UNAUDITED)
Three months ended Six months ended ---------------------------- ---------------------------- June 30, June 30, June 30, June 30, 2003 2002 2003 2002 ----------- ----------- ----------- ----------- Net sales $ 68,836 $ 68,029 $ 129,711 $ 135,928 Cost of sales 40,243 39,078 75,706 79,770 ----------- ----------- ----------- ----------- Gross profit 28,593 28,951 54,005 56,158 ----------- ----------- ----------- ----------- Operating expenses: Engineering 3,597 3,082 7,177 6,009 Selling, general and administrative 19,984 18,337 38,586 35,872 Corporate charges -- 154 -- 541 Amortization of other intangibles 3 30 15 60 Pension curtailment gain (2,414) -- (2,414) -- ----------- ----------- ----------- ----------- 21,170 21,603 43,364 42,482 ----------- ----------- ----------- ----------- Operating profit 7,423 7,348 10,641 13,676 Interest expense 7,363 6,382 14,404 12,532 Other (income) expense, net (113) 124 (196) (1,049) ----------- ----------- ----------- ----------- Income (loss) before income taxes 173 842 (3,567) 2,193 Provision for income taxes 1,168 1,053 2,149 1,880 ----------- ----------- ----------- ----------- (Loss) income before cumulative effect of change in accounting (995) (211) (5,716) 313 Cumulative effect of change in accounting -- -- -- (29,863) ----------- ----------- ----------- ----------- Net loss $ (995) $ (211) $ (5,716) $ (29,550) =========== =========== =========== =========== Basic (loss) income per common share (Loss) income before cumulative effect of change in accounting $ (0.20) $ (0.05) $ (1.15) $ 0.15 Cumulative effect of change in accounting -- -- -- (14.26) ----------- ----------- ----------- ----------- Net loss $ (0.20) $ (0.05) $ (1.15) $ (14.11) =========== =========== =========== =========== Diluted income (loss) per common share Income (loss) before cumulative effect of change in accounting $ (0.20) $ (0.05) $ (1.15) $ 0.06 Cumulative effect of change in accounting -- -- -- (5.99) ----------- ----------- ----------- ----------- Net loss $ (0.20) $ (0.05) $ (1.15) $ (5.93) =========== =========== =========== =========== Weighted average shares outstanding Basic 4,987,127 4,165,092 4,987,127 2,094,106 =========== =========== =========== =========== Diluted 4,987,127 4,165,092 4,987,127 4,987,127 =========== =========== =========== ===========
See notes to condensed consolidated financial statements. 4 TELEX COMMUNICATIONS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (UNAUDITED)
Six months ended ----------------------- June 30, June 30, 2003 2002 --------- --------- Operating activities: Net loss $ (5,716) $(29,550) Adjustments to reconcile net loss to cash flows from operations: Depreciation and amortization 3,201 3,492 Amortization of finance charges and pay-in-kind interest charge 11,261 8,941 Gain on disposition of assets (98) (1,001) Cumulative effect of change in accounting -- 29,863 Pension curtailment gain (2,414) -- Change in operating assets and liabilities (7,210) (10,305) Change in long-term liabilities 50 1,026 Other, net 505 371 -------- -------- Net cash (used in) provided by operating activities (421) 2,837 -------- -------- INVESTING ACTIVITIES: Additions to property, plant and equipment (2,574) (1,946) Proceeds from disposition of assets 792 2,197 Other 111 110 -------- -------- Net cash (used in) provided by investing activities (1,671) 361 -------- -------- FINANCING ACTIVITIES: Borrowings under revolving lines of credit, net 8,155 1,288 Repayment of long-term debt (6,217) (5,432) Payments of deferred financing costs -- (242) -------- -------- Net cash provided by (used in) financing activities 1,938 (4,386) -------- -------- EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 126 141 -------- -------- CASH AND CASH EQUIVALENTS: Net decrease (28) (1,047) Balance at beginning of period 3,374 3,026 -------- -------- Balance at end of period $ 3,346 $ 1,979 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH PAID FOR: Interest $ 2,945 $ 3,552 ======== ======== Income taxes $ 4,084 $ 1,918 ======== ========
See notes to condensed consolidated financial statements. 5 TELEX COMMUNICATIONS, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S.) for interim financial information, and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the U.S. for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the full year. Preparation of the Company's financial statements in conformity with accounting principles generally accepted in the U.S. requires management to make estimates and assumptions that affect the reported amounts in the financial statements and accompanying notes. Actual results could differ from those estimates. For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002. Certain 2002 amounts have been reclassified to conform to 2003 presentation. 2. Inventories Inventories consist of the following (in thousands):
June 30, December 31, 2003 2002 ------- ------------ Raw materials $19,795 $19,224 Work in process 8,150 6,840 Finished products 22,668 21,622 ------- ------- $50,613 $47,686 ======= =======
3. Goodwill Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). The Company completed an initial impairment review of goodwill in the fourth quarter of 2002. The review resulted in an impairment loss of $29.9 million related to the Professional Audio (formerly known as Professional Sound and Entertainment) business segment that has been accounted for as a cumulative effect of change in accounting in accordance with SFAS 142 and is reflected in the results of operations for the six months ended June 30, 2002. The Company has certain amounts of goodwill denominated in foreign currencies that fluctuate with movement of exchange rates. 6 The following table presents the changes in carrying value of goodwill by business segment as of June 30, 2003 (in thousands):
Audio and Wireless Professional Audio Technology Total ------------------ ------------------- --------- Balance as of December 31, 2002 $ 17,064 $ 6,090 $ 23,154 Foreign currency translation 159 - 159 --------- -------- -------- Balance as of June 30, 2003 $ 17,223 $ 6,090 $ 23,313 ========= ======== ========
4. Debt Long-term debt consists of the following (in thousands):
June 30, December 31, 2003 2002 -------- ----------- Senior Secured Credit Facility (Revolving Credit Facility) $ -- $ 8,563 Senior Secured Credit Facility (Term Loan Facility): Term Loan A 14,211 15,606 Term Loan B 47,037 51,655 Tranche A Senior Secured Notes 31,332 27,692 Tranche B Senior Secured Notes 13,922 12,268 Senior Subordinated Discount Notes 57,881 52,981 Senior Subordinated Notes 550 550 Other debt 2,525 2,590 --------- --------- 167,458 171,905 Less - current portion (61,668) (17,275) --------- --------- Total long-term debt $ 105,790 $ 154,630 ========= =========
5. Income Taxes The Company recorded an income tax provision of $1.2 million and $2.1 million on pre-tax income of $1.7 million and pre-tax loss of $2.0 million for the three months and six months ended June 30, 2003, respectively. The income tax provision for the six months ended June 30, 2003 is comprised of a U.S. Federal and state income tax benefit of $1.4 million, offset by a tax valuation allowance adjustment of $1.4 million, and an income tax provision of $2.1 million attributed to income of certain foreign subsidiaries. The income tax provision for the six months ended June 30, 2002 is comprised of a U.S. Federal and state income tax benefit of $0.5 million, offset by a tax valuation allowance adjustment of $0.5 million, and an income tax provision of $1.9 million attributed to income of certain foreign subsidiaries. The Company has a deferred tax asset of $14.7 million offset by a tax valuation allowance of $14.6 million at June 30, 2003 due to the uncertainty of the realization of future tax benefits. The realization of the future tax benefits related to the deferred tax asset is dependent on many factors, including the Company's ability to generate sufficient taxable income within the net operating loss carryforward period. Management has considered these factors in reaching its conclusion as to the adequacy of the valuation allowance for financial reporting purposes. 7 6. Earnings Per Share Data Effective April 16, 2002, the Company converted all of its outstanding Series A Preferred Stock and Series B Preferred Stock, totaling 4,987,017 shares, into an equal number of shares of its Common Stock. The conversion of the Preferred Stock was at the election of the Company with each share or fractional share of the Series A and Series B Preferred Stock convertible into one share or equivalent fractional share of Common Stock. Information presented for the three and six months ended June 30, 2002 includes the effect of the conversion on a diluted basis. 7. Related-Party Transactions The Company recorded a charge to operations of $0.2 million and $0.5 million for the three months and six months ended June 30, 2002, respectively, for management services provided by Greenwich Street Capital Partners, L.P., a related party. The services included, but were not limited to, developing and implementing corporate and business strategy and providing other consulting and advisory services. The agreement expired in May 2002. The Company is accruing interest, at the rate of 2 percent per month, on the outstanding management services fee balance. Under the terms of the Senior Secured Credit Facility, the Company is prohibited from making any payment, in cash or other property, of the management services fee and the accrued interest on the unpaid balance until repayment in full of the loans outstanding under the Senior Secured Credit Facility. The Company had a balance payable, inclusive of interest, of $2.7 million at June 30, 2003 that is included on the condensed consolidated balance sheet as a component of other long-term liabilities. In 2000, the Company relocated its corporate headquarters to a facility leased from DRF 12000 Portland LLC (the LLC), an entity in which the Company has a 50% interest. The Company contributed cash of $0.6 million to the LLC and the investment is accounted for under the equity method. The Company's allocable share of the LLC income is included as a component of other income in the condensed consolidated statements of operations. The LLC financed the purchase of the facility with a mortgage secured by the facility. At June 30, 2003, the remaining balance on the mortgage was $6.7 million. The annual lease payments to the LLC are $1.1 million for years one to five and $1.2 million for years six to ten. The Company may renew the lease at the end of the initial lease term for three renewal terms of five years each. The lease has been classified as an operating lease and the Company records the lease payments as rent expense. The Company's exposure to loss associated with the LLC is its investment in the LLC which totaled $0.8 million at June 30, 2003. The investment in the LLC is included in the condensed consolidated balance sheet as a component of other assets. Telex has reviewed FASB Interpretation No. 46, "Consolidation of Variable Interest Entitites, an interpretation of ARB No. 51" (FIN 46), pertaining to the consolidation of variable interest entities and has determined that no changes are required to the consolidation procedures currently followed by the Company. 8. Comprehensive Loss Comprehensive loss reflects the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. For the Company, comprehensive net loss represents net income or loss adjusted for foreign currency translation adjustments and minimum pension liability adjustments. Comprehensive loss is as follows (in thousands): 8
Three months ended June 30, Six months ended June 30, -------------------------------------- -------------------------------------- 2003 2002 2003 2002 ----------------- ----------------- ----------------- ----------------- Net loss $ (995) $ (211) $ (5,716) $ (29,550) Other comprehensive income: Foreign currency translation adjustment 1,753 3,485 2,307 3,031 Minimum pension liability (5,078) - (5,078) - ----------------- ----------------- ----------------- ----------------- Comprehensive (loss) income $ (4,320) $ 3,274 $ (8,487) $ (26,519) ================= ================= ================= =================
The components of accumulated other comprehensive loss are as follows (in thousands):
June 30, December 31, 2003 2002 ---- ---- Foreign currency translation $ 1,024 $ 3,331 Minimum pension liability 8,776 3,698 ----------- ------------ $ 9,800 $ 7,029 =========== ============
9. Pension Curtailment Gain In the three month period ended June 30, 2003, the Company amended its US defined benefit pension plan, eliminating the earning of pay credits after June 30, 2003 and closing the plan to new participants effective June 30, 2003. The amendments to the pension plan resulted in recognition of a $2.4 million curtailment gain associated with the recognition of previously unrecognized prior service costs in accordance with SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits." In conjunction with the curtailment, the Company remeasured the pension plan's assets and liabilities as of June 30, 2003. The Company recorded an additional minimum pension liability of $5.1 million as a result of the remeasurement. 10. Segment Information The Company has two business segments: Professional Audio (formerly known as Professional Sound and Entertainment) and Audio and Wireless Technology. Professional Audio Professional Audio consists of five product lines within the overall professional audio market, including: (i) permanently installed sound systems; (ii) sound products used by professional musicians and sold principally through retail channels; (iii) sound products used in professional concerts, recording projects and radio and television broadcasts; (iv) broadcast communication products, including advanced digital matrix intercoms, used by broadcasters (including all major television networks) to control production communications, intercoms, headsets and wireless communications systems used by professional, college and high school football teams and stadiums and other professional and high school sports teams; and (v) wired and wireless microphones used in the education, sports, broadcast, music and religious markets. 9 Audio and Wireless Technology Audio and Wireless Technology targets six principal product markets including: (i) digital audio duplication products for the religious, education and enterprise markets; (ii) military/aviation communication products for the military and aviation markets; (iii) wireless networking products serving the original equipment manufacturer, wireless internet service provider and medical telemetry markets; (iv) land mobile communication products for the public safety, military and industrial markets; (v) audio and wireless education products for classroom and computer based education markets; and (vi) teleconferencing products for the enterprise, education and government markets. The following tables provide information by business segment for the three month and six month periods ended June 30, 2003 and 2002 (in thousands):
Three months ended Six months ended ---------------------- ---------------------- June 30, June 30, June 30, June 30, 2003 2002 2003 2002 -------- --------- -------- --------- Net sales Professional Audio $ 53,369 $ 53,098 $100,486 $ 101,862 Audio and Wireless Technology 15,467 14,931 29,225 34,066 -------- --------- -------- --------- $ 68,836 $ 68,029 $129,711 $ 135,928 ======== ========= ======== ========= Operating profit (loss) Professional Audio $ 5,909 $ 4,810 $ 8,735 $ 8,105 Audio and Wireless Technology 182 2,906 1,356 6,689 Corporate 1,332 (368) 550 (1,118) -------- --------- -------- --------- $ 7,423 $ 7,348 $ 10,641 $ 13,676 ======== ========= ======== ========= Depreciation expense Professional Audio $ 1,326 $ 1,357 $ 2,631 $ 2,731 Audio and Wireless Technology 182 80 230 191 Corporate 174 234 325 510 -------- --------- -------- --------- $ 1,682 $ 1,671 $ 3,186 $ 3,432 ======== ========= ======== ========= Capital expenditures Professional Audio $ 655 $ 934 $ 1,199 $ 1,555 Audio and Wireless Technology 71 107 224 208 Corporate 566 162 1,151 183 -------- --------- -------- --------- $ 1,292 $ 1,203 $ 2,574 $ 1,946 ======== ========= ======== ========= Total assets Professional Audio $123,964 $ 113,570 Audio and Wireless Technology 37,230 35,480 Corporate 6,749 18,615 -------- --------- $167,943 $ 167,665 ======== =========
Corporate operating expenses include unallocated corporate engineering, selling, general and administrative costs, corporate charges, amortization of other intangibles and restructuring charges. Corporate identifiable assets relate principally to the Company's investment in information systems and corporate facilities, as well as deferred financing costs. The Company's net sales into each of its principal geographic regions were as follows (in thousands):
Three months ended Six months ended ----------------------- --------------------- June 30, June 30, June 30, June 30, 2003 2002 2003 2002 - ----------------------------------- --------- -------- -------- United States $35,234 $ 34,104 $ 66,056 $ 72,222 Europe 19,436 17,916 37,401 33,634 Asia 8,021 10,768 15,448 21,099 Other foreign countries 6,145 5,241 10,806 8,973 ------- -------- -------- -------- $68,836 $ 68,029 $129,711 $135,928 ======= ======== ======== ========
It is not practical for the Company to disclose revenue by product or service grouping for financial reporting purposes as the Company's systems do not reliably compile this information. Long-lived assets of the Company's U.S. and International operations were as follows (in thousands):
June 30, 2003 December 31, 2002 ------------- ----------------- United States $ 45,464 $ 46,505 International 11,316 10,959 -------- -------- $ 56,780 $ 57,464 ======== ========
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as other sections of this report, contains forward-looking statements, including, without limitation, statements relating to our plans, strategies, objectives and expectations, that are based on management's current opinions, beliefs, or expectations as to future results or future events and are made pursuant to the "safe harbor" provisions of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. Any such forward-looking statements involve known and unknown risks and uncertainties and our actual results may differ materially from those forward-looking statements. While made in good faith and with a reasonable basis based on information currently available to management, we cannot assure you that such opinions or expectations will be achieved or accomplished. We do not undertake to update, revise or correct any of the forward-looking information contained in this report. The following factors, in addition to those discussed elsewhere in this report, are representative of those factors that could affect our future results and could cause such results to differ materially from those expressed in such forward-looking statements: (i) the timely development and market acceptance of new products; (ii) the financial resources of competitors and the impact of competitive products and pricing; (iii) changes in general and industry specific economic conditions on a national, regional or international basis; (iv) changes in laws and regulations, including changes in accounting standards; (v) the timing and success of the implementation of changes in our operations to effect cost savings; (vi) opportunities that may be presented to and pursued by us; (vii) our financial resources, including our ability to access external sources of capital; (viii) war; (ix) natural or manmade disasters (including material acts of terrorism or other hostilities which impact our markets) and (x) such risks and uncertainties as are detailed from time to time in our reports and filings with the Securities and Exchange Commission. The following discussion should be read in conjunction with our condensed consolidated financial statements and notes thereto contained elsewhere in this report. In this report, "Company," "we," "our," "us" and "Telex" refer to Telex Communications, Inc. With respect to the descriptions of our business contained in this report, such terms refer to Telex Communications, Inc. and our subsidiaries. OVERVIEW Telex is a leader in the design, manufacture and marketing of sophisticated audio and wireless communications equipment to commercial, professional and industrial customers. Telex provides high value-added communications products designed to meet the specific needs of customers in commercial, professional and industrial markets, and, to a lesser extent, in the retail consumer electronics market. We offer a comprehensive range of products worldwide for professional audio systems as well as for audio and wireless product markets, including wired and wireless microphones, wired and wireless intercom systems, mixing consoles, signal processors, amplifiers, loudspeaker systems, headphones and headsets, digital audio duplication products, antennas, land mobile communication systems and wireless assistive listening systems. 11 Our products are used in airports, theaters, sports arenas, concert halls, cinemas, stadiums, convention centers, television and radio broadcast studios, houses of worship and other venues where music or speech is amplified or transmitted, and by professional entertainers, television and radio on-air talent, airline pilots and the hearing impaired in order to facilitate speech or communications. Telex has two business segments: Professional Audio (formerly known as Professional Sound and Entertainment) and Audio and Wireless Technology. Professional Audio consists of five product lines within the overall professional audio market, including: (i) permanently installed sound systems; (ii) sound products used by professional musicians and sold principally through retail channels; (iii) sound products used in professional concerts, recording projects and radio and television broadcasts; (iv) broadcast communication products, including advanced digital matrix intercoms used by broadcasters (including all major television networks) to control production communications, intercoms, headsets and wireless communications systems used by professional, college and high school football teams and stadiums and other professional and high school sports teams; and (v) wired and wireless microphones used in the education, sports, broadcast, music and religious markets. Audio and Wireless Technology targets six principal product markets including: (i) digital audio duplication products for the religious, education and enterprise markets; (ii) military/aviation communication products for the military and aviation markets; (iii) wireless networking products serving the original equipment manufacturer, wireless internet service provider and medical telemetry markets; (iv) land mobile communication products for the public safety, military and industrial markets; (v) audio and wireless education products for classroom and computer based education markets; and (vi) teleconferencing products for the enterprise, education and government markets. We maintain assets and/or operations in a number of foreign jurisdictions, the most significant of which are Germany, the United Kingdom, Japan, Singapore, and Hong Kong. In addition, we conduct business in local currency in many countries, the most significant of which are Germany, the United Kingdom, Japan, Hong Kong, Singapore, Canada, Australia and France. Exposure to U.S. dollar/Euro and U.S. dollar/British pound exchange rate volatility is mitigated to some extent by our ability to source production needs with existing manufacturing capacity in Germany and Great Britain, and the exposure to the U.S. dollar/Japanese yen exchange rate volatility is to some extent mitigated by sourcing products denominated in yen from Japan or through contractual provisions in sales agreements with certain customers. Nevertheless, we have a direct and continuing exposure to both positive and negative foreign currency movements. We report foreign exchange gains or losses on transactions as part of other (income) expense. Gains and losses on translation of foreign currency denominated balance sheets are classified as currency translation adjustments and are included in "accumulated other comprehensive loss" as part of shareholders' deficit. 12 CRITICAL ACCOUNTING POLICIES There has been no material change in our Critical Accounting Policies as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2002. RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, information regarding certain items in our condensed consolidated statements of operations, in thousands:
Three months ended Six months ended ---------------------------------- ------------------------------------- June 30, June 30, % June 30, June 30, % 2003 2002 Change 2003 2002 Change ----------------------- ------ ------------------------- ------- Net sales: Professional Audio $ 53,369 $ 53,098 0.5% $ 100,486 $ 101,862 -1.4% Audio and Wireless Technology 15,467 14,931 3.6% 29,225 34,066 -14.2% -------- -------- ---- --------- --------- ----- Total net sales 68,836 68,029 1.2% 129,711 135,928 -4.6% -------- -------- ---- --------- --------- ----- Total gross profit 28,593 28,951 54,005 56,158 % of sales 41.5% 42.6% 41.6% 41.3% Operating profit 7,423 7,348 10,641 13,676 (Loss) income before cumulative effect of change in accounting (995) (211) (5,716) 313 Cumulative effect of change in accounting -- -- -- (29,863) -------- -------- --------- --------- Net loss $ (995) $ (211) $ (5,716) $ (29,550) ======== ======== ========= =========
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2003 COMPARED TO THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2002 Net sales. Net sales increased $0.8 million, or 1.2%, from $68.0 million for the three months ended June 30, 2002 to $68.8 million for the three months ended June 30, 2003. Our net sales strengthened in the second quarter of 2003 compared to the second quarter of 2002 as the U.S. professional audio marketplace experienced higher spending and increased concert tour activity. We also experienced higher military and federal government sales activity. Net sales decreased $6.2 million, or 4.6%, from $135.9 million for the six months ended June 30, 2002 to $129.7 million for the six months ended June 30, 2003. Net sales in the Professional Audio segment decreased slightly for the six month comparative periods due to lower electronics and microphone product sales while sales in the Audio and Wireless Technology segment declined significantly due to the discontinuance of sales of computer audio products, which we exited in the second quarter of 2003, and hearing instrument products, which we exited in the first quarter of 2002, and continued sluggishness in the telecommunications and education markets. Our net sales, excluding the impact of discontinued products, increased approximately 1.5% for the three months ended June 30, 2003 and decreased approximately 3.2% for the six months ended June 30, 2003. Net sales in the Professional Audio segment increased $0.3 million, or 0.5%, from $53.1 million for the three months ended June 30, 2002 to $53.4 million for the three months ended June 30, 2003. We generated increased U.S. net sales as the professional audio marketplace rebounded from a slow economic cycle in the first quarter of 2003. Increased capital spending and more concert tour activity in the second quarter of 2003 have resulted in higher net sales. Net sales decreased $1.4 million, or 1.4%, from $101.9 million for the six months ended June 30, 2002 to $100.5 million for the six months ended June 30, 2003. Lower sales of our electronics and microphone product lines were substantially offset by higher speaker product sales. 13 Net sales in the Audio and Wireless Technology segment increased $0.5 million, or 3.6%, from $14.9 million for the three months ended June 30, 2002 to $15.4 million for the three months ended June 30, 2003. The increase was primarily due to the strength of our Talking Book player sales to the Library of Congress. Net sales decreased $4.9 million, or 14.2%, from $34.1 million for the six months ended June 30, 2002 to $29.2 million for the six months ended June 30, 2003. Net sales, excluding sales of computer audio products in both periods and discontinued hearing instruments products in the six months ended June 30, 2002, decreased approximately 9%. The decline in net sales is attributed primarily to lower sales of products to the telecommunications and education markets, in large part due to the continued sluggishness of the economy and to state and local government budget issues. Gross profit. Gross profit decreased $0.4 million, or 1.2%, from $29.0 million for the three months ended June 30, 2002 to $28.6 million for the three months ended June 30, 2003. Gross profit decreased $2.1 million, or 3.8%, from $56.1 million for the six months ended June 30, 2003 to $54.0 million for the six months ended June 30, 2003. Included in the three month period ended June 30, 2003 are impairment charges for inventories and fixed assets, totaling $1.4 million, associated with exiting the computer audio product line. Excluding these charges, as a percentage of net sales, the gross margin rate increased to 43.9% for the three months ended June 30, 2003 compared to 42.6% for the three months ended June 30, 2002, and increased to 42.9% for the six months ended June 30, 2003 from 41.3% for the six months ended June 30, 2002. The increase in the gross margin rate for 2003 from the corresponding periods in 2002 is attributed primarily to improved manufacturing efficiencies and lower operating costs resulting from restructuring measures implemented in 2001 and 2002. The gross margin rate for the Professional Audio segment increased from 41.5% for the three months ended June 30, 2002 to 44.7% for the three months ended June 30, 2003. The gross margin rate increased from 40.2% for the six months ended June 30, 2002 to 43.6% for the six months ended June 30, 2003. The increase in the gross margin rate for 2003 from the corresponding periods in 2002 is attributed primarily to improved manufacturing efficiencies as a result of benefits of restructuring measures implemented in 2001 and 2002 and to increased sales of high-margin products. The gross margin rate for the Audio and Wireless Technology segment decreased from 46.4% for the three months ended June 30, 2002 to 30.5% for the three months ended June 30, 2003. The gross margin rate decreased from 44.6% for the six months ended June 30, 2002 to 35.0% for the six months ended June 30, 2003. The gross margin rate, excluding the impairment charges, was 41.1% and 40.6% for the three month and six month periods ended June 30, 2003, respectively. The decrease in the gross margin rate for 2003 from the corresponding periods in 2002 is attributed primarily to lower sales of high-margin products and to manufacturing inefficiencies. Engineering. Engineering expenses increased $0.5 million, or 16.7%, from $3.1 million for the three months ended June 30, 2002 to $3.6 million for the three months ended June 30, 2003. Engineering expenses increased $1.2 million, or 19.4%, from $6.0 million for the six months ended June 30, 2002 to $7.2 million for the six months ended June 30, 2003. The increase in spending for the three and six month periods in 2003 from the corresponding periods in 2002 is attributed primarily to spending associated with new product development in the Professional Audio segment. 14 Selling, general and administrative. Selling, general and administrative expenses increased $1.6 million, or 9.0%, from $18.4 million for the three months ended June 30, 2002 to $20.0 million for the three months ended June 30, 2003. Selling, general and administrative expenses increased $2.7 million, or 7.6%, from $35.9 million for the six months ended June 30, 2002 to $38.6 million for the six months ended June 30, 2003. Included in the three months ended June 30, 2003 is a charge of $0.1 million for a reserve for bad debts that may be uncollectable as we exit the computer audio product line. Excluding this charge, the increase in expenses in 2003 is attributed mainly to recording an accrual for legal settlements in the second quarter, higher international selling and marketing costs offset by lower general and administrative expenses. International selling, general and administrative expenses increased in the 2003 periods compared to the corresponding 2002 periods mainly from strengthening foreign currencies compared to the U.S. dollar. We implemented cost controls as a result of the slowdown in sales in the first three months of 2003 and the expenses, as a percentage of net sales, have declined in the three months ended June 30, 2003 compared to the three months ended March 31, 2003. We expect these expenses will continue to decline slightly in future periods. Corporate charges. There were no corporate charges in the three month and six month periods ended June 30, 2003. Corporate charges of $0.1 million and $0.5 million were recorded for the three month and six month periods ended June 30, 2002, respectively. The charges represent fees incurred for consulting and management services provided by Greenwich Street Capital Partners, Inc. under a consulting and management services agreement. This agreement expired in May 2002. Amortization of other intangibles. We recorded amortization expense related to identifiable intangible assets having definite lives of approximately $3,000 and $30,000 for the three months ended June 30, 2003 and 2002, respectively and $15,000 and $60,000 for the six months ended June 30, 2003 and 2002, respectively. Pension curtailment gain. We recorded a pension curtailment gain of $2.4 million in the three months ended June 30, 2003 resulting from our decision to freeze future pension plan benefits effective June 30, 2003. This decision by Telex resulted in recognition of previously unrecognized prior service costs in accordance with SFAS No. 88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits" (SFAS 88). Interest expense. Interest expense increased from $6.4 million for the three months ended June 30, 2002 to $7.4 million for the three months ended June 30, 2003. Included in interest expense is $5.3 million and $4.1 million of pay-in-kind interest expense for the three months ended June 30, 2003 and 2002, respectively. Our interest expense increased from $12.5 million for the six months ended June 30, 2002 to $14.4 million for the six months ended June 30, 2003. Included in interest expense is $10.2 million and $7.9 million of pay-in-kind interest expense for the six months ended June 30, 2003 and 2002, respectively. Interest expense increased primarily because of the higher pay-in-kind interest expense that offset the benefits of lower average outstanding indebtedness and lower average interest rates on non pay-in-kind debt. Other income. Other income of $0.1 million for the three months ended June 30, 2003 is principally from the gain on the sale of an idle facility. Other expense of $0.1 million for the three months ended June 30, 2002 is principally from foreign currency losses offset by the profit from the sale of production assets related to shutdown of certain manufacturing facilities. For the six months ended June 30, 2003 other income of $0.2 million is principally from the gain on 15 sale of production assets related to shutdown of certain manufacturing facilities and from amortization of deferred revenue for a patent fee, trademark license fee and non-compete agreement associated with the sale of hearing instrument product lines. Other income of $1.0 million for the six months ended June 30, 2002 is principally from the sale of $2.1 million of assets related to the hearing instrument product lines. Income taxes. Our effective tax rate for the three month and six month periods ended June 30, 2003 and 2002, respectively, is not meaningful because a tax benefit has not been recorded on the pretax loss in the United States. The tax provision recorded relates only to the countries in which we are profitable. Income tax expense increased in 2003 compared to 2002, as foreign subsidiary taxable income in higher tax-rate countries has increased. As of June 30, 2003, we have a reserve of $4.3 million included in income taxes payable for tax liability, penalties, and accrued interest (as of the settlement date) related to a dispute for taxable years 1990 through 1995. We have agreed with the Internal Revenue Service on the final amount of the tax liability to be paid and have been making monthly payments. At June 30, 2003, we have $16.6 million of net operating loss tax benefit carryforwards. The U.S. net operating loss tax benefit carryforward is $13.5 million, of which $0.5 million expires in 2021, $9.0 million expires in 2022 and $4.0 million expires in 2023. We have established a net deferred tax valuation allowance of $14.6 million due to the uncertainty of the realization of future tax benefits. This amount relates primarily to the U.S. deferred tax assets as our realization of the future tax benefits related to the deferred tax asset is dependent on our ability to generate taxable income within the net operating loss carryforward period. We have considered this factor in reaching our conclusion as to the adequacy of the valuation allowance for financial reporting purposes. Cumulative effect of a change in accounting. We recorded a charge of $29.9 million in 2002 related to the impairment of goodwill related to our Professional Audio business segment in accordance with the guidance in SFAS 142. LIQUIDITY AND CAPITAL RESOURCES At June 30, 2003, we had cash and cash equivalents of $3.3 million compared to $3.4 million at December 31, 2002. Our principal source of funds for the six months ended June 30, 2003 consisted of $1.9 million of net cash provided by financing activities. Our principal uses of funds were for operating activities of $0.4 million and $1.7 million for capital expenditures. Our principal source of funds for the six months ended June 30, 2002 was $2.8 million of cash provided by operating activities and $2.2 million generated from the sale of assets from a discontinued product line. Our principal uses of funds for the six months ended June 30, 2002 were for debt retirement of $4.1 million, net of borrowings, and $1.9 million for capital expenditures. Our investing activities consist mainly of capital expenditures to maintain facilities, acquire machines or tooling, update certain manufacturing processes, update information systems and improve efficiency. We anticipate our capital expenditures for 2003 will be approximately $7.0 million. Our ability to make capital expenditures is subject to certain restrictions under our senior secured credit facility, our senior secured notes, and our senior subordinated discount notes. 16 Telex's accounts receivable of $49.8 million as of June 30, 2003 increased $5.2 million from $44.6 million at December 31, 2002. The increase is primarily a result of higher receivables at our U.S. and German operations resulting from higher sales activity in the second quarter of 2003. Our inventories of $50.6 million as of June 30, 2003 increased $2.9 million from $47.7 million at December 31, 2002. Excluding the impact of foreign currencies exchange rate movements, our inventories increased $1.2 million from December 31, 2002. We are working to reduce our investment in inventories and expect inventory levels to decline in the future. Our consolidated indebtedness increased $12.9 million from $175.8 million at December 31, 2002 to $188.7 million at June 30, 2003. The increase is attributed mainly to our senior secured notes and the senior subordinated discount notes for which interest expense accrues as additional indebtedness, and to increases in borrowings under our revolving credit facilities. The senior secured notes accreted by $5.3 million and the senior subordinated discount notes accreted by $4.9 million, adding $10.2 million to our indebtedness since December 31, 2002. The additional indebtedness is payable in cash at maturity, with the senior secured notes subject to an acceleration clause based on our financial performance. Offsetting the additional indebtedness were required loan payments, totaling $6.2 million, made under our term loan facility and other existing loans. We rely mainly on internally generated funds and, to the extent necessary, borrowings under the U.S. revolving credit facility and foreign working capital lines to meet our liquidity needs. Our liquidity needs arise primarily from debt service, working capital needs and capital expenditure requirements. Our current credit facilities include the senior secured credit facility (expiring on April 30, 2004), consisting of the term loan facility of $61.2 million, the revolving credit facility, subject to certain borrowing base limitations, of $25.0 million, and foreign working capital lines (with on demand repayment provisions), subject to certain limitations, of $10.8 million. In certain instances the foreign working capital lines are secured by a lien on foreign real property, leaseholds, accounts receivable and inventory or are guaranteed by another subsidiary. As of June 30, 2003 all of our $61.2 million term loan facility is payable within the next 12 months. In addition we had outstanding borrowings of $14.2 million under the revolving credit facility and outstanding borrowings of $7.1 million under our foreign working capital lines. The net availability under the revolving credit facilities, after deduction for open letters of credit and allowing for borrowing base limitations, was $6.8 million at June 30, 2003. Outstanding balances under substantially all of these credit facilities bear interest at floating rates based upon the interest rate option selected by us; therefore, our financial condition is and will continue to be affected by changes in the prevailing interest rates. The effective interest rate under these credit facilities for the six months ended June 30, 2003 was 6.8%. Pursuant to the term loan facility, we are required to make principal payments under (i) the $50.0 million Tranche A Term Loan Facility ($14.2 million of which was outstanding at June 30, 2003), of $1.1 million and $13.1 million in the remainder of 2003 and 2004, respectively, with a final maturity date of April 30, 2004 and (ii) the $65.0 million Tranche B Term Loan Facility ($47.0 million of which was outstanding at June 30, 2003), of $3.6 million and $43.4 million in the remainder of 2003 and 2004, respectively, with a final maturity date of April 30, 2004. In addition, under the terms of the senior secured credit facility, we are required to make mandatory prepayments from proceeds of the 17 sale of assets and an additional payment in 2003 and 2004 if our operating performance for 2002 and 2003 exceeds certain targets. In the six months ended June 30, 2003, we made an additional payment of $0.5 million related to our 2002 operating performance. In addition to payments on our term loan facility, we are required to make principal payments totaling $0.4 million in the next 12 months pursuant to our other U.S. and foreign debt agreements. We have incurred substantial indebtedness in connection with a series of leveraged transactions and subsequently completed a debt restructuring in November 2001. As a result, debt service obligations represent significant liquidity constraints for us. We were in compliance with all covenants related to all debt agreements at June 30, 2003. As stated previously, our term loan facility, totaling $61.2 million, is payable within the next 12 months. Management is currently assessing various financing alternatives to repay this debt and expects to have new financing in place by the end of 2003. Telex will record a normal pension income of approximately $0.1 million in 2003 primarily due to the benefit of the freezing of future plan benefits. Telex was not required to make an employer contribution to its pension plan in 2002 for the 2001 plan year. We will be making employer contributions to the pension plan of approximately $2.2 million in the next 12 months for the 2002 and 2003 plan years. 18 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to various market risks, including changes in foreign currency exchange rates and interest rates. Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign exchange and interest rates. We have entered into various financial instruments to manage this risk. The counterparties to these transactions are major financial institutions. We do not enter into derivatives or other financial instruments for trading or speculative purposes. EXCHANGE RATE SENSITIVITY ANALYSIS We enter into forward exchange contracts principally to hedge the currency fluctuations in transactions denominated in foreign currencies, thereby limiting our risk that would otherwise result from changes in exchange rates. During the six months ended June 30, 2003, the principal transactions hedged were certain intercompany balances attributed primarily to intercompany sales. Gains and losses on forward exchange contracts and the offsetting losses and gains on the hedged transactions are reflected in the condensed consolidated statements of operations. At June 30, 2003, we had outstanding forward exchange contracts with a notional amount of $5.8 million and a weighted remaining maturity of 84 days. At June 30, 2003, the difference between the fair value of all outstanding contracts, as estimated by the amount required to enter into offsetting contracts with similar remaining maturities based on quoted prices, and the contract amounts was immaterial. A 10 percent fluctuation in exchange rates for these currencies would change the fair value by approximately $0.6 million. However, since these contracts hedge foreign currency denominated transactions, any change in the fair value of the contracts would be about offset by changes in the underlying value of the transaction being hedged. INTEREST RATE AND DEBT SENSITIVITY ANALYSIS For fixed rate debt, interest rate changes affect the fair market value but do not impact our earnings or cash flows. Conversely, for floating rate debt, interest rate changes generally do not affect the fair market value but do impact our future earnings and cash flows, assuming other factors are held constant. At June 30, 2003, we had fixed rate debt of $59.7 million, step-up, pay-in-kind interest debt of $45.3 million (redemption value of $45.9 million at June 30, 2003), and an interest-free loan of $1.0 million. Holding all other variables constant (such as foreign exchange rates and debt levels), a one-percentage point decrease in interest rates would increase the unrealized fair market value of these debts by approximately $2.3 million. At June 30, 2003, we had floating rate debt of $82.5 million. The earnings and cash flow impact for the next twelve months resulting from a one-percentage point increase in interest rates on this debt would be approximately $0.8 million, holding all other variables constant. 19 ITEM 4. CONTROLS AND PROCEDURES An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of Telex's disclosure controls and procedures (as defined in Exchange Act Rules 13a-14(c) and 15d-14(c)) as of June 30, 2003. Based on that evaluation, our management, including the CEO and CFO, concluded that (i) our disclosure controls and procedures were effective as of the end of the period to ensure that the information that we are required to disclose in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms, and that (ii) the information that is required to be reported is accumulated and communicated to management, including our principal executive and financial officers, as appropriate, to allow timely decisions regarding required disclosure. There have been no significant changes in our internal controls or in other factors that could significantly affect Telex's internal controls. 20 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.6 Employment Agreement, dated as of April 14, 2003, between the Company and Raymond V. Malpocher. 10.7 Consulting Agreement, dated as of May 5, 2003, between the Company and Ned Jackson. 31.1 Certification of Telex's Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. 31.2 Certification of Telex's Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. 32.1 Certification of Telex's Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (b) Reports on Form 8-K A Report on Form 8-K, dated April 16, 2003, reporting under Items 5 and 7, was filed on April 17, 2003. 21 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED THEREUNTO DULY AUTHORIZED. TELEX COMMUNICATIONS, INC. Dated: August 1, 2003 By: /s/ Raymond V. Malpocher -------------------------------- ----------------------------- Raymond V. Malpocher President and Chief Executive Officer TELEX COMMUNICATIONS, INC. Dated: August 1, 2003 By: /s/ Gregory W. Richter -------------------------------- ----------------------------- Gregory W. Richter Vice President and Chief Financial Officer 22 TELEX COMMUNICATIONS, INC. FORM 10-Q EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION OF DOCUMENT 10.6 Employment Agreement, dated as of April 14, 2003, between the Company and Raymond V. Malpocher. 10.7 Consulting Agreement, dated as of May 5, 2003, between the Company and Ned Jackson. 31.1 Certification of Telex's Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. 31.2 Certification of Telex's Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as amended. 32.1 Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002. 23 EX-10.6 3 c78632exv10w6.txt EMPLOYMENT AGREEMENT -WITH RAYMOND V. MALPOCHER Exhibit 10.6 EMPLOYMENT AGREEMENT This Employment Agreement ("Agreement") is made and entered into this 14th day of April, 2003 by and between RAYMOND V. MALPOCHER ("Executive") and TELEX COMMUNICATIONS, INC., a Delaware corporation ("Telex" or the "Company"). 1. Employment. For the period set forth in Section 2 below (the Period of Employment), and upon the other terms and conditions set forth in this Agreement Telex hereby employs Executive, and Executive hereby accepts employment with Telex, as Telex's President and Chief Executive Officer. 2. Period of Employment. The Period of Employment shall commence on or about May 1, 2003 and, subject only to the provisions of Sections 9, 10, 11 and 12 below, shall continue for four (4) years. Unless sooner terminated in accordance with Sections 9, 10, 11 and 12, this Agreement shall terminate without notice by either party to the other on the fourth anniversary of the commencement of the Period of Employment, and Executive shall continue his employment with the Company thereafter on an employment-at-will basis. 3. The Position. During the Period of Employment, Executive shall be subject to the direction of the Board of Directors of Telex, and shall have the duties and responsibilities appropriate to the positions held by Executive. 4. Duties. Throughout the Period of Employment, Executive agrees to devote Executive's full time and undivided attention during normal business hours to the business and affairs of Telex and, in particular, to performance of all the duties and responsibilities as President and Chief Executive Officer of Telex, except for reasonable vacations and illness; but nothing in this Agreement shall preclude Executive from devoting reasonable periods required for engaging in charitable and community activities, and managing Executive's personal investments, provided that such activities do not, individually or together, interfere with the regular performance of Executive's duties and responsibilities under this Agreement and do not in any way conflict with Telex's interests. 1 5. Compensation. For all services to be rendered by Executive pursuant to this Agreement during the Period of Employment by Telex: a. Executive shall be paid a base annual salary of $350,000 payable at the same intervals at which the Company's executives are paid, but in no event less frequently than monthly, plus any increase in base salary as determined by the Board of Directors of the Company from time to time; and b. Executive shall participate in the Management Incentive Compensation ("MIC") Plan as approved by the Company's Board of Directors, the terms of which shall be substantially the same as the terms set forth in Schedule A. Payments of amounts earned, including the minimum payment in respect of the 2003 MIC plan (described below), shall be made at the same time as all other payments under the MIC Plan are made. For the period from the commencement of his employment through December 31, 2003, Executive shall participate in the MIC Plan, on a pro rata basis; provided, however, that Executive shall be entitled to a minimum payment pursuant to such plan of $100,000. Executive must be an employee of the Company at year end in order to receive the payment of amounts due pursuant to the MIC Plan. 6. Provisions for Perquisites. During the Period of Employment, Executive shall be entitled to perquisites (including an appropriate office, and secretarial or clerical staff) and fringe benefits accorded generally to senior executive officers of Telex pursuant to its policies, as well as to reimbursement, upon proper accounting and subject to compliance with Telex policies, of reasonable expenses and disbursements incurred by Executive in the course of Executive's duties. In addition, the Company shall permit Executive to and shall reimburse Executive for travel in 'business class' for international flights. 7. Employment Benefits. a. Executive, and, where applicable, Executive's dependents, shall also be entitled to participate in, be covered by and receive benefits under such retirement and health and welfare plans as are generally made available to officers of Telex and their dependents and beneficiaries. Executive, and, where applicable, his spouse and his dependents, shall also be entitled to all payments or other benefits under any such plan subsequent to the Period of Employment as a result of participation in such plan during the Period of Employment, as provided in such plans. b. In addition, Executive shall be entitled to four weeks' vacation per year. Executive may take such vacation at such time so as not to interfere unreasonably with the business of Telex. Executive may carry forward, to the next calendar year, up to one 2 full years' vacation accrual while continuing to accrue vacation at the applicable base salary rate during the current calendar year. c. The Company shall use reasonable efforts to develop a plan pursuant to which Executive can elect to defer a portion of his cash compensation. An election to defer compensation pursuant to such plan will make the Executive a creditor of the Company for the amounts deferred thereunder. d. Nothing in this Agreement shall preclude Telex from amending or terminating any employee benefit plan or practice. 8. Stock Purchase. Executive shall purchase 200,000 units ("Units") at a purchase price of $0.45 per Unit. Each Unit shall consist of one share of unregistered common stock of Telex, par value $.01 per share (the "Common Stock") and one-half of an option ("Option"). An Option is the right, but not the obligation, to purchase a share of Common Stock at a price of $15 per share for a period of five (5) years. The Units will be purchased pursuant to and upon completion of a mutually acceptable restricted stock and option agreements containing terms customary and typical of such agreements, including restrictions on transfer. Executive shall file an IRS Section 83(b) election with respect to such stock purchase within thirty (30) days of such purchase. Executive's purchase of the Units shall be subject to the optional repurchase of such Units, free and clear of all liens, by Telex in the 90 days following any termination of employment (including as a result of Executive's death or Disability) (the date Executive ceases to be employed being the "Termination Date") at a price equal to the original purchase price, pursuant to the following schedule: If Termination Date Occurs: Number of Units Subject to Repurchase On or prior to 2 years after 5/1/03 200,000 On or prior to 3 years after 5/1/03 132,000 On or prior to 4 years after 5/1/03 66,000 Thereafter 0 The call option shall terminate upon a sale of the Company. 3 9. Effect of Death. If Executive dies during the Period of Employment, the legal representative of Executive shall be entitled to (i) the base salary provided for in Section 5a above for the month in which Executive's death shall have occurred plus all accrued and unpaid vacation, at the rate being paid at the time of death, and (ii) an amount equal to any MIC bonus that has been earned based on Telex's receipt of audited financial results, prorated as of the date of death, and payable as and when paid to other eligible MIC Plan participants. The Period of Employment shall be deemed to have ended as of the close of business on the last day of the month in which death shall have occurred but without prejudice to any payments otherwise due in respect of Executive's death. 10. Effect of Disability. a. In the event of the Disability of Executive during the Period of Employment, Executive shall be entitled to (i) all benefits and perquisites earned and accrued hereunder through the effective date of the termination of the Period of Employment, as described below, (ii) an amount equal to the base salary provided for in Section 5a above, at the rate being paid at the time of the commencement of Disability, for the period of such Disability plus six (6) months from the end of the period that establishes such Disability, as described in Section 10c below, and (iii) an amount equal to any MIC bonus that has been earned based on Telex's receipt of audited financial results, prorated through the end of the Period of Employment, and payable as and when paid to other eligible MIC Plan participants . The Period of Employment shall be deemed to have ended as of the last day of the period that establishes Disability. b. The amount of any payments due under Section 10a(i) shall be reduced by any payments to which Executive may be entitled for the same period because of disability under any disability plan or insurance of Telex or as the result of workers' compensation disability payments. c. The term "Disability", as used in this Agreement, shall mean an illness or accident occurring during the Period of Employment, which prevents Executive from performing Executive's duties under this Agreement for a period in excess of 270 days (whether or not consecutive) or 180 consecutive days, as the case may be, in any twelve-month period during the Period of Employment. The Period of Employment shall be deemed to have ended as of the close of business on the last day of such period (either the 270th or 180th day, as the case may be) but without prejudice to any payments due Executive in respect of disability under Section 10a or otherwise due to Executive or Executive's legal representative or beneficiary and without prejudice to Executive's right to continue any medical insurance coverage, subject to the terms of the plan or applicable law. 4 11. Provision of Severance Allowance. a. Telex may terminate the Period of Employment and Executive's employment at any time during the Period of Employment (i) for any reason upon thirty (30) days' notice to Executive and (ii) immediately for Cause, as defined in Section 11c below. If Executive's employment is terminated by Telex for any reason other than for Cause or the death or Disability of Executive, or if Executive's employment is terminated by Executive for Good Reason (as defined herein) during the Period of Employment , Telex shall pay Executive (x) all base salary, benefits and perquisites earned and accrued hereunder through the effective date of his termination of employment, (y) a severance allowance equal to one year's base salary at the rate being paid at the time of termination of Executive's employment, commencing on the first day of the month following the month in which the termination of Executive's employment becomes effective and continuing thereafter for a period of twelve (12) consecutive months in accordance with the regular bi-weekly payroll practices of Telex, and (z) an amount equal to any MIC bonus that has been earned based on Telex's receipt of audited financial results, prorated as of the date of termination, and payable as and when paid to other eligible MIC Plan participants. In the event Executive's employment is terminated by Telex for Cause, Executive shall be entitled only to base salary, benefits and perquisites earned and accrued through the effective date of his termination, and no additional severance, incentive payments or other benefits shall be payable to Executive. b. During the twelve month period following a termination of Executive's employment provided for in Section 11a (but excluding any termination of Executive by Telex for Cause), Executive shall be entitled to: continued coverage under Telex's health, dental and life insurance plans at active employee premium rates, subject to the terms and conditions of such plans as they may be modified from time to time. c. For the purpose of Section 11a above and any other provision of this Agreement, termination of Executive's employment shall be deemed to have been for Cause only: i. if termination of Executive's employment shall have been the result of Executive's commission of or pleading of no-contest to a felony or other crime involving moral turpitude, or Executive's dishonesty, fraud, embezzlement, unethical or illegal act, misappropriation, or breach of fiduciary duty, any of which could materially damage Telex or its reputation; or 5 ii. if termination of Executive's employment results from Executive's refusal to perform the duties appropriate to Executive's position or a material breach by Executive of the provisions of Sections 14, 15 and 16 of this Agreement and Executive has been given written notice by the Board of Directors of the Company with respect to such refusal or such material breach and Executive continues to refuse unreasonably the performance of the duties specified or to materially breach the provisions of Sections 14, 15 and 16 of this Agreement. d. For purposes of Section 11a above and any other provision of this Agreement, a termination of Executive's employment for Good Reason shall mean a termination by Executive within 30 days following: i. the assignment to the Executive of any duties inconsistent in any material respect with Executive's position in Telex, or a significant adverse alteration or material diminution, without the written consent of Executive, in the nature or scope of Executive's rights, authority, responsibilities and duties with Telex; ii. without Executive's prior written consent, a significant reduction by Telex of Executive's base annual salary as provided for in Section 5a(i), other than any such reduction which is part of a general salary reduction or other concessionary arrangement affecting all employees or affecting other senior management employees; or iii. the taking of any action by Telex that would substantially diminish the aggregate value of the benefits provided Executive under Telex's, disability, life insurance, accidental death and dismemberment plans, and any other employee benefit plans in which Executive was participating on the date hereof, other than any such reduction which is (x) required by law, (y) implemented in connection with a general concessionary arrangement affecting all employees or affecting other senior management employees or (z) generally applicable to all beneficiaries of such plans. 12. Termination by Executive other than for Good Reason. Executive may terminate his employment hereunder at any time during the Period of Employment upon sixty (60) days' written notice to Telex, provided however, that if such termination is not for Good Reason (as set forth in Section 11d), Executive shall be paid all base salary, benefits and perquisites earned hereunder through the effective date of his termination of employment, and shall not be entitled to any other payments or benefits. Executive shall not be entitled to receive the severance allowance, incentive payments, or other benefits provided in Sections 11a or b. 6 13. Resignation. If Executive's employment hereunder terminates (except due to his death), Executive agrees to resign effective immediately upon termination of the Period of Employment all positions as an officer or director of Telex, or any of its affiliates. If Executive fails to deliver such resignation, the Board of Directors of Telex may deem Executive to have resigned pursuant to this Section 13 effective upon the termination of his employment. 14. Non-Disclosure. Executive shall not at any time after the date hereof divulge, provide, or make assessable to anyone, other than in connection with the business of Telex, any knowledge or information with respect to confidential or secret processes, inventions, discoveries, improvements, formulae, plans, materials, devises, materials, devices or ideas or other know-how, whether patentable or not, with respect to any confidential or secret aspects of Telex's business (including without limitation customer lists, supplier lists and pricing arrangements with customers or suppliers or any similar lists, arrangements or understandings, marketing plans, sales plans, manufacturing plans, management organization information, data and other information relating to members of the Board of Directors of Telex), operating policies or manuals, business plans, financial records, packaging designs or other financial, commercial, business or technical information relating to Telex or any of its subsidiaries or information designated as confidential or proprietary that Telex or any of its subsidiaries may receive belonging to suppliers, customers or others who do business with Telex or any of its subsidiaries (collectively, "Confidential Information"); provided, however, that Executive may disclose such information (i) at the request of any governmental regulatory authority or in connection with an examination of Executive by any such authority, (ii) pursuant to subpoena or other court process, (iii) when required to do so in accordance with the provisions of any applicable law or regulation, or (iv) if such information has otherwise been made generally available to the public other than by reason of Executive's breach of this Section 14. Upon the expiration of the Period of Employment or upon termination of Executive's employment, Executive or his legal representative shall promptly deliver to Telex all property relating to the business of Telex, including all Confidential Information, and all copies thereof that are in the possession or control of Executive. 7 15. Inventions. Executive shall promptly disclose to Telex all processes, trademarks, inventions, improvements and discoveries related to the business of Telex (collectively, "Developments") conceived or developed by him or with others during the Period of Employment, if such Developments were conceived or developed during business hours or through the use of Telex's resources. All such Developments shall be the sole and exclusive property of Telex. Executive, upon the request of and at Telex's expense, shall assist Telex in obtaining patents thereon and execute all documents and other instruments necessary or proper to obtain letters patent and to vest Telex with full title thereto. 16. Post-Employment Activities a. Covenant Not to Compete. Following termination of Executive's employment by Telex or by Executive for any reason, Executive shall not compete, directly or indirectly, in any area of the continental United States, with the business conducted by Telex or any of its subsidiaries, whether as an employee, director, agent, principal, stockholder or limited partner owning more than 5% of any class of securities or equity of a corporation, association or partnership, or by maintaining any other type of interest in or affiliation with or providing any assistance whatsoever to, any other person, firm, corporation or entity in any business located or doing business within the continental United States which at the time of Executive's affiliation therewith is in direct competition with any facet of the business then being conducted by Telex or any of its subsidiaries, for a one-year period beginning on the date of Executive's departure and terminating on the first anniversary of the date of his departure (the "Non-Compete Period"). b. Non-Solicitation of Employees. During (i) Executive's employment with Telex or any of its subsidiaries or Affiliates and (ii) for a two-year period beginning on the date of Executive's departure and terminating on the second anniversary of the date of his departure, Executive shall not directly or indirectly induce any employee of Telex or any of its subsidiaries to terminate employment with such entity, and shall not directly or indirectly, either individually or as owner, agent, employee, consultant or otherwise, employ or offer employment to any person who is or was employed by Telex or any of its subsidiaries, unless such person shall have ceased to be employed by such entity for a period of at least six months. 8 c. Non-Solicitation of Customers and Suppliers. During (i) Executive's employment with Telex and (ii) the Non-Compete Period, Executive shall not, directly or indirectly, interfere with the business relationship of Telex or any of its subsidiaries, or interfere with, or solicit on behalf of a competing enterprise, any customer or supplier, or prospective customer or supplier, with respect to which Executive has had access to Confidential Information or with which Executive dealt in connection with Executive's duties for Telex, or any of its subsidiaries. d. Non-disparagement. Executive agrees not to make any negative or disparaging remarks or comments about Telex, its subsidiaries or affiliates, or any of the foregoing entities' directors, officers, employees or products. e. Injunctive Relief with Respect to Covenants. Executive acknowledges that irreparable damage would result to Telex if the provisions of Sections 14, 15 and 16a through d were not specifically enforced, and agrees that Telex shall be entitled to any appropriate legal, equitable or other remedy, including injunctive relief, a restraining order or other equitable relief (without the requirement to post bond) with respect to any failure of Executive to comply with the provisions of such sections. f. Severability; Reformation. In the event that one or more of the provisions of this Section 16 shall become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not be affected thereby. In the event any provision of Section 14, 15 or 16a through d is not enforceable in accordance with its terms, such Section shall be reformed to make such Section enforceable in a manner which provides Telex or any of its subsidiaries the maximum rights permitted at law. g. Waiver. Waiver by Telex or any of its subsidiaries of any breach or default by Executive of any of the terms of Sections 14, 15 or 16a through d shall not operate as a waiver of any other breach or default, whether similar to or different from the breach or default waived. No waiver of any provision of Section 14, 15 or 16a through d shall be implied from any course of dealing between Telex or any of its subsidiaries and Executive or from any failure by Telex or any of its subsidiaries to assert its rights hereunder on any occasion or series of occasions. 9 17. Insurance. Telex shall have the right at its own cost and expense to apply for and to secure in its own name, or otherwise, life, health or accident insurance or any or all of them covering Executive, and Executive agrees to submit to usual and customary medical examination and otherwise to cooperate with Telex in connection with the procurement of any such insurance and any claims thereunder. 18. Relocation Expenses. a. In accordance with and subject to the Company's relocation guidelines, Telex shall pay (i) the actual, reasonable expenses incurred by Executive in connection with shipping his household goods from Pennsylvania to Minnesota; (ii) the reasonable out-of-pocket costs of up to two house-hunting trips to Minnesota for two days each for Executive and spouse, (iii) a maximum brokerage fee of 6% in connection with the sale of Executive's current residence in Pennsylvania, and other required filing fees in connection with such sale, and (iv) closing costs for the purchase of a new home in Minnesota by Executive, in the maximum amount of 1% of the costs of such purchase. All of such expenses must be incurred within fifteen (15) months of Executive's commencement of employment with Telex, and are subject to a maximum reimbursement of $100,000. b. If, during the term of this Agreement, Executive's employment with Telex is terminated, or upon Executive's death or Disability during the term of this Agreement, Telex shall reimburse to Executive the actual, reasonable expenses incurred by Executive in connection with shipping his household goods from Minnesota to a location within the continental United States designated by Executive, subject to a maximum reimbursement of $100,000. Telex shall reimburse this return relocation expense provided that all such expenses must be incurred within 180 days of termination of Executive's employment, Executive's death or Disability during the term of this Agreement, regardless of the circumstances under which Executive's employment is terminated, provided, however, that Telex shall not be obligated to reimburse such return relocation expense in the event that Executive's employment is terminated by Telex with Cause (as provided in Section 11c hereof) or by Executive without Good Reason (as provided in Section 12). This provision 18b shall survive the term of the term of this Agreement for a term of three (3) years. 10 19. Notices. All notices, requests and other communications pursuant to this Agreement shall be in writing and shall be deemed to have been given if delivered in person or by courier, the date delivered, and if sent by telegraph, telex, facsimile transmission, the date sent, or if mailed by registered or certified mail, postage prepaid, the date mailed, if sent, delivered or mailed to the parties at the following addresses: If to Executive: Raymond V. Malpocher 441 Silver Leaf Circle Trappe, PA 19426 If to Telex: Telex Communications, Inc. 12000 Portland Avenue South Burnsville, MN 55337 Attn: Chief Financial Officer Any party may, by written notice to the other, change the address to which notices to such party are to be delivered, sent or mailed. 20. No Trust Created. Nothing contained in this Agreement and no action taken pursuant to the provisions of this Agreement shall create or be construed to create a trust fund of any kind. Any funds which may be set aside or provided for in this Agreement shall continue for all purposes to be a part of the general funds of Telex and no person other than Telex shall by virtue of the provisions of this Agreement have any interest in such funds. To the extent that any person acquires a right to receive payments from Telex under this Agreement, such right shall be no greater than the right of any unsecured general creditor of Telex. 21. Successor In Interest. This Agreement and the rights and obligations hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, and shall also bind and inure to the benefit of any successor of Telex by merger or consolidation or any purchaser or assignee of all or substantially all of its assets, but, 11 except to any such successor, purchaser, or assignee of Telex, neither this Agreement nor any rights or benefits hereunder may be assigned by either party hereto. 22. Full Discharge of Company Obligations. The amounts payable to Executive pursuant to Sections 9, 10, 11, and 12 following termination of his employment shall be in full and complete satisfaction of Executive's rights under this Agreement but shall not affect Executive's rights under any other agreement with Telex. Such amounts shall constitute liquidated damages with respect to any and all such rights and claims and, upon Executive's receipt of such amounts, Telex and its directors, officers, agents and employees shall be released and discharged from any and all liability to Executive in connection with this Agreement or otherwise in connection with Executive's employment with Telex and its subsidiaries, including any claims for wrongful termination, defamation, intentional infliction of emotional distress, and any claims under the Federal Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Minnesota Human Rights Act, and Minnesota Statute Section 191.81 (prohibiting age discrimination), and any other state or federal statutes prohibiting discrimination in employment. As a condition to receipt of any amounts under Sections 9, 10, 11 and 12, Executive will be required to sign a General Release of all claims in a form satisfactory to Telex. 23. Dispute Resolution. The parties agree that any controversy or claim arising out of or relating to this Agreement, or any dispute arising out of the interpretation or application of this Agreement, which the parties hereto are unable to resolve, shall be finally resolved and settled exclusively by the courts in the State of Minnesota and in accordance with the substantive laws of the State of Minnesota. The parties severally recognize and consent to the jurisdiction over each of them by the courts of the State of Minnesota, and specifically waive any right to trial by jury that they might have under such laws. 24. Governing Laws. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Minnesota applicable to agreements made and to be performed entirely in Minnesota. 25. Entire Agreement. This Agreement shall constitute the entire agreement between the parties superseding all prior agreements between Telex and Executive, and may not be modified or amended and no waiver shall be effective unless by written document signed by both parties hereto; provided, however, that any increase in base salary, as provided in 12 Section 5 hereof, shall become an amendment to this Agreement when approved by the Board of Directors of Telex and recorded in the approved minutes of such meeting. IN WITNESS WHEREOF, the parties execute this Employment Agreement as of the date first above written. EXECUTIVE: /s/ Raymond V. Malpocher - ------------------------------------ Raymond V. Malpocher TELEX COMMUNICATIONS, INC. By: /s/ Edgar S. Woolard, Jr. -------------------------------- Edgar S. Woolard, Jr. Chairman 13 SCHEDULE A Telex Communications, Inc. Management Incentive Compensation Plan Management Incentive Compensation (the "MIC Plan") o Objective: The MIC Plan is intended to reward key management by motivating them to focus their efforts on achieving results that contribute directly to the achievement of company objectives. o Incentive Compensation Awards: Awards are calculated as a percent of base salary based on achieving certain performance hurdles as defined below. a. Threshold: to be determined annually by Board of Directors b. Target: 100% of objectives equal to 100% of base salary c. Maximum: to be determined annually by Board of Directors o Performance Measurement: to be determined annually by Board of Directors o General Guidelines for MIC Plan o Awards are earned based on Telex's audited financial statements o Awards are pro-rated for results between the specified breakpoints (i.e. target, maximum, upside and threshold) 14 EX-10.7 4 c78632exv10w7.txt CONSULTING AGREEMENT WITH NED JACKSON Exhibit 10.7 CONSULTING AGREEMENT dated as of May 5, 2003 (this "Agreement") between (i) TELEX COMMUNICATIONS, INC., a Delaware corporation (the "Company"), and (ii) Ned Jackson ("Consultant"). Witnesseth: Whereas, the Company desires to receive business advice from time to time from Consultant, and Consultant desires to provide such services to the Company. Now, therefore, the Company and Consultant hereby agree as follows 1. Engagement. The Company hereby engages Consultant as a consultant, and Consultant hereby agrees to provide business advice to the Company from time to time as requested by the Company, all on the terms and subject to the conditions set forth below. 2. Services. Consultant hereby agrees during the term of this Agreement to assist, advise and consult with the management of the Company and its subsidiaries in such manner and on such business matters as may be reasonably requested from time to time by the Company including participation in quarterly business reviews with the CEO to effect a smooth transition. 3. Fee. In consideration of providing services during the term of this Agreement, the Company shall pay to Consultant a monthly fee of $30,000, for a twelve-month period beginning May 5, 2003. 4. Payment of Expenses. The Company will also reimburse Consultant promptly for Consultant's reasonable out-of-pocket expenses incurred by Consultant in accordance with policies approved from time to time by the Company and in connection with the performance of Consultant's duties hereunder. 5. Term. (a) This Agreement shall be in effect beginning May 5, 2003 and shall automatically terminate on April 30, 2004. (b) Upon any termination of this Agreement, any unpaid and unreimbursed expenses that shall have been incurred prior to such termination (whether or not such Expenses shall then have become payable), shall be immediately paid or reimbursed, as the case may be, by the Company. 6. Independent Contractor Status. The parties agree that Consultant shall perform services hereunder as an independent contractor, retaining control over and responsibility for his own operations. Consultant shall not, solely by virtue of this Agreement or the arrangements hereunder, be considered an employee or agent of the Company nor shall he have authority to contract in the name of the Company. 7. Binding Effect: Assignment. This Agreement is not assignable by either party without the prior written consent of the other party, which consent shall be granted in such other party's sole discretion. 8. Non-Disclosure. Consultant shall not at any time after the date hereof divulge, provide, or make accessible to anyone, other than in connection with the business of the Company, any knowledge or information with respect to confidential or secret processes, inventions, discoveries, improvements, formulae, plans, materials, devices, materials, or ideas or other know-how, whether patentable or not, with respect to any confidential or secret aspects of the Company's business (including without limitation customer lists, supplier lists and pricing arrangements with customers or suppliers or any similar lists, arrangements or understandings, marketing plans, sales plans, manufacturing plans, management organization information, data and other information relating to members of the Board of Directors of the Company or its affiliates, or its or their management), operating policies or manuals, business plans, financial records, packaging designs or other financial, commercial, business or technical information relating to the Company or any of its subsidiaries, or information designed as confidential or proprietary that the Company or any of its subsidiaries may receive belonging to suppliers, customers or others who do business with the Company or any of its subsidiaries (collectively, "Confidential Information"); provided, however, that Consultant may disclose such information (i) at the request of any governmental regulatory authority or in connection with an examination of Consultant by any such authority, (ii) pursuant to subpoena or other court process, (iii) when required to do so in accordance with the provisions of any applicable law or regulation, or (iv) if such information has otherwise been made generally available to the public other than by reason of Consultant's breach of this paragraph 8. Upon the expiration of the Agreement, Consultant shall promptly deliver to the Company all property relating to the business of the Company, including all Confidential Information, and all copies thereof that are in the possession or control of Consultant. 9. Inventions. Consultant shall promptly disclose to the Company all processes, trademarks inventions improvements and discoveries related to the business of the Company (collectively, "Developments") conceived or developed by him or with others during the Term of Agreement, if such Developments were conceived or developed during the course of Consultant performing services for the Company or through the use of the Company's resources. All such Developments shall be the sole and exclusive property of the Company. Consultant, upon the request of and at the Company's expense, shall assist the Company in obtaining patents thereon and execute all documents and other instruments necessary or proper to obtain letters patent, including assignments to the Company of any invention, and to vest the Company with full title thereto. 10. Covenant Not to Compete. During Consultant's assignment with the Company or any of its subsidiaries or affiliates, Consultant agrees that he shall not compete, directly or indirectly, with the business conducted by the Company or any of its subsidiaries, whether as an employee, director, agent, principal, consultant, stockholder or limited partner owning more than 5% of any class of securities or equity of a corporation, association or partnership, or by maintaining any other type of interest in or affiliation with or providing any assistance whatsoever to, any other person, firm, corporation or entity which at the time of Consultant's affiliation therewith is in direct competition with any facet of the business then being conducted by the Company or any of its subsidiaries. 11. Governing Law. This Agreement shall be governed in all respects, including validity, interpretation and effect, by the law of the State of Minnesota regardless of the law that might be applied under principles of conflicts of laws. The parties agree that any disputes arising under this Agreement shall be brought before a court of competent jurisdiction sitting in Minnesota. 12. Entire Agreement. This Agreement contains the complete and entire understanding and agreement of each party hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous understandings, conditions and agreements, oral or written, express or implied, in respect of the subject matter hereof. 13. Amendment: Waivers. No amendment, modification, supplement or discharge of this Agreement, and no waiver hereunder, shall be valid or binding unless set forth in writing and duly executed by the party against whom enforcement of the amendment, modification, supplement, discharge or waiver is sought, and acknowledged by the other party. Any such waiver shall constitute a waiver only with respect to the specific matter described in such writing and shall in no way impair the rights of the party granting such waiver in any other respect or at any other time. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies that any party may otherwise have at law or in equity or otherwise. * * * In witness whereof, the parties have duly executed this Agreement as of the date first above written. TELEX COMMUNICATIONS, INC. CONSULTANT: By: /s/ Edgar S. Woolard By: /s/ Ned Jackson ---------------------- --------------- Edgar S. Woolard Ned Jackson Chairman of the Board EX-31.1 5 c78632exv31w1.txt CERTIFICATION OF CEO PURSUANT TO RULE 13A-14(A) Exhibit 31.1 Telex Communications, Inc. June 30, 2003 CEO Certification I, Raymond V. Malpocher, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Telex Communications, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. Intentionally omitted c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the registrant's board of directors: a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 1, 2003 By: /s/ Raymond V. Malpocher ------------------------------------- Raymond V. Malpocher President and Chief Executive Officer EX-31.2 6 c78632exv31w2.txt CERTIFICATION OF CFO PURSUANT TO RULE 13A-14(A) Exhibit 31.2 Telex Communications, Inc. June 30, 2003 CFO Certification I, Gregory W. Richter, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Telex Communications, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; b. Intentionally omitted c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the registrant's board of directors: a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 1, 2003 By: /s/ Gregory W. Richter ----------------------------- Gregory W. Richter Vice President and Chief Financial Officer EX-32.1 7 c78632exv32w1.txt CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350 Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 In connection with the Quarterly Report of Telex Communications, Inc. (the "Company") on Form 10-Q for the quarter ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Periodic Report"), Raymond V. Malpocher, as Chief Executive Officer of the Company, and Gregory W. Richter, as Chief Financial Officer of the Company, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge: (1) The Periodic Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Periodic Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of June 30, 2003. /s/ Raymond V. Malpocher - ------------------------------------------ Raymond V. Malpocher President and Chief Executive Officer Dated: August 1, 2003 /s/ Gregory W. Richter - ------------------------------------------ Gregory W. Richter Vice President and Chief Financial Officer Dated: August 1, 2003 A signed original of this written statement required by Section 906 has been provided to Telex Communications, Inc. and will be retained by Telex Communications, Inc. and furnished to the Securities and Exchange Commission or its staff upon request. This certificate "accompanies" the Form 10-Q to which it relates, is not deemed filed with the SEC and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended (whether made before or after the date of the Form 10-Q, irrespective of any general incorporation language contained in such filing.) -----END PRIVACY-ENHANCED MESSAGE-----