AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
OCTOBER 3, 1997
PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-34853
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
WRIGHT MEDICAL TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3842 62-1532765
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
5677 AIRLINE ROAD
ARLINGTON, TENNESSEE 38002
(901) 867-9971
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-----------------------
THOMAS M. PATTON, ESQ.
VICE PRESIDENT and GENERAL COUNSEL
WRIGHT MEDICAL TECHNOLOGY, INC.
5677 AIRLINE ROAD
ARLINGTON, TENNESSEE 38002
(901) 867-9971
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-----------------------
COPIES TO:
STEPHEN I. GLOVER, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
1001 PENNSYLVANIA AVENUE, N.W.
SUITE 800
WASHINGTON, D.C. 20004
(202) 639-7000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement is declared
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is no
compliance with General Instruction G, check the following box.
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH PROPOSED PROPOSED
CLASS OF MAXIMUM MAXIMUM
SECURITIES TO AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
REGISTERED REGISTERED PRICE PER OFFERING REGISTRATION
UNIT (1) PRICE (1) FEE
11 3/4% Series D $85,000,000 $1,000 $85,000,000 $25,758
Secured Step-Up
Notes due 2000
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
1
PROSPECTUS
WRIGHT MEDICAL TECHNOLOGY, INC.
OFFER TO EXCHANGE
11 3/4% Series D Senior Secured Step-Up Notes Due 2000
($85,000,000 principal amount)
for all of its outstanding
11 3/4% Series C Senior Secured Step-Up Notes Due 2000
($85,000,000 principal amount)
---------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
NOVEMBER 3, 1997, UNLESS EXTENDED (SUCH TIME AND DATE OF EXPIRATION FOR THE
EXCHANGE OFFER, AS THE SAME MAY BE EXTENDED, THE "EXPIRATION DATE" WITH RESPECT
THERETO).
---------------
Wright Medical Technology, Inc., a Delaware corporation (collectively, with its
subsidiaries, the "Company"), hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount
of its 11 3/4% Series D Senior Secured Step-Up Notes due 2000 (the "Registered
Notes") for each $1,000 principal amount of its outstanding 11 3/4% Series C
Senior Secured Step-Up Notes due 2000 (the "Old Notes") properly tendered for
exchange and accepted (the "Exchange Offer"). The Registered Notes, which will
be registered under the Securities Act of 1933, as amended (the "Securities
Act") pursuant to a Registration Statement on Form S-4, filed with the
Securities and Exchange Commission (the "Commission"), and of which this
Prospectus is a part (the "Registration Statement"), will be issued under an
indenture between the Company and State Street Bank and Trust Company, as
Trustee, dated August 7, 1997 (the "Indenture"). The Exchange Offer is being
made pursuant to the terms of the registration rights agreement, dated August 7,
1997 (the "Registration Rights Agreement"), entered into between the Company and
the holders of the Old Notes (the "Holders").
----------------
SEE "RISK FACTORS" COMMENCING ON PAGE 13 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND IN EVALUATING AN INVESTMENT
DECISION REGARDING THE SECURITIES OFFERED HEREBY.
----------------
THESE SECURITIES HAVE NOT BEEN RECOMMENDED, APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is October 3, 1997.
2
This Exchange Offer is being made pursuant to the Registration Rights Agreement.
The obligation of the Company to consummate the Exchange Offer is conditional
upon certain customary conditions which may be waived by the Company. See "The
Exchange Offer - Conditions to the Exchange Offer."
The Registered Notes will bear interest from and including their date of
issuance (the "Exchange Date"). Holders whose Old Notes are accepted for
exchange will have the right to receive interest accrued and unpaid thereon to,
but not including, the date of issuance of the Registered Notes, such interest
to be payable with the first interest payment on the Registered Notes, and will
be deemed to have waived the right to receive interest on the Old Notes accrued
on and after the date of issuance of the Registered Notes. The financial terms
of the Registered Notes and the Old Notes will be identical in all other
respects.
The Registered Notes will bear interest at the same rate and on the same terms
as the Old Notes. This rate is 11 3/4% per annum, increasing to a rate of 12
1/4% per annum on August 7, 1998 in the event that a Sale of the Company (as
defined in the Indenture) has not occurred. Interest on the Registered Notes is
payable semi-annually on July 1 and January 1 (each, an "Interest Payment
Date"), commencing January 1, 1998. See "Description of the Registered Notes -
Principal, Maturity and Interest." The Registered Notes and the Old Notes are
redeemable at the option of the Company, in whole or in part, at the redemption
prices set forth in the Indenture plus accrued and unpaid interest thereon to
the date of redemption. Upon a Change of Control (as hereinafter defined), the
Company is required to offer to repurchase all outstanding Registered Notes and
Old Notes at 101% of the principal amount thereof plus accrued and unpaid
interest thereon to the date of repurchase. See "Description of the Registered
Notes - Repurchase Upon Change of Control."
The Registered Notes will be secured obligations of the Company, and will rank
pari passu in right of payment with all existing and future senior indebtedness,
including any remaining Old Notes, and senior to all senior subordinated and
subordinated indebtedness of the Company. The Registered Notes, and any
remaining Old Notes, will be secured by a first priority security interest in
certain of the fixed assets, intellectual property rights and other intangible
assets of the Company, now in existence or hereafter acquired, other than cash,
cash equivalents, accounts receivable and inventory, by a first priority pledge
of all the Capital Stock (as hereinafter defined) of all current and future
United States subsidiaries of the Company and by the Company's ownership of the
shares of capital stock of all current and future foreign subsidiaries of the
Company that issue share certificates (such security, collectively, the
"Collateral"). See "Description of the Registered Notes - Security."
Based on interpretations by the staff of the Commission set forth in no-action
letters issued to third parties, the Company believes the Registered Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by any holder thereof (other than
broker-dealers, as set forth below, and any such holder that is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Registered Notes are acquired in the ordinary
course of such holder's business and that such holder is not participating, does
not intend to participate and has no arrangement or understanding with any
person to participate, in the distribution of such Registered Notes. Any holder
who tenders in the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the Registered Notes or who is an
affiliate of the Company may not rely upon such interpretations by the staff of
the Commission and, in the absence of an exemption therefrom, must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction, and any such secondary resale
transaction must be covered by an effective registration statement containing
the selling securityholder information required by Item 507 of Regulation S-K
under the Securities Act. Failure to comply with such requirements in such
instance may result in such holder incurring liabilities under the Securities
Act for which the holder is not indemnified by the Company.
Each broker-dealer (other than an affiliate of the Company) that receives
Registered Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Registered Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Registered Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 90 days after the Expiration Date, it will make
this Prospectus (as it may be amended or supplemented) available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company believes that, as of the date of this Prospectus, none of the
registered Holders is an affiliate (as such term is defined in Rule 405 under
the Securities Act) of the Company. Prior to this Exchange Offer, there has been
no public market for the Old Notes.
Holders to whom this Exchange Offer is made have special registration rights
under the Registration Rights Agreement which rights are intended for holders of
unregistered securities. The registration rights of Holders who tender their Old
Notes in the
3
Exchange Offer will terminate upon the exchange of such Old Notes for Registered
Notes. Holders who do not exchange their Old Notes for Registered Notes will not
have any further registration rights under the Registration Rights Agreement
unless such Holder is not permitted by law or policy of the Commission to
participate in the Exchange Offer or is a broker-dealer. See "The Exchange Offer
- - Termination of Certain Rights."
The Company will not receive any proceeds from this offering, but, pursuant to
the Registration Rights Agreement, the Company will bear certain offering
expenses. No underwriter is being utilized in connection with the Exchange
Offer.
The Company does not intend to list the Registered Notes on any national
securities exchange. While there are plans to make a market in the Registered
Notes, there can be no assurance that such a market will commence or continue or
that any active market in the Registered Notes will develop or be maintained. To
the extent that Old Notes are tendered and accepted in the Exchange Offer, a
Holder's ability to sell untendered Old Notes could be adversely affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
This Prospectus contains and incorporates by reference certain statements that
are "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. All statements other than
statements of historical facts included in this Prospectus regarding the
Company's financial position are forward-looking statements. Those statements
include, among other things, the discussions of the Company's business strategy
and expectations concerning the Company's market position, future operations,
margins, profitability, liquidity and capital resources. Investors in the
Registered Notes offered hereby are cautioned that reliance on any
forward-looking statement involves risks and uncertainties, and that although
the Company believes that the assumptions on which the forward-looking
statements contained herein are based are reasonable, any of those assumptions
could prove to be inaccurate, and as a result, the forward-looking statements
based on those assumptions could prove to be incorrect. The uncertainties in
this regard include, but are not limited to, those identified in the risk
factors discussed below. In light of these and other uncertainties, the
inclusion of a forward-looking statement herein should not be regarded as a
representation by the Company that the Company's plans and objectives will be
achieved. All subsequent written and oral forward-looking statements
attributable to the Company, or persons acting on its behalf are expressly
qualified in their entirety by cautionary statements disclosed.
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Exchange Agent. The delivery of this Prospectus does not
under any circumstances imply that there has been no change in the affairs of
the Company or its subsidiaries or that the information set forth herein is
correct as of any date subsequent to the date hereof.
The Registered Notes will be available in book-entry and certificated
form. The Company will issue Registered Notes to a Holder in the same form as
the Old Notes tendered by such Holder unless instructed otherwise in writing.
Upon acceptance for exchange of a Holder's Old Notes in global form, Registered
Notes will be issued in the form of one or more global notes which will be
deposited with, or on behalf of, the Depository (as defined herein) and
registered in the name of Cede & Co., its nominee. Beneficial interests in the
global note representing the Registered Notes will be shown on, and transfers
thereof will be effected through, records maintained by the Depository and its
participants. See "Description of the Registered Notes - Book Entry; Delivery
and Form." Upon acceptance for exchange of a Holder's Old Notes in definitive
form, Registered Notes will be issued in definitive form in the principal amount
of such Old Notes and registered in the name of the registered Holder of such
Old Notes (or in accordance with the "Special Exchange Instructions" in the
Letter of Transmittal) unless the Holder expressly requests in writing that
such newly issued Registered Notes be held in book-entry form at the
Depository. See "Description of the Registered Notes - Certificated
Securities."
4
AVAILABLE INFORMATION
The Company has filed with the Commission the Registration Statement on
Form S-4 under the Securities Act, with respect to the Registered Notes. For
further information with respect to the Company and the Registered Notes,
reference is made to the Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents of any
document filed with, or incorporated by reference in, the Registration Statement
are not necessarily complete, and in each instance reference is made to the copy
of such document filed with, or incorporated by reference in, the Registration
Statement, and each such statement is qualified in all respects by such
reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports and other information with the Commission.
Such information, the Registration Statement, and exhibits thereto, and reports
of the Company can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices located at the
Northeast Regional Office, Seven World Trade Center, Suite 1300, New York, New
York 10048 and the Midwest Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can also
be obtained from the Public Reference Section of the Commission, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other materials that are filed through the Commission's
Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. This Web site
can be accessed at http://www.sec.gov. The reports and other information filed
by the Company also can be inspected at the offices of the National Association
of Securities Dealers, Inc. (the "NASD"), at 1735 K Street, N.W., Washington,
D.C. 20006.
As long as the Company is subject to such reporting and informational
requirements, it will furnish all reports and other information required thereby
to the Commission and, pursuant to the Indenture, will furnish copies of such
reports and other information to the Trustee. If the Company is not subject to
the reporting and informational requirements of the Exchange Act, the Indenture
requires it to provide the Trustee and the holders of Registered Notes and any
remaining Old Notes all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Form 10-Q and 10-K
if the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents hereto filed or to be filed by the Company with the
Commission pursuant to the Exchange Act are incorporated herein by reference and
shall be deemed a part hereof:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "1996 Form 10-K");
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;
(c) The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997 (these latter two forms, the "1997 Forms 10-Q"); and
(d) All other reports filed by the Company pursuant to Section 13(a), 14
or 15(d) of the Exchange Act after this Prospectus and prior to the
termination of the offering of the securities offered hereby.
The 1996 Form 10-K and the 1997 Forms 10-Q have also been delivered to Holders
with this Prospectus and are attached to the Registration Statement as Exhibits
13.1, 13.2 and 13.3. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document that also is
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus. Subject to the foregoing, all information appearing in this
Prospectus is qualified in its entirety by the information appearing in the
documents incorporated herein by reference.
5
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WITH RESPECT TO THE COMPANY
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROSPECTUS IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST TO THOMAS M. PATTON, ESQ., VICE PRESIDENT AND
GENERAL COUNSEL, WRIGHT MEDICAL TECHNOLOGY, INC., 5677 AIRLINE ROAD, ARLINGTON,
TENNESSEE 38002 OR BY TELEPHONE AT (901) 867- 9971. TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY NOVEMBER 25, 1997.
6
PROSPECTUS SUMMARY
The following is a summary only and is qualified in its entirety by, and
should be read in conjunction with, the more detailed financial information and
the consolidated financial statements of the Company and the related notes
thereto appearing elsewhere or incorporated by reference in this Prospectus.
Prospective tenderors should carefully consider the information set forth under
"Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors."
THE COMPANY
Wright Medical Technology, Inc. is a leading designer, manufacturer and
distributor of orthopaedic implant devices and instrumentation for
reconstruction and fixation. The Company manufactures reconstructive devices
which replace impaired skeletal joints such as knees, hips, shoulders, and the
small joints of the elbow, hands and feet with mechanical substitutes. In
addition, the Company also offers correctional aids for spinal deformities,
trauma-induced fractures and sports-related injuries to the knee, shoulder and
extremities. The Company's strategy is to design and develop unique and
innovative products to solve clinical orthopaedic problems while diversifying
its product line beyond the traditional orthopaedic device market. Consistent
with this strategy, the Company recently launched its first biologic product,
OSTEOSET(TM) Bone Graft Substitute, a fully resorbable synthetic material used
in the aid of repairing bone defects, and also received approval in certain
countries for OSTEOSET-T(TM), an antibiotic laced version of the OSTEOSET(TM)
product.
The proportion of Americans over the age of 65 continues to grow. The aging
of the population is significant in that approximately 70% of all joint implants
are for patients over 65 years of age. Osteoarthritis (degenerative joint
disease) affects over 15 million people in the United States and is the primary
indication for orthopaedic implants. Management believes that as the population
ages, the incidence of osteoarthritis and other ailments will increase and, as a
consequence, the demand for orthopaedic implants and new solutions for medical
problems requiring orthopaedic applications should rise. The incidence of
rheumatoid arthritis, another major disease leading to the need for implants,
that currently affects over two million people, may also increase with the aging
of the population. Management believes that another factor affecting growth of
implant use is the increasingly active lifestyle of many older Americans. A more
active lifestyle not only accelerates the joint degeneration process, which
leads to pain and decreased mobility, but also increases the expectations that
people have of their bodies. As a result, the Company believes that the need for
new and innovative orthopaedic solutions will continue to grow.
Approximately 75% of the Company's revenue has been derived in the United
States over the past three years. The Company's principal domestic customers are
clinics and hospitals. The Company markets its products in the United States
through a network of approximately 188 sales personnel, including 47
distributors and 141 commissioned sales representatives, serving every state in
the country. The distributors, who are mostly independent contractors, and the
sales representatives sell the Company's orthopaedic implants at commission
rates that the Company believes are competitive with those paid by other
orthopaedic manufacturers.
The Company's principal foreign markets include France, Japan, Australia,
Belgium and Spain. The Company currently does not conduct any business directly
with foreign governments; such sales are made through the Company's established
distribution network of independent contractors. Management intends to continue
to expand its international distribution and marketing capabilities. The
Company's international marketing and distribution is accomplished primarily
through independent distributors in Japan, South and Central America, Australia,
Europe and Asia and through wholly-owned subsidiaries in France and Canada.
RECENT DEVELOPMENTS
The following events concerning the Company's operations have occurred
since June 30, 1997. On July 11, 1997, Mr. Gregory K. Butler was promoted to the
position of Vice President and Chief Financial Officer of the Company. Mr.
Butler previously served as Vice President and Controller of the Company from
1988 up until his appointment as Vice President and Chief Financial Officer. At
the most recent Board of Directors meeting held on August 11, 1997, the
resignation of two Directors was announced, Mr. Herbert W. Korthoff (formerly
Chairman) and Mr. Eric R. Hamburg. Mr. Kurt L. Kamm was elected Chairman. On
August 11, 1997 the Board of Directors authorized a 1997 contribution of 360,000
shares of Class A Common Stock to the Wright Medical Technology, Inc. Employee
Retirement Stock Plan. This will be a third quarter contribution resulting in
expense of $1,800,000. On August 19, 1997, the Company effected a reduction in
its work force of approximately 58 full-time employees and 18 temporary
employees. These reductions were part of an overall plan to increase
profitability and improve cash flow.
7
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer........................................
The Old Notes were issued by the Company on August 7, 1997 (the
"Closing Date") and exchanged for the Company's 10 3/4% Series B
Senior Secured Notes (the "Series B Notes") pursuant to an exchange
offer and exit consent solicitation (together, the "First Exchange
Offer") by and among the Company and the Holders, all of whom
qualified as "accredited investors," as such term is defined in
Regulation D under the Securities Act, except for one Holder who was a
"qualified institutional buyer," as such term is defined in Rule 144A
under the Securities Act. Pursuant to the First Exchange Offer, the
Company and the Holders entered into the Registration Rights Agreement
which grants the Holders certain registration rights. This Exchange
Offer is intended to satisfy such registration rights. Any Holder who
does not elect to tender in the Exchange Offer will not be entitled to
any further registration rights under the Registration Rights
Agreement with respect to such notes, unless such Holder is not
permitted by law or policy of the SEC to participate in the Exchange
Offer or is a broker-dealer, in which case the Company may be required
to file a shelf registration statement with respect to such Holder's
Old Notes, subject to the satisfaction of certain conditions. As of
the date of this Prospectus, $85,000,000 in aggregate principal amount
of the Old Notes are outstanding, which is the maximum amount
authorized by the Indenture for both Old Notes and Registered Notes
combined and there were approximately 10 Holders of record of Old
Notes. See "The Exchange Offer - Purpose of the Exchange Offer."
The Exchange Offer..............................................................
An exchange of $1,000 principal amount of Registered Notes for each
$1,000 principal amount of outstanding Old Notes properly tendered for
exchange and accepted.
Expiration Date.................................................................
The Exchange Offer will expire at 5:00 p.m., New York City time, on
November 3, 1997, the initial Expiration Date, unless the Exchange
Offer is extended by the Company in its sole discretion, but not
beyond December 1, 1997. See "The Exchange Offer - Procedures for
Tendering Old Notes" and "- Expiration Date; Extensions; Amendments."
Resale..........................................................................
Based on interpretations by the staff of the Commission set forth
in no-action letters issued to third parties, the Company believes the
Registered Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred
by any holder thereof (other than broker-dealers, as set forth below,
and any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities
Act, provided that such Registered Notes are acquired in the ordinary
course of such holder's business and that such holder is not
participating, does not intend to participate and has no arrangement
or understanding with any person to participate, in the distribution
of such Registered Notes. Any holder who tenders in the Exchange Offer
with the intention to participate, or for the purpose of
participating, in a distribution of the Registered Notes or who is an
affiliate of the Company may not rely upon such interpretations by the
staff of the Commission and, in the absence of an exemption therefrom,
must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any secondary resale
transaction, and any such secondary resale transaction must be covered
by an effective registration statement containing the selling
securityholder information required by Item 507 of Regulation S-K
under the Securities Act. Failure to comply with such requirements in
such instance may result in such holder incurring liabilities under
the Securities Act for which the holder is not indemnified by the
Company. Each broker-dealer (other than an affiliate of the Company)
that receives Registered Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Registered Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. The Company
has agreed that, for a period of 90 days after the Expiration Date, it
will make this Prospectus (as it may be amended or supplemented)
available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
8
Conditions To The Exchange Offer................................................
The obligation of the Company to consummate the Exchange Offer is
conditional upon certain customary conditions which may be waived by
the Company. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. "The
Exchange Offer - Conditions to the Exchange Offer."
Procedures For Tendering Old Notes..............................................
Each Holder of Old Notes wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, in accordance
with the instructions contained therein, and mail or otherwise deliver
such Letter of Transmittal, or such facsimile, together with such Old
Notes and any other required documentation to State Street Bank and
Trust Company as Exchange Agent, at the address set forth in the
Letter of Transmittal. By executing the Letter of Transmittal, each
Holder will represent to the Company that, among other things: (i) any
Old Notes tendered are held by such Holder free and clear of all
security interests, liens, restrictions, charges, encumbrances,
conditional sale agreements or other obligations relating to their
sale or transfer, and are not subject to any adverse claim when the
same are accepted by the Company; (ii) the Registered Notes acquired
pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Registered Notes,
whether or not such person is the holder; (iii) neither the holder of
Old Notes nor any such other person is participating, intends to
participate or has an arrangement or understanding with any person to
participate, in the distribution of such Registered Notes; (iv) if the
Holder is a broker-dealer, or is participating in the Exchange Offer
for the purposes of distributing the Registered Notes, he, she or it
must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale
transaction of the Registered Notes acquired by such person and cannot
rely on the position of the staff of the SEC set forth in no-action
letters, (v) neither the Holder nor any such other person is an
"affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or, if such holder is an "affiliate," that such Holder
will comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable; and (vi) such person
acknowledges that the Company is relying on the representations,
warranties and covenants made by such person in acceptance of such Old
Notes tendered. See "The Exchange Offer - Procedures for Tendering Old
Notes."
Special Procedures for Beneficial Owners........................................
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender such Old Notes in the Exchange Offer should
contact such registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. If such beneficial
owner wishes to tender on his or her own behalf, such owner must,
prior to completing and executing the applicable Letter of Transmittal
and delivering his or her Old Notes, either make appropriate
arrangements to register ownership of the Old Notes in such owner's
name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable
time and may not be able to be completed prior to the Expiration Date.
See "The Exchange Offer - Procedures for Tendering Old Notes."
Guaranteed Delivery Procedures..................................................
Holders of Old Notes who wish to tender their Old Notes and whose Old
Notes are not immediately available or who cannot deliver their Old
Notes, the Letter of Transmittal, or any other documentation required
by the Letter of Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Old Notes according to the
guaranteed delivery procedures set forth under "The Exchange Offer -
Guaranteed Delivery Procedures."
Acceptance Of The Old Notes And Delivery Of The Registered Notes..............
Subject to the satisfaction or waiver of the conditions to the
Exchange Offer, the Company will accept for exchange any and all Old
Notes that are properly tendered in the Exchange Offer prior to the
Expiration Date. The Registered Notes issued pursuant to the Exchange
Offer will be delivered promptly following the Expiration Date. See
"The Exchange Offer - Terms of the Exchange Offer." Any Old Notes not
accepted for exchange for any reason will be returned to the tendering
Holder as promptly as practicable after the expiration or termination
of the Exchange Offer. See "The Exchange Offer - Acceptance of Old
Notes for Exchange; Delivery of Registered Notes."
9
Withdrawal And Revocation Rights................................................
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. Tenders may not be
withdrawn at any time after 5:00 p.m., New York City time, on the
Expiration Date, unless the extended Exchange Offer contains new terms
materially adverse to the tendering Holders. See "The Exchange Offer -
Withdrawal of Tenders."
Certain Consequences To Holders Who Do Not Tender In The Exchange Offer.........
Subsequent transfers of the Old Notes will be limited to transactions
which qualify for a valid exemption from the registration requirements
of the Securities Act and the Old Notes will continue to carry a
restrictive legend. In addition, the trading market for unexchanged
Old Notes could become more limited due to the reduction in the
amount of the Old Notes outstanding after the Exchange Offer,
which may adversely affect the market price of such Old Notes.
Appraisal and Dissenters' Rights................................................
Holders of Old Notes do not have any appraisal or dissenters'
rights under the Delaware General Corporation Law or the Indenture in
connection with the Exchange Offer.
Certain Federal Income Tax Consequences.........................................
The exchange of Old Notes for Registered Notes pursuant to the
Exchange Offer will not be a taxable event for United States federal
income tax purposes, and the tax characteristics of the Registered
Notes (e.g., tax basis, holding period, issue price and issue date)
will be the same as those of the Old Notes Exchanged therefor. See
"Certain Federal Income Tax Consequences."
Exchange Agent..................................................................
State Street Bank and Trust Company is serving as the Exchange
Agent. The address and telephone number of the Exchange Agent are set
forth on the back cover page of the Prospectus.
10
SUMMARY TERMS OF THE REGISTERED NOTES
The form and financial terms of the Registered Notes will be identical in
all respects to the form and financial terms of the Old Notes except that the
Registered Notes, unlike the Old Notes, will have been registered under the
Securities Act and, therefore, will not bear the legends restricting the
transfer thereof and (ii) holders of the Registered Notes will not be entitled
to certain rights that Holders of the Old Notes had under the Registration
Rights Agreement prior to the Exchange Offer. Registered Notes will evidence the
same indebtedness as to the Old Notes (which they replace) and will be issued
under, and be entitled to the benefits of, the Indenture governing the Old
Notes. See "Description of the Registered Notes."
Securities Offered..............................................................
$85 million aggregate principal amount of 11 3/4% Series D Senior
Secured Step-Up Notes due 2000. The total amount of Registered Notes
authorized under the Indenture is $85 million.
Maturity........................................................................
July 1, 2000.
Interest Rate...................................................................
11 3/4%, provided that the interest rate will increase to 12 1/4%
on August 7, 1998 if a Sale (as defined in the Indenture), including
a sale of all or substantially all of the assets of the Company or a
transaction whereby an unrelated person acquires a direct or an
indirect majority interest in the voting power of the Company by way
of merger, consolidation or similar transaction, has not occurred. See
"Description of the Registered Notes - Principal, Maturity and
Interest."
Accrued Interest................................................................
The Registered Notes will bear interest from their date of
issuance. Holders of Old Notes that are accepted for exchange will
receive, in cash, interest accrued and unpaid thereon to, but not
including, the date of issuance of the Registered Notes. Such interest
will be paid with the first interest payment of the Registered Notes.
Interest on the Old Notes accepted for exchange will cease to accrue
on the day prior to the issuance of the Registered Notes.
Interest Payment Dates..........................................................
July 1 and January 1, commencing January 1, 1998.
Optional Redemption.............................................................
The Registered Notes will be redeemable at the option of the
Company, in whole or in part, at the redemption prices set forth in
the Indenture plus accrued and unpaid interest thereon to the date of
redemption. See "Description of the Registered Notes - Optional
Redemption."
Change Of Control...............................................................
Upon a Change of Control, the Company is required to offer to
repurchase all outstanding Registered Notes at 101% of the principal
amount thereof plus accrued and unpaid interest thereon to the date of
repurchase. See "Description of the Registered Notes - Repurchase Upon
Change of Control."
Ranking And Security............................................................
The Registered Notes will be senior, secured obligations of the
Company, and will rank pari passu in right of payment with all
existing and future senior indebtedness, including any remaining Old
Notes and borrowings under the revolving credit facility permitted
under the Indenture (currently provided by Sanwa Business Credit
Corporation) (the "Revolving Credit Facility), and senior to all
subordinated indebtedness of the Company. The Registered Notes, and
any remaining Old Notes, will share a first priority security interest
in the Collateral. See "Description of the Registered Notes -
Security." The Registered Notes will be structurally subordinated to
all obligations of the Company's subsidiaries, including any trade
payables. As of June 30, 1997, the aggregate amount of outstanding
obligations of the Company to which the holders of Registered Notes
would be structurally subordinated, including trade payables, was
approximately $21.2 million (excludes the Old Notes payable under the
Indenture of $84.8 million, accrued preferred stock dividends on the
Company's Series A, Series B and Series C Preferred Stock of $20.1
million, borrowings against the Revolving Credit Facility of $15.8
million and accrued interest under the First Indenture of $4.6
million).
Certain Covenants...............................................................
The Indenture limits, among other things: (i) the issuance of
additional debt by the Company or any of its Subsidiaries; (ii) the
issuance of Disqualified Stock by the Company or any preferred stock
by any of its Subsidiaries; (iii) the payment of dividends on, and
redemption of, capital stock of the Company and certain other
restricted payments; (iv) asset sales; (v) consolidations, mergers or
transfers of all or substantially all of the Company's assets; (vi)
transactions with affiliates; and (vii) liens. The Indenture also
requires the Company to maintain a minimum consolidated net worth, as
defined therein, of $17.5 million in 1997 and $20 million in 1998 and
any fiscal year thereafter.
11
Registration Rights.............................................................
The Registered Notes will be registered under the Securities Act
and unlike the Old Notes, will not be subject to certain restrictions
on transfer. See "Description of the Registered Notes." Pursuant to
the Registration Rights Agreement, the Company is obligated to use its
best efforts to have the Registration Statement of which this
Prospectus forms a part declared effective within 120 days after the
issue date of the Old Notes and, under certain circumstances, to file
a shelf registration statement with respect to certain of the Old
Notes. The Company will be obligated to pay liquidated damages to
holders of the Old Notes under certain circumstances if the Company is
not in compliance with its obligations under the Registration Rights
Agreement. See "The Exchange Offer - Purpose of the Exchange Offer"
and "Description of the Registered Notes - Registration Rights;
Liquidated Damages."
Market..........................................................................
There is no public market for the Registered Notes. The Company
does not intend to list the Registered Notes on any securities
exchange or to seek approval for quotation through any automated
quotation system. The Company has been advised by the Dealer Manager
of the First Exchange Offer that it intends to make a market in each
issue of the Registered Notes; however, it is not obligated to do so
and such market-making activities could be terminated at any time.
There can be no assurance that an active trading market for the
Registered Notes will develop. It is not expected that an active
trading market for the Old Notes will develop while they are subject
to restrictions on transfer.
SUMMARY COMBINED FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial data of the
Company for the six months ended June 30, 1996 and 1997, each of the fiscal
years ended December 31, 1994 through 1996 and for the six month period ended
December 31, 1993 as well as selected financial data of the Company's
predecessor for the year ended December 31, 1992 and the six month period ended
June 30, 1993. The selected consolidated financial data for the six month period
ended December 31, 1993 and for each of the years ended December 31, 1994
through 1996 have been derived from the Company's audited consolidated financial
statements. The selected financial data for the six month periods ended June 30,
1997 and 1996 have been derived from unaudited condensed, consolidated financial
statements and, in the opinion of the Company's management, includes all
adjustments (of a normal and recurring nature) which are necessary to present
fairly the data for such periods. The selected financial data for the year ended
December 31, 1992 and the six months ended June 30, 1993 have been derived from
unaudited condensed, consolidated financial statements related to the large
joint and small joint orthopaedic implant business of Dow Corning Corporation
("Dow Corning") and its subsidiary business Dow Corning Wright, the Company's
predecessor (the "Predecessor"). This data should be read in conjunction with,
and is qualified in its entirety by, the consolidated financial statements of
the Company and the related notes thereto, included elsewhere or incorporated by
reference herein. All dollar amounts shown are in thousands.
PREDECESSOR THE COMPANY
------------------------- -----------------------------------------------------------------
Year Ended Jan. 1 to July 1 to Years Ended Six Months Ended
Dec. 31, June 30, Dec. 31, December 31, June 30,
1992 1993 1993 1994 1995 1996 1996 1997
------------------------- -----------------------------------------------------------------
Operating Data:
Net sales.......................... $ 71,598 $ 35,033 $ 43,027 $ 95,763 $ 123,196 $ 121,868 $ 62,137 $ 64,383
Gross profit....................... 45,334 20,141 30,324 52,153 89,474 77,435 42,003 40,859
Operating income (loss)............ 10,414 1,849 1,863 (47,131) 6,303 (3,055) 2,647 (751)
Operating income (loss) per common
share.............................. NA NA (0.41) (6.10) (2.24) (3.90) (1.49) (1.94)
Parent Company Charges............. 2,187 1,133 -- -- -- -- -- --
Net interest expense............... NA NA 4,518 9,209 11,322 11,947 5,913 6,227
Net income (loss).................. 5,101 437 (2,572) (49,380) (6,492) (14,589) (2,998) (7,103)
Ratio of earnings to fixed
charges 1.......................... NA NA NA NA NA NA NA NA
<FN>
(1) Earnings were inadequate to cover fixed charges alone , and fixed charges,
preferred dividends and accretion of preferred stock, in aggregate, during the
presented periods. Certain of the preferred dividends are, at the option of the
Company, payable in kind.
</FN>
12
PREDECESSOR THE COMPANY
------------------------- --------------------------------------------------------------------
Year Ended Jan. 1 to July 1 to Years Ended Six Months Ended
Dec. 31, June 30, Dec. 31, December 31, June 30,
1992 1993 1993 1994 1995 1996 1996 1997
------------------------ ---------------------------------------------------------------------
Balance Sheet Data:
Total assets.................... $ 71,747 $ 72,691 $ 113,497 $ 154,551 $ 174,371 $ 166,326 $ 175,081 $ 163,686
Long-term debt.................. 243 108 84,605 84,983 84,462 84,668 84,634 84,707
Mandatorily Redeemable Series B
Preferred Stock................. NA NA -- 47,658 46,757 59,959 47,762 66,314
Redeemable Convertible Series C
Preferred Stock................. NA NA -- -- 20,548 24,995 22,772 27,218
Stockholders'investment......... -- -- 11,602 (25,502) (25,177) (58,506) (37,111) (76,358)
Parent company investment....... 64,543 68,029 NA NA NA NA NA NA
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the
Registered Notes offered pursuant to the Exchange Offer and has agreed to pay
the expenses of the Exchange Offer. In consideration for issuing the Registered
Notes as contemplated in this Prospectus, the Company will receive, in exchange,
Old Notes equal to the principal amount of such Registered Notes. The Old Notes
surrendered in exchange for the Registered Notes will be retired and canceled.
Accordingly, issuance of the Registered Notes pursuant to the Exchange Offer
will not result in any increase in the outstanding debt of the Company, on a
consolidated basis.
RISK FACTORS
Prospective investors should carefully consider certain factors
relating to an investment in the Registered Notes. See "Cautionary Statement
Regarding Forward-Looking Statements" and "Risk Factors" beginning on page 13.
13
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This document contains forecasts and projections that are or may
be forward-looking statements within the meaning of Section 4 of the Securities
Act and Section 21E of the Exchange Act, and are based on management's current
expectations of the Company's near-term results, derived from current
information available pertaining to the Company. In addition, certain documents
filed with the Commission by the Company, attached hereto as exhibits, and
incorporated herein by reference, are or may constitute forward-looking
statements. The words "believe," "expect," "anticipate," "may," and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements which speak only as of
their dates. Such statements may include, but are not limited to, those
regarding the development of the Company's businesses and products, the markets
for the Company's products, anticipated capital expenditures, regulatory reform
and the effects of the Exchange Offer, and other statements contained or
incorporated by reference herein regarding matters that are not historical
facts. Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed under "Risk
Factors."
RISK FACTORS
Investment in the Registered Notes involves a high degree of risk.
In considering the Exchange Offer, eligible Holders should give careful
consideration to the specific factors set forth below, as well as the other
information set forth in this document and in the Company's 1996 Form 10-K and
1997 Forms 10-Q which are incorporated by reference herein. The considerations
listed below are not intended to represent a complete list of the general or
specific risks that may affect Holders who tender or fail to tender in the
Exchange Offer or that relate to the Company. It should be recognized that other
risks may be significant, now or in the future, and the risks set forth below
may affect tendering or non-tendering Holders to a greater extent than
indicated.
Certain Considerations Related to The Company's Business and Operations
Significant Leverage
The Company is, and will continue to be, highly leveraged. The Company's
leverage poses significant risks to the holders of the Registered Notes. The
Company has incurred substantial indebtedness as a result of its acquisitions
and new product research and development, and upon the issuance of the
Registered Notes will continue to have substantial indebtedness. At June 30,
1997, the Company had total outstanding indebtedness of $100.8 million, and
total redeemable preferred stock of $93.5 million. Earnings were inadequate to
cover fixed charges, preferred dividends and accretion of preferred stock by
approximately $61.7 million, $26.3 million, $35.3 million and $17.8 million, for
the years ended December 31, 1994, December 31, 1995 and December 31, 1996 and
for the six month period ended June 30, 1997, respectively. The Company's high
level of debt will have several important effects on its future operations,
including the following: (i) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of interest on its
indebtedness; (ii) the financial covenants contained in the Revolving Credit
Facility and in the Indenture will require the Company to meet certain financial
tests and other restrictions which substantially limit its ability to borrow
additional funds or to dispose of assets; and (iii) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired. In addition, the Company's ability to meet its debt service
obligations and to reduce its total debt will be dependent upon the Company's
future performance, which will be subject to general economic conditions and to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control. There can be no assurance that the
Company's future performance will not be adversely affected by such economic
conditions and financial, business and other factors.
Uncertainty of Ability to Develop, Manufacture and Market New Products
Some of the Company's products are currently under development or have not
yet been approved by the FDA (or other applicable foreign regulatory bodies).
The Company can give no assurance that any of these products will in fact be
successfully developed, that the necessary FDA or foreign approvals will be
received or that, if developed and approved, a market for these products will
exist. In order for the Company to remain competitive and to retain market
share, it must continually develop new products as well as improve its existing
ones. Accordingly, the Company must devote substantial resources to research and
development. Although the Company intends to devote such resources, there can be
no assurance that the Company will be able to enhance its existing products so
that such products remain competitive or avoid obsolescence, introduce or
acquire new products and maintain or expand its market share, gain market
acceptance of its products or be able to develop or acquire additional products.
Limited market growth or failure of the Company's products to achieve market
acceptance would have a material adverse effect on the business, financial
condition and results of operations of the Company.
14
Expense and Uncertainty of Compliance with Governmental Regulation
The Company's products and manufacturing operations are subject to
regulation by the FDA (or other applicable foreign regulatory bodies), the
Occupational Safety and Health Administration ("OSHA") and the Environmental
Protection Agency ("EPA") and, in some jurisdictions, by similar state and
foreign governmental authorities. The process of obtaining regulatory approval
for the sale and marketing of new products is time-consuming and expensive, and
there can be no assurance that such approvals will be granted or that regulatory
review will not involve delays adversely affecting the marketing and sale of
products. In addition, regulatory approval of products can subsequently be
withdrawn due to failure to comply with regulatory standards or the occurrence
of unforeseen problems following initial marketing. The FDA (and other
applicable foreign regulatory bodies) have the power to ban products
manufactured or distributed by the Company as well as to request the recall,
repair, or replacement of or refund for such products. Failure to obtain the
necessary regulatory approvals for new products and/or revisions of existing
products on a timely basis would likely have a material adverse effect on the
Company.
The Company believes that it is in substantial compliance with FDA, OSHA,
EPA and related state regulatory requirements; however, there can be no
assurance that the Company's belief is correct or that it will remain in such
compliance in the future.
Limitations on Third Party Reimbursement; Price Controls
The cost of medical care is funded, in substantial part, by government
insurance programs, such as Medicare and Medicaid in the United States, and
private and corporate health insurance plans. The Company's success is dependent
upon the ability of the Company's customers, principally hospitals and clinics,
to obtain adequate reimbursement from such third-party payers for purchasing the
Company's products. Third-party payers may deny reimbursement if they determine
that the prescribed device has not received appropriate FDA or other
governmental regulatory clearances, is not used in accordance with
cost-effective treatment methods as determined by the payer, or is experimental,
unnecessary or inappropriate. Third-party payers are increasingly challenging
the prices charged for medical products and services. Also, the trend towards
managed health care in the United States and the concurrent growth of HMOs,
which could control or significantly influence the purchase of health care
services and products, as well as legislative proposals to reform health care,
may all result in lower prices for the Company's products. The cost containment
measures that health care providers are instituting in the face of the
uncertainty about health care reform could have material adverse effects on the
Company's business, financial condition and results of operations.
The advent of managed care, in particular, has resulted in greater
attention to the tradeoff between patient need and product cost, so-called
demand matching, where patients are evaluated as to age, need for mobility and
other parameters and are then matched with an orthopaedic product that is cost
effective in light of such evaluation. One result of demand matching may be a
shift toward less expensive products (such as cemented implants), and any such
shift in product mix could have an impact on the Company's operating results
with respect to knee and, to a lesser extent, hip replacement systems. A further
result of managed care and the related pressure on costs has been the advent of
hospital buying groups, national purchasing contracts and various bidding
procedures imposed by hospitals or buying groups. Such buying groups often enter
into extensive preferred supplier arrangements with one or more manufacturers of
orthopaedic or other medical products in return for price discounts. The extent
to which buying groups are able to obtain compliance by their constituent
organizations with such preferred supplier agreements varies considerably
depending on the particular buying groups and could affect the Company's
operations.
Outside the United States, the success of the Company's products is
dependent, in part, upon the availability of reimbursement and health care
payment systems. These reimbursement and health care payment systems vary
significantly by country, and include both government sponsored health care and
private insurance plans. Several governments (most notably Germany, France and
Japan) have recently attempted to dramatically reshape reimbursement policies
affecting medical devices.
The ability of physicians, hospitals and other users of medical device
products to obtain appropriate reimbursement from governmental and private
third-party payers for procedures in which the Company's products are used is
critical to the success of all medical device manufacturers around the world,
including the Company. Failure by such users of the Company's products to obtain
sufficient reimbursement from third-party payers for procedures in which the
Company's products are used or adverse changes in governmental and private
payers' policies toward reimbursement for such procedures could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Adverse Effect of Proposed Health Care Reform Legislation
Reforms to the Medicare program were recently enacted by Congress and
signed into law by the President and are due to take affect in October 1997.
Material reforms to the Medicare program could have an adverse impact on the
Company. At present, it is uncertain how the changes to the Medicare program
will effect the Company in detail. However, the budgetary resolution agreed upon
by Congress and the President, and enacted by the former, calls for cutting the
growth of the Medicare program by approximately $115 billion over five years.
Further, the new law also expands managed care options, a change which the
Congressional Budget Office estimates will lead a quarter of Medicare
beneficiaries to opt for managed
15
care over their current fee-for-service plans by the year 2002. Although the
Company believes it is in a better position than many others to respond to the
challenges which it will face, there can be no assurance that Medicare, Medicaid
and other health care reform and cost cutting measures taken by the federal and
state governments will not have a material adverse impact on the business of the
Company.
Certain Assumptions about the Market
Management of the Company believes that certain demographic trends,
including the aging of the general population and the increasingly active
lifestyles of older Americans, will continue and that these trends will increase
the need for new and innovative orthopaedic solutions to address joint
degeneration, osteoporosis and other ailments associated with aging. Should
these assumptions prove incorrect, or should non-surgical treatments for these
ailments gain acceptance, or should the trends fail to stimulate demand for the
Company's implant products, results could materially differ from management's
projections.
Significant Competition in the Implant Industry
The markets for the Company's products are highly competitive. The failure
of the Company to meet the prices offered by its competitors, or offer products
which either contain features similar to or more desirable than those products
offered by its competitors or which are perceived as reliable by consumers could
have a material adverse effect on the business, financial condition and results
of operations of the Company. The orthopaedic implant industry is highly
competitive. Several large companies have substantially more resources than the
Company. Competitive factors include service, product design, physician
recognition and price. The Company believes its future operations will depend
upon its ability to be responsive to the needs of its customers and its
continued improvement and development of products. The Company believes the
majority of the market share for the Company's products is held by Biomet, Inc.,
Zimmer Inc. (a subsidiary of the Bristol-Myers Squibb Company), Johnson &
Johnson Professional, Inc. (a subsidiary of Johnson & Johnson), Howmedica, Inc.
(a subsidiary of Pfizer, Inc.), DePuy (a subsidiary of Corange), Smith & Nephew
Orthopedics, Inc. (a subsidiary of Smith & Nephew Ltd.), Osteonics, Inc. (a
subsidiary of Stryker Corporation), Sofamer Danek Group, Inc. and Sulzer
Orthopedics, Inc. (a subsidiary of Sulzermedica).
International Sales and Compliance with Foreign Government Regulation
The Company's international sales revenue represented approximately 25% of
the Company's overall sales for 1996. Management intends to continue to expand
its international distribution and marketing capabilities. A number of risks are
inherent in international transactions. International sales and operations may
be limited or disrupted by the imposition of government controls, export license
requirements, political instability, trade restrictions, changes in tariffs or
difficulties in staffing and managing international operations. Additionally,
the Company's international business, financial condition and results of
operations may be adversely affected by fluctuations in currency exchange rates
as well as increases in duty rates. Further, the Company is required to obtain
various licenses and permits from foreign governments in order to market its
products in foreign markets and, at times, comply with product standards that
differ from those applied in the United States. For instance, the European Union
annually conducts an on-site inspection of the Company's facilities in order to
renew ISO 9001 certification. No assurance can be given that the Company or its
distributors will be granted foreign-required licenses and permits in new
markets or maintain those already obtained in current markets. Foreign
government regulatory and certification authorities may delay or prevent product
introductions, require additional studies or tests prior to product
introduction, require product modifications or recalls, or mandate cessation of
production and marketing of existing products.
Patent Protection
The Company considers certain of its patents to be significant to its
business. There can be no assurance, however, that any patent will provide
adequate protection for the technology or product its covers. In addition, the
process of obtaining and protecting patents, and defending allegations of patent
infringement, can be extremely costly and time-consuming.
Existence of Significant Patent Litigation
Substantial patent litigation among competitors occurs regularly in the
medical device industry. Currently, the Company is a defendant in four patent
infringement suits. Mitek Surgical Products, Inc. ("Mitek"), has alleged in the
Federal District Court for the Northern District of California that the
Company's Anchorlock soft tissue anchor infringes its patent. That court
recently rendered an opinion of non-infringement in favor of the Company but
Mitek has indicated it intends to move for reconsideration of that opinion and
appeal it if necessary. Joint Medical Products, Inc. ("JMP"), has alleged in the
Federal District court for the District of Connecticut that various of the
Company's hip cup prosthesis infringe its patent. That case has been stayed
temporarily while JMP pursues a similar action against others in the industry.
On July 18, 1997, Howmedica, Inc. alleged in the Federal District Court for the
District of New Jersey that certain of the Company's products infringe its
patent related to a type of porous coating. The Company is evaluating that
claim. On August 22, 1997, Osteonics, Inc. has alleged in the Federal District
Court for the District of New Jersey that the Company's Bridge Hip System
infringes its patent. While the Company and its counsel believe it has
meritorious defenses to these actions, there is no assurance that the Company
will be successful, and in the event of adverse decisions, the Company could be
materially affected.
16
Product Liability
Although the Company currently maintains product liability insurance
coverage which it believes to be adequate for the continued operation of its
business, such insurance may become difficult to obtain or unobtainable in the
future on terms acceptable to the Company. In addition, the amount and scope of
current or future coverage may be inadequate to protect the Company in the event
of successful product liability, environmental, or other actions brought against
the Company. Currently, there is substantial product liability litigation
involving silicone gel when used in breast implants. The Company does not
manufacture or sell silicone gel products and the Company is not a party to any
such litigation; however, there can be no assurance that litigation will not
occur in the future involving the Company's silicone elastomer products. Most of
the Company products used to replace the small joints of the hands and the feet
and one of the Company's knee implants utilizes solid silicone elastomers. Due
to the solid form characteristics of these implants and their placement in the
body, as well as their successful use in patients for many years, management
believes that these products should not be subject to the litigation affecting
silicone gel, although there is no assurance that management is correct.
In addition, Dow Corning agreed to indemnify the Company against all
liability for all large joint products manufactured before, and all small joint
products sold before, June 30, 1993, when the Company acquired substantially all
the assets of the large joint orthopaedic implant business of Dow Corning. Dow
Corning has since filed for bankruptcy, notified the Company that it cannot
defend the Company in such matters until it receives direction from the
Bankruptcy Court and filed a plan which did not indicate whether Dow Corning
would affirm or reject the indemnification agreements. Accordingly, there
CONFIDENTIAL can be no assurance that Dow Corning will indemnify the Company on
any claims in the future. Although the Company does not maintain insurance for
claims arising on products sold by Dow Corning, management does not believe the
outcome of any of these matters will have a material adverse effect on the
Company's financial position or results of operations.
Control by Certain Stockholders
As of June 30, 1997, Kidd Kamm Equity Partners, L.P. ("KKEP") beneficially
owned approximately 58.2% of the outstanding Common Stock of the Company, and
approximately 64.6% of the outstanding Series A Preferred Stock of the Company.
Pursuant to the Stockholders' Agreement among the Company, KKEP and the
principal stockholders of the Company, dated June 30, 1993 (the "Principal
Stockholders' Agreement"), at any time, KKEP has the ability to approve certain
fundamental corporate transactions, including the sale of the Company.
Herbert W. Korthoff, the Company's former Chairman and Chief Executive
Officer, beneficially owned, as of June 30, 1997 (including shares owned by his
wife, with respect to which he disclaims beneficial ownership) approximately
19.5% of the outstanding Common Stock (assuming the exercise of the Warrants,
but excluding presently outstanding stock options which are not currently
exercisable) and approximately 21.7% of the outstanding Series A Preferred Stock
of the Company. Pursuant to the Principal Stockholders' Agreement, KKEP and Mr.
Korthoff together have the ability to approve certain fundamental corporate
transactions, including the sale of the Company.
In addition, KKEP and Mr. Korthoff each have the right to nominate three of
the seven members of the Company's Board of Directors pursuant to a letter
agreement between KKEP and Mr. Korthoff.
Limited Operating History; History of Losses
Since its inception in July 1993, the Company's strategy has been to attain
growth aggressively through new product development and acquisition of new
technologies through license agreements, joint ventures and purchases of other
companies in the orthopaedic field. The Company's prospects must be considered
in light of the numerous risks, especially problems and difficulties frequently
encountered in connection with the acquisition of businesses, senior management
integration, government regulation and the competitive environment in which the
Company operates. From its commencement of operations through fiscal 1996, the
Company has incurred operating losses each fiscal year. At June 30, 1997, the
Company had a retained deficit of $129.7 million. In addition, the Company
expects to incur continued product development expenditures for the foreseeable
future. There can be no assurance that the Company will generate profits or that
the Company's existing capital resources and any funds provided by future
operations will be sufficient to fund the Company's needs. Various factors,
including delays in new product development and introductions, new product
introductions by competitors, price competition, delays in regulatory approvals,
delays in the expansion and addition of sales and distribution channels, as well
as the Company's ability to accurately forecast and manage its working capital
requirements could adversely affect the Company's operations and profitability.
Raw Materials
The Company has not experienced a shortage of raw materials and does not
anticipate a shortage in the future. In light of certain business' increasing
reluctance to offer raw materials intended for medical devices because of
product liability concerns, there can be no assurance of continued supply or
that finding an alternative source would not cause a delay in the Company's
manufacturing process.
17
Certain Considerations Related to the Registered Notes or the Exchange Offer
Less Than Full Security for the Registered Notes
After the Exchange Offer, the Registered Notes and any remaining Old Notes
will share a first priority security interest in the Collateral. In the event of
a default on the Registered Notes, or the Old Notes, it is possible that the
proceeds from the sale of the Collateral securing such notes would not be
sufficient to satisfy the Company's obligations under such notes in full. The
amount to be received upon such a sale would be dependent upon numerous factors
including the condition, age and useful life of the Collateral at the time of
such sale, the timing and the manner of the sale, as well as possible
technological obsolescence of certain types of equipment constituting the
Collateral at the time of sale. In addition, except upon and during the
continuance of a Default or Event of Default, as defined in, and under the
Indenture, the Trustee is required to release its lien(s) on any property or
assets proposed to be sold by the Company, further reducing the sufficiency of
the Collateral securing the Registered Notes. See "Description of the Registered
Notes - Security."
Absence of Public Market and Possible Price Volatility
Depending on the amount of Registered Notes outstanding after the Exchange
Offer, the trading market for the Registered Notes may be more limited than the
trading market for the Old Notes prior to the Exchange Offer, which might
adversely affect the liquidity and market price of such Registered Notes. The
Company does not plan to list the Registered Notes on any national securities
exchange or interdealer quotation system sponsored by a national securities
association. Although the Old Notes are not so listed, there is currently a
limited trading market for the Old Notes. The Registered Notes are new
securities for which there is currently no market; however, they, unlike the Old
Notes, will be registered pursuant to the Securities Act. There can be no
assurance that an active trading market for the Registered Notes will develop
or, if such market develops, as to the liquidity or sustainability of any such
market. The market price of the Registered Notes could be subject to significant
fluctuations in response to various factors such as quarterly or cyclical
variations in the Company's financial results, future announcements concerning
the Company or its competitors, and government regulation and developments
affecting the orthopaedic implant industry generally. In addition, the capital
markets in recent years have experienced extreme price and volume fluctuations
that often have been unrelated or disproportionate to the operating performance
of companies. Such fluctuations may adversely affect the market price of the
Registered Notes. See "Description of the Registered Notes.
Repurchase of Registered Notes Upon Change of Control
Upon a Change of Control, the Company is required to offer to repurchase
all outstanding Registered Notes and any remaining Old Notes at 101% of the
principal amount thereof plus accrued and unpaid interest thereon to the date of
repurchase. The source of funds for any such repurchase will be the Company's
available cash or cash generated from operating or other sources, including
borrowings, sales of assets, sales of equity or funds provided by a new
controlling person. However, there can be no assurance that sufficient funds
will be available at the time of any Change of Control to make any required
repurchases. See "Description of the Registered Notes - Repurchase Upon Change
of Control."
Failure to Properly Tender Old Notes
The Registered Notes will be issued in exchange for Old Notes only after
timely receipt by the Exchange Agent of such Old Notes, a properly completed and
duly executed Letter of Transmittal and all other required documentation.
Therefore, Holders of Old Notes desiring to tender such Old Notes in exchange
for Registered Notes should allow sufficient time to ensure timely delivery.
Neither the Exchange Agent nor the Company is under any duty to give
notification of any defects or irregularities with respect to tenders of Old
Notes for exchange. See "The Exchange Offer - Procedures for Tendering Old
Notes."
Certain Considerations Related to Holders Who Do Not Tender in the Exchange
Offer
Liquidity of the Market for Old Notes
The untendered Old Notes will not be registered under the Securities Act.
As a consequence, the Company will prohibit any transfer of such securities, and
has placed a stop transfer order with the Transfer Agent to prohibit any
transfer of such securities unless the transaction qualifies for a valid
exemption from the registration requirements of the Securities Act. The
liquidity of the market for the Old Notes will be adversely affected upon
consummation of the Exchange Offer, which will make the market for untendered
Old Notes even more limited. See "The Exchange Offer - Certain Consequences to
Holders Not Tendering in the Exchange Offer."
18
THE EXCHANGE OFFER
Purpose of the Exchange Offer
The Old Notes were issued pursuant to the First Exchange Offer by the
Company on August 7, 1997 to holders of the Company's Series B Notes who
qualified as "accredited investors" as such term is defined in Regulation D
under the Securities Act as well as one "qualified institutional buyer" as such
term is defined in Rule 144A under the Securities Act pursuant to an Offering
Circular, dated July 9, 1997 (the "Offering Circular"). As described in the
Offering Circular, the Company and the Holders entered into the Registration
Rights Agreement as of August 7, 1997. Pursuant to the Registration Rights
Agreement, the Company agreed to (i) file with the Commission the Registration
Statement under the Securities Act with respect to the Registered Notes on or
prior to 30 days after the Closing Date, (ii) use its reasonable best efforts to
cause such Registration Statement to become effective under the Securities Act
on or prior to 90 days after the Closing Date, (iii) use its reasonable best
efforts to keep the Registration Statement effective until consummation of the
Exchange Offer pursuant to its terms, and (iv) use its reasonable best efforts
to consummate the Exchange Offer not later than 120 days following the Closing
Date unless the Exchange Offer would not be permitted by a policy of the SEC. A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Registration
Statement is intended to satisfy the Company's obligations under the
Registration Rights Agreement. However, if any Holder of Transfer Restricted
Securities (as defined below) shall notify the Company that it is either not
permitted by law or any policy of the Commission to participate in the Exchange
Offer or is a broker-dealer as defined under the Exchange Act, the Company is
required to file with the Commission a shelf registration statement (the "Shelf
Registration Statement") to cover resales of Transfer Restricted Securities by
such holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. "Transfer
Restricted Securities" means each Old Note until (i) the date on which such Old
Note has been exchanged for a Registered Note in the Exchange Offer, (ii) the
date on which such Old Note has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement or (iii)
the date on which such Old Note is distributed to the public pursuant to Rule
144 under the Securities Act.
Upon the consummation of the Exchange Offer, Holders of Old Notes who
exchange such Old Notes for Registered Notes will not have any further
registration rights. Any Holder of Old Notes who does not exchange such Old
Notes for Registered Notes will not have any further registration rights unless
such holder is not permitted by law or any policy of the Commission to
participate in the Exchange Offer. The Old Notes will continue to be subject to
certain restrictions on transfer. Accordingly, the liquidity of the market for
the Old Notes could be adversely affected. In the event that the Company fails
to comply with the registration requirements set forth in the Registration
Rights Agreement, the Company will be required to pay certain liquidated damages
to Holders of the Old Notes. See "Termination of Certain Rights" and
"Description of the Registered Notes - Registration Rights; Liquidated Damages."
Resales of the Registered Notes
With respect to resales of Registered Notes, based on an interpretation by
the staff of the Commission set forth in no- action letters issued to third
parties, the Company believes that a Holder (other than (i) a broker-dealer who
purchases such Registered Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act) who exchanges Old Notes for Registered Notes in the ordinary
course of business and who is not participating, does not intend to participate
and has no arrangement or understanding with any person to participate, in the
distribution of the Registered Notes, will be allowed to resell the Registered
Notes to the public without further registration under the Securities Act and
without delivering to the purchasers of the Registered Notes a prospectus that
satisfies the requirements of Section 10 thereof. However, if any Holder
acquires Registered Notes in the Exchange Offer for the purpose of distributing
or participating in a distribution of the Registered Notes, such Holder cannot
rely on the position of the staff of the Commission enunciated in Exxon Capital
Holdings Corporation (available April 13, 1989) or similar no-action letters or
any similar interpretive letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction, unless an exemption from registration is otherwise
available.
As contemplated by the above no-action letters and the Registration Rights
Agreement, each Holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the Registered Notes are to be
acquired by the Holder and each beneficial owner in the ordinary course of
business, (ii) the Holder and each beneficial owner are not participating, do
not intend to participate and have no arrangement or understanding with any
person to participate, in the distribution of the Registered Notes, (iii)
neither the Holder nor any such other person is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act, and (iii) that if any
person is participating in the Exchange Offer for the purpose of distributing
the Registered Notes or is a broker-dealer acquiring the Registered Notes for
its own account, or is an "affiliate" of the Company, he, she or it cannot rely
on the above no-action letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale of the Registered Notes. See "Representations, Warranties and
Covenants of Holders."
19
Terms of the Exchange Offer
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
in principal amount of Registered Notes for each $1,000 in principal amount of
its outstanding Old Notes, validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. Registered Notes will be
issued only in integral multiples of $1,000 to each tendering Holder whose Old
Notes are accepted in the Exchange Offer. The Company will accept any Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. Old Notes that are not accepted for exchange will be
returned as promptly as practicable after the Expiration Date. Holders may
tender all or a portion of their Old Notes pursuant to the Exchange Offer.
Accrued and unpaid interest on the Old Notes accepted for exchange for the
period to, but not including, the Exchange Date will be paid to the holders of
Registered Notes on the first Interest Payment Date (as defined in "Description
of the Notes -- Principal, Maturity and Interest"). Holders whose Old Notes are
accepted for exchange will be deemed to have waived the right to receive any
payment in respect of interest on the Old Notes accrued on and after the
Exchange Date.
There will be no fixed record date for determining the registered holders
who are eligible to participate in this Exchange Offer and to whom this
Prospectus and the Letter of Transmittal will be mailed initially. As of the
date of this Prospectus, $85 million aggregate principal amount of the Old Notes
were outstanding and there were approximately 10 Holders of record. Only a
Holder of Old Notes (or such holder's legal representative or attorney-in-fact)
as reflected in the records of the Trustee may participate in the Exchange
Offer. The Company believes that, as of the date of this Prospectus, none of
such Holders is an affiliate (as defined in Rule 405 under the Securities Act)
of the Company.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of the State of Delaware or the Indenture in
connection with the Exchange Offer.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. If any tendered Old Notes are not accepted for exchange because
of an invalid tender, or the occurrence of certain other events set forth herein
or otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Holder thereof as promptly as practicable
after the Expiration Date.
Tendering Holders will not be required to pay brokerage commissions or fees
or, subject to the instructions of the Letter of Transmittal, transfer taxes
with respect to the Exchange Offer. The Company will pay all charges and
expenses, other than certain taxes which may be levied in the event of any
transfer of ownership, in connection with the Exchange Offer. See "- Fees and
Expenses" below.
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
November 3, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended, but not beyond
December 1, 1997.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and give notice thereof to the
Trustee, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
The Company expressly reserves the rights in its sole discretion, subject
to applicable law, (i) to delay accepting any Old Notes, (ii) to extend the
Exchange Offer, and if any of the conditions set forth below under "Conditions
of the Exchange Offer" shall not have been satisfied or waived, (iii) to
terminate the Exchange Offer by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, and (iv) to waive any condition
to the Exchange Offer. In addition, the Company reserves the right, in its sole
discretion, to amend the terms of the Exchange Offer in any manner. Any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof to the Trustee and
notification of the Exchange Agent and Dealer Manager thereof. In the case of
any extension, notification will be issued prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date of
the Exchange Offer in a manner reasonably calculated to inform the Holders.
Without limiting the manner in which the Company may choose to make any public
notification or announcement, the Company shall have no obligations to publish,
advertise or otherwise communicate any such notification or announcement other
than as required by law. In the event of any extension of the Exchange Offer,
all Old Notes tendered pursuant to the Exchange Offer and not subsequently
withdrawn, will remain subject to, and Holders will continue to have withdrawal
rights until the expiration of, the Exchange Offer.
If the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such amendments
by means of an Prospectus supplement that will be distributed to the registered
Holders of Old Notes, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
amendment and the manner of disclosure to the registered Holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
20
If, prior to the Expiration Date, the Exchange Offer is amended in a manner
determined by the Company to constitute a change that would be materially
adverse to the Holders, the Exchange Offer will remain open at least ten
business days from the date that the Company first gives notice of such
amendment. The Company does not presently intend to amend the Exchange Offer.
Without limiting the manner in which the Company may choose to inform the
Holders of any delay, extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such action, other than to timely notify the Holders in a manner
consistent with the applicable requirements of the Securities Act.
Interest on the Old Notes
Interest on the Old Notes accepted for exchange will cease to accrue on the
day prior to the Exchange Date. Holders of Old Notes that are accepted for
exchange will receive, in cash, interest accrued and unpaid thereon to, but not
including, the date of issuance of the Registered Notes. Such interest will be
paid with the first interest payment of the Registered Notes. See "Description
of the Registered Notes - Principal, Maturity and Interest."
Procedures for Tendering Old Notes
IN ORDER FOR A TENDERING HOLDER TO BE ASSURED OF PARTICIPATING IN THE
EXCHANGE OFFER, SUCH HOLDER MUST TENDER OLD NOTES IN ACCORDANCE WITH THE
PROCEDURES SET FORTH HEREIN AND IN THE LETTER OF TRANSMITTAL PRIOR TO THE
EXPIRATION DATE. THE LETTER OF TRANSMITTAL AND OLD NOTES MUST BE SENT ONLY TO
THE EXCHANGE AGENT. DO NOT SEND THE LETTER OF TRANSMITTAL OR OLD NOTES TO THE
COMPANY OR THE TRUSTEE UNDER THE INDENTURE.
The tender by a Holder as set forth below and the acceptance thereof by the
Company will constitute a binding agreement between the tendering Holder and the
Company upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal. Except as set forth
below, a Holder who wishes to tender Old Notes for exchange pursuant to the
Exchange Offer must transmit such Old Notes, together with a properly completed
and duly executed Letter of Transmittal, and all other required documentation,
or facsimiles thereof, to the Exchange Agent at the address set forth on the
back cover page of this Prospectus on or prior to 5:00 p.m., New York City time,
on the Expiration Date.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE ELIGIBLE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT THE TENDERING HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY TO THE
EXCHANGE AGENT BEFORE THE EXPIRATION DATE. HOLDERS MAY REQUEST THEIR RESPECTIVE
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE
ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any tender by a Holder that is not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date will constitute an agreement between such
Holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed either the box entitled "Special Exchange Instructions" or the
box entitled "Special Delivery Instructions" on the Letter of Transmittal or
(ii) by an Eligible Institution (as defined below). In the event that a
signature on a Letter of Transmittal or a notice of withdrawal, as the case may
be, is required to be guaranteed, such guarantee must be by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or is otherwise an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (collectively, "Eligible Institutions"). If Old Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must either (i) be endorsed
by the registered Holder, with the signature thereon guaranteed by an Eligible
Institution or (ii) be accompanied by a bond power, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered Holder, with the signature thereon guaranteed by an Eligible
Institution along with the other documents required upon transfer by the Letter
of Transmittal. The term "Holders" as used herein with respect to the Old Notes
means any person in whose name the Old Notes are registered on the books of the
registrar for the Old Notes (currently, the Trustee).
Tenders may be made only in principal amounts of $1,000 and integral
multiples thereof. Subject to the foregoing, Holders may tender less than the
aggregate principal amounts represented by the Old Notes deposited with the
Exchange Agent provided they appropriately indicate this fact in the Letter of
Transmittal accompanying the tendered Old Notes.
21
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole, reasonable discretion, which
determination shall be final and binding. The Company reserves the absolute
right to reject any and all tenders of any particular Old Notes not properly
tendered or to reject any particular Old Notes whose acceptance might, in the
judgment of the Company or its counsel, be unlawful. The Company also reserves
the absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer (including the Letter of Transmittal
and the instructions thereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes for exchange must be cured within such reasonable period of time as
the Company shall determine. The Company will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Old Notes
for exchange but shall not incur any liability for failure to give such
notification. Tenders of the Old Notes will not be deemed to have been made
until such irregularities have been cured or waived.
The Exchange Agent and the Depository (as defined below) have confirmed
that any financial institution that is a participant in the Depository's system
may utilize the Depository's Automated Tender Offer Program to tender Old Notes.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and, unless waived by the Company, proper
evidence satisfactory to the Company of such person's authority to so act must
be submitted.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Old Notes in the Exchange Offer should contact such Holder promptly
and instruct such Holder to tender on such beneficial owner's behalf.
Effect of Tender
Tenders of Old Notes pursuant to the Exchange Offer described herein and in
the Letter of Transmittal will constitute a binding agreement between the
tendering Holder of the Old Notes and Company upon the terms and subject to the
conditions of the Exchange Offer. The acceptance of an Exchange Offer by a
tendering Holder will constitute the agreement by such Holder to deliver good
and marketable title to the tendered Old Notes free and clear of all liens,
charges, claims, encumbrances, interests and restrictions of any kind. Holders
of Old Notes do not have any appraisal or dissenters' rights under the Delaware
General Corporation Law or the Indenture, in connection with the Exchange Offer.
Representations, Warranties and Covenants of Holders
Each person tendering Old Notes in exchange for Registered Notes in the
Exchange Offer will represent, warrant and covenant to the Company that, among
other things: (i) any Old Notes tendered are held by such Holder free and clear
of all security interests, liens, restrictions, charges, encumbrances,
conditional sale agreements or other obligations relating to their sale or
transfer, and are not subject to any adverse claim when the same are accepted by
the Company; (ii) the Registered Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business of the person receiving
such Registered Notes, whether or not such person is the holder; (iii) neither
the holder of Old Notes nor any such other person is participating, intends to
participate or has an arrangement or understanding with any person to
participate, in the distribution of such Registered Notes; (iv) if the Holder is
a broker-dealer, or is participating in the Exchange Offer for the purposes of
distributing the Registered Notes, he, she or it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the Registered Notes acquired
by such person and cannot rely on the position of the staff of the SEC set forth
in no-action letters, (v) neither the Holder nor any such other person is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or, if such holder is an "affiliate," that such Holder will comply with the
registration and prospectus delivery requirements of the Securities Act ; and
(vi) such person acknowledges that the Company is relying on the
representations, warranties and covenants made by such person in acceptance of
such Old Notes tendered. The person tendering Old Notes must also make similar
representations regarding any beneficial owner of the Old Notes being tendered.
As set forth in the Letter of Transmittal, certain additional customary
representations, covenants and warranties also will be required of tendering
Holders of Old Notes.
While the Company has no present plan to acquire any Old Notes that are not
tendered in the Exchange Offer, the Company reserves the right in its sole
discretion to purchase or make offers for any Old Notes that remain outstanding
subsequent to the Expiration Date and, to the extent permitted by applicable
law, purchase Old Notes in the open market, in privately negotiated transactions
or otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
Any Holder whose Old Notes have been mutilated, lost, stolen or destroyed
will be responsible for obtaining replacement securities or for arranging for
indemnification with the Trustee. Holders may contact the Exchange Agent for
assistance with such matters.
22
Acceptance of Old Notes for Exchange; Delivery of Registered Notes
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the Registered Notes promptly after acceptance
of the Old Notes. See "- Conditions to the Exchange Offer." For purposes of the
Exchange Offer, the Company shall be deemed to have accepted properly tendered
Old Notes for exchange when, as and if the Company has given oral or written
notice thereof to all Holders of properly tendered Old Notes. The Exchange Agent
will act as agent for tendering Holders of Old Notes for the purposes of
receiving the Registered Notes from the Company.
In all cases, issuances of Registered Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal, and all other required documents; provided,
however, that the Company reserves the absolute right to waive any defects or
irregularities in the tender or conditions of the Exchange Offer.
Book-Entry Delivery Procedures
The Exchange Agent will establish promptly an account with respect to the
Old Notes at the Depository Trust Company (the "Depository" or "DTC") for
purposes of the Exchange Offer. Any financial institution that is a participant
in the Depository may make a book-entry delivery of Old Notes by causing the
Depository to transfer Old Notes to the Exchange Agent's account. However,
although delivery of Old Notes may be effected through book-entry transfer at
the Depository, a properly completed and executed Letter of Transmittal, and any
other documents required by the Letter of Transmittal, must, in any case, be
transmitted to, and received by, the Exchange Agent at its address set forth
below prior to the Expiration Date. Old Notes will not be deemed surrendered
until the Letter of Transmittal is received by the Exchange Agent. DELIVERY OF A
LETTER OF TRANSMITTAL TO THE DEPOSITORY WILL NOT CONSTITUTE VALID DELIVERY TO
THE EXCHANGE AGENT.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal, or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company
(by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder, the certificate number(s) of such Old
Notes and the principal amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five New
York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal, together with the certificate(s) representing the Old
Notes in proper form for transfer or a book-entry confirmation, as the
case may be, and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or a facsimile thereof),
as well as the certificate(s) representing all tendered Old Notes in
proper form for transfer and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five
New York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time before 5:00 p.m., New York City time, on the Expiration Date.
Tenders of Old Notes may not be withdrawn at any time after 5:00 p.m., New York
City time, on the Expiration Date, unless the applicable Exchange Offer is
extended with changes in the terms of such Exchange Offer that are materially
adverse to the tendering Holder, in which case tenders of Old Notes may be
withdrawn.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes) and (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees, and (iv) if such Old Notes are owned by a new beneficial owner,
evidence satisfactory to the Company that the person withdrawing the tender has
succeeded to the
23
beneficial ownership of the Old Notes). If a beneficial owner of Old Notes
tendered through a custodian wishes to withdraw the Old Notes tendered, such
beneficial owner must contact the custodian and direct the custodian to withdraw
such Old Notes in accordance with the procedures set forth herein. In order to
withdraw such Old Notes the custodian must provide a written notice of
withdrawal (or facsimile thereof) to the Exchange Agent, at its address set
forth on the back cover page of this Prospectus, prior to the Expiration Time,
which notice must contain: (i) the name of the person who tendered the Old
Notes, (ii) a description of the Old Notes to be withdrawn (including the
certificate number or numbers and (ii) if such Old Notes are owned by a new
beneficial owner, evidence satisfactory to the company that the person
withdrawing the tender has succeeded to the beneficial ownership of the Old
Notes. If the Old Notes were tendered by book-entry transfer, the custodian also
must debit the Exchange Agent's account at the Depository through which the
tender was made of all Old Notes to be withdrawn
A PURPORTED NOTICE OF WITHDRAWAL WHICH LACKS ANY OF THE REQUIRED
INFORMATION WILL NOT BE AN EFFECTIVE WITHDRAWAL OF A TENDER PREVIOUSLY MADE.
TENDERS OF OLD SECURITIES MAY NOT BE WITHDRAWN AFTER THE EXPIRATION DATE.
Holders who have tendered in the Exchange Offer will continue to have
withdrawal rights following any extension of such Exchange Offer. Any permitted
withdrawal of tenders of Old Notes may not be rescinded, and any Old Notes so
withdrawn will thereafter be deemed not validly tendered for purposes of the
Exchange Offer and the holder thereof will be deemed to have rejected the
Exchange Offer with respect to the withdrawn Old Notes. However, withdrawn Old
Notes may be re-tendered prior to the Expiration Date, as extended, by following
the procedures for tendering.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, in its sole
discretion, whose determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer, and no Registered Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly retendered.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "The Exchange Offer - Procedures for Tendering
Old Notes" at any time prior to the Expiration Date.
Conditions to the Exchange Offer
Notwithstanding any other provisions of the Exchange Offer or any
extension of such Exchange Offer, the Company will not be required to issue
Registered Notes, and may terminate such Exchange Offer by oral or written
notice to the Exchange Agent and the Holders of the Old Notes, or, at its
option, modify or otherwise amend such Exchange Offer, if any of the following
conditions has not been satisfied, prior to or concurrently with the
consummation of such Exchange Offer:
(a) there shall not have been any action taken or threatened, or any
statute, rule, regulation, judgment, order, stay, decree or injunction
promulgated, enacted, entered, enforced or deemed applicable to the
Exchange Offer, or the exchange of Old Notes pursuant to the Exchange
Offer (the "Exchange"), by or before any court or governmental
regulatory or administrative agency or authority or tribunal, domestic
or foreign, which (i) challenges the making of the Exchange Offer or
the Exchange, or might, directly or indirectly, prohibit, prevent,
restrict or delay consummation of the Exchange Offer or the Exchange,
or might otherwise adversely affect in any material manner the
Exchange Offer or the Exchange or (ii) in the sole judgment of the
Company, could materially adversely affect the business, condition
(financial or otherwise), income, operations, properties, assets,
liabilities or prospects of the Company, taken as a whole, or
materially impair the contemplated benefits of the Exchange Offer to
the Company or might be material to Holders of Old Notes in deciding
whether to accept such Exchange Offer;
(b) there shall not have occurred or be likely to occur (i) any event
affecting the business or financial affairs of the Company that, in
the sole judgment of the Company, would or might prohibit, prevent,
restrict or delay consummation of the Exchange Offer, or the Exchange,
or any event that will or is reasonably likely to materially alter the
contemplated benefits of the Exchange Offer to the Company or might be
material to Holders of Old Notes in deciding whether to accept such
Exchange Offer or (ii) a Change of Control (as defined in the
Indenture) of the Company;
(c) there shall not have occurred (i) any general suspension of or
limitation on trading in securities on the NYSE or in the
over-the-counter market (whether or not mandatory), (ii) any material
adverse change in the price of the Old Notes, (iii) a material
impairment in the general trading market for debt securities, (iv) a
declaration of a banking moratorium or any suspension of payments in
respect of banks by federal or state authorities in the United States
(whether or not mandatory), (v) a commencement of a war, armed
hostilities or other national or international crisis directly or
indirectly relating to the United States, (vi) any limitation (whether
or not mandatory) by any governmental authority on, or other event
having a reasonable likelihood of affecting, the extension of credit
by banks or other lending institutions in the United States or (vii)
any material adverse change in United States securities or financial
markets generally, or in the case of any of the foregoing existing at
the time of the commencement of the Exchange Offer, a material
acceleration or worsening thereof;
(d) the Trustee shall not have objected in any respect to, or taken any
action that could in the sole judgment of the Company adversely affect
the consummation the Exchange Offer, or the Exchange, nor shall any
such person or groups of persons have taken any action that challenges
the validity or effectiveness of the procedures used by the Company in
making the Exchange Offer or the Exchange;
24
(e) any other person or persons whose consent is or may be required in
order to consummate the Exchange Offer including without limitation,
the holders of the Company's Series B and Series C Preferred Stock and
Sanwa under the Revolving Credit Facility, shall not have objected in
any respect to, or taken any action that could in the sole judgment of
the Company adversely affect the consummation of, any of the Exchange
Offer, or the Exchange, nor shall any such person or groups of persons
have taken any action that challenges the validity or effectiveness of
the procedures used by the Company in making the Exchange Offer, or
the Exchange;
(f) any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or
qualification of the Indenture under the Trust Indenture Act of 1939,
as amended. The Company will use its reasonable best efforts to
prevent the issuance of any such order and, if any such order is
issued, to obtain the withdrawal of any such order at the earliest
possible moment; and
(g) there shall occur a change in the current interpretations by the staff
of the Commission which, in the Company's reasonable judgment, might
materially impair the Company's ability to proceed with the Exchange
Offer.
If any of the foregoing conditions are not satisfied, the Company may (i)
terminate the Exchange Offer and return such Old Notes to the Holders who
tendered them; (ii) extend such Exchange Offer and retain all tendered Old Notes
which have not been withdrawn prior thereto until the Expiration Date of such
Exchange Offer. (See "- Withdrawal of Tenders" and "Expiration Date; Extensions;
Amendments"); or (iii) waive the unsatisfied conditions with respect to the
Exchange Offer and accept all Old Notes tendered and not previously withdrawn.
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company, in whole or in part, in its sole discretion. Any
determination made by the Company concerning an event, development or
circumstance described or referred to above shall be conclusive and binding.
Termination of Certain Rights
Holders of the Old Notes to whom this Exchange Offer is made have special
registration rights under the Registration Rights Agreement. The Registration
Rights Agreement provides that certain rights under such agreement shall
terminate upon the occurrence of (i) the filing with the Commission of the
Registration Statement, (ii) the effectiveness under the Securities Act of the
Registration Statement or the Shelf Registration Statement (as hereinafter
defined), (iii) the consummation of the Exchange Offer, (iv) the maintenance of
the Registration Statement continuously effective for a period of not less than
the minimum period required under applicable federal and state securities laws
(provided that in no event shall such Exchange Offer remain open and the
registration statement relating thereto remain continuously effective, in each
case, for less than 30 calendar days) and (v) the delivery by the Company to the
Registrar (currently the Trustee) under the Indenture of Registered Notes in the
same aggregate principal amount of Old Notes tendered by Holders thereof
pursuant to the Exchange Offer. Upon the consummation of the Exchange Offer, any
Holder of Old Notes who exchanges such Old Notes for Registered Notes and any
Holder of Old Notes who does not exchange such Old Notes for Registered Notes
will not have any further rights under the Registration Rights Agreement
(including registration rights), unless such non-exchanging Holder is either not
permitted by law or any policy of the Commission to participate in the Exchange
Offer or is a broker-dealer.
Liquidated Damages
In the event of a failure to have the registration statement for the
Exchange Offer declared effective by no later than November 5, 1997, or upon the
occurrence of any other Registration Default under and as defined in the
Registration Rights Agreement (see "Description of the Registered Notes -
Registration Rights; Liquidated Damages"), the Company is required to pay
liquidated damages to each Holder during the first 90-day period immediately
following the occurrence of such Registration Default in an amount equal to .50%
per annum on the principal amount of Old Notes held by such holder, increasing
by an additional .50% per annum at the beginning of each subsequent 90-day
period up to a maximum of 2.0% per annum; provided that such liquidated damages
will, in each case, cease to accrue (subject to the occurrence of another
Registration Default) on the date on which all Registration Defaults have been
cured. The filing and effectiveness of the Registration Statement of which this
Prospectus is a part and the consummation of the Exchange Offer will eliminate
all rights of the Holders eligible to participate in the Exchange Offer to
receive damages that would have been payable if such actions had not occurred.
See "Description of the Registered Notes - Registration Rights; Liquidated
Damages."
Exchange Agent
The State Street Bank and Trust Company has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent at the address which follows:
25
By Registered or Certified Mail:
The State Street Bank and Trust Company
Two International Place, 4th Floor By Facsimile:
Boston, MA 02110 617-664-5371
Attention: Jacqueline Rivera Confirm by Telephone: Jacqueline Rivera
Corporate Trust Department 617-664-5419
(Wright Medical Technology, Inc. (Originals of all documents
Exchange) submitted by facsimile should
be sent promptly by hand,
overnight courier or registered
or certified mail.)
Fees and Expenses
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, facsimile transmission, telephone or in person by
officers and regular employees of the Company and its affiliates.
The Company retained Jefferies & Company, Inc. as the Dealer Manager in
connection with the First Exchange Offer. The Company will not make any payments
to brokers, dealers or others soliciting acceptance of either the First Exchange
Offer or the Exchange Offer other than the Dealer Manager. The Company also will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The expenses to be incurred in connection with the Exchange Offer and the
First Exchange Offer will be paid by the Company and are estimated in the
aggregate to be approximately $2.8 million. Such expenses include fees and
expenses of the Dealer Manager, Exchange Agent and the Trustee, accounting,
legal fees, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering Holder.
Certain Consequences to Holders Not Tendering in the Exchange Offer
The Registered Notes will be issued in exchange for Old Notes only after
timely receipt by the Exchange Agent of such Old Notes, a properly completed and
duly executed Letter of Transmittal, and all other required documentation.
Participation in the Exchange Offer is voluntary. Holders of the Old Notes are
urged to consult their financial and tax advisors in making their own decisions
on what action to take.
Old Notes that are not tendered or are tendered but not accepted will,
following consummation of the Exchange Offer, continue to be subject to any
existing restrictions upon transfer thereof. The Company will restrict trading
in the securities held by any non-tendering Holder. The Company has, pursuant to
the terms of the Indenture, placed a stop transfer order with the Trustee
prohibiting any transfer of such securities unless the transaction qualifies for
an exemption from the registration requirements of the Securities Act. The
restrictive legends printed on any certificates representing such securities
will remain after consummation of the Exchange Offer.
To the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Notes
could be adversely affected due to the limited amount that remain outstanding
following the Exchange Offer.
Accounting Treatment
The Registered Notes would be recorded at the same carrying value as the
Old Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The costs of the Exchange Offer and the expenses
related to the issuance of the Old Notes and the Registered Notes will be
expensed as debt modification costs.
26
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the
Registered Notes offered hereby. In consideration for issuing the Registered
Notes as contemplated in this Prospectus, the Company will receive in exchange
Old Notes in like principal amount or principal amount at maturity, as the case
may be, the terms and forms of which are identical in all material respects to
the Registered Notes. The Old Notes surrendered in exchange for Registered Notes
will not result in any increase in the indebtedness of the Company.
CAPITALIZATION
The following table sets forth the cash and cash equivalents, total debt
and total capitalization of the Company as of June 30, 1997. The table should be
read in conjunction with the consolidated financial statements of the Company
and the related notes thereto, and other information included elsewhere in the
Prospectus. All dollar amounts shown are in thousands.
As of
June 30,
1997
Cash and cash equivalents......................... $ 1,234
Total debt (including current maturities and
excluding notes and trade payables):
Sanwa Line of Credit.......................... $ 15,775
Series B Senior Secured Notes(1).............. 84,777
Capitalized lease obligations................. 283
--------
Total debt................................ 100,835
Mandatorily Redeemable
Series B Preferred Stock..................... 66,314
Redeemable Convertible
Series C Preferred Stock......................... 27,218
Stockholders' investment.......................... (76,358)
--------
Total capitalization...................... $118,009
<FN>
- ---------------------
(1) Amount shown is net of original unamortized issue discount of $223.
</FN>
27
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for each of the fiscal years ended December 31, 1994 through 1996 and
for the six month period ended December 31, 1993 as well as selected financial
data of the Company's predecessor, for the year ended December 31, 1992 and the
six month period ended June 30, 1993. The selected consolidated financial data
for each of the years ended December 31, 1994 through 1996 have been derived
from the Company's audited consolidated financial statements. The selected
financial data for the six month periods ended June 30, 1997 and 1996 have been
derived from unaudited condensed, consolidated financial statements and, in the
opinion of the Company's management, includes all adjustments (of a normal and
recurring nature) which are necessary to present fairly the data for such
periods. The selected financial data for the year ended December 31, 1992 and
the six months ended June 30, 1993 have been derived from unaudited financial
statements related to the large joint and small joint orthopaedic implant
business of Dow Corning and its subsidiary business Dow Corning Wright, the
Company's Predecessor. This data should be read in conjunction with, and is
qualified in its entirety by, the consolidated financial statements of the
Company and the related notes thereto, included elsewhere or incorporated by
reference herein. All dollar amounts shown are in thousands.
PREDECESSOR THE COMPANY
------------------------- -----------------------------------------------------------------
Year Ended Jan. 1 to July 1 to Years Ended Six Months Ended
Dec. 31, June 30, Dec. 31, December 31, June 30,
1992 1993 1993 1994 1995 1996 1996 1997
------------------------- -----------------------------------------------------------------
Operating Data:
Net sales.......................... $ 71,598 $ 35,033 $ 43,027 $ 95,763 $ 123,196 $ 121,868 $ 62,137 $ 64,383
Gross profit....................... 45,334 20,141 30,324 52,153 89,474 77,435 42,003 40,859
Operating income (loss)............ 10,414 1,849 1,863 (47,131) 6,303 (3,055) 2,647 (751)
Operating income (loss) per common
share.............................. NA NA (0.41) (6.10) (2.24) (3.90) (1.49) (1.94)
Parent Company Charges............. 2,187 1,133 -- -- -- -- -- --
Net interest expense............... NA NA 4,518 9,209 11,322 11,947 5,913 6,227
Net income (loss).................. 5,101 437 (2,572) (49,380) (6,492) (14,589) (2,998) (7,103)
Ratio of earnings to fixed
charges 1.......................... NA NA NA NA NA NA NA NA
<FN>
(1) Earnings were inadequate to cover fixed charges alone , and fixed charges,
preferred dividends and accretion of preferred stock, in aggregate, during the
presented periods. Certain of the preferred dividends are, at the option of the
Company, payable in kind.
</FN>
PREDECESSOR THE COMPANY
------------------------- --------------------------------------------------------------------
Year Ended Jan. 1 to July 1 to Years Ended Six Months Ended
Dec. 31, June 30, Dec. 31, December 31, June 30,
1992 1993 1993 1994 1995 1996 1996 1997
------------------------ ---------------------------------------------------------------------
Balance Sheet Data:
Total assets.................... $ 71,747 $ 72,691 $ 113,497 $ 154,551 $ 174,371 $ 166,326 $ 175,081 $ 163,686
Long-term debt.................. 243 108 84,605 84,983 84,462 84,668 84,634 84,707
Mandatorily Redeemable Series B
Preferred Stock................. NA NA -- 47,658 46,757 59,959 47,762 66,314
Redeemable Convertible Series C
Preferred Stock................. NA NA -- -- 20,548 24,995 22,772 27,218
Stockholders'investment......... -- -- 11,602 (25,502) (25,177) (58,506) (37,111) (76,358)
Parent company investment....... 64,543 68,029 NA NA NA NA NA NA
28
DESCRIPTION OF THE REGISTERED NOTES
General
The Company will issue up to $85,000,000 aggregate principal amount of
Registered Notes under the Indenture between the Company and State Street Bank
and Trust Company, as Trustee. No Registered Notes are currently outstanding.
The terms of the Registered Notes will include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act as in
effect on the date of the Indenture. The holders of Registered Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of certain provisions of the Indenture does not purport to
be complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below.
The Registered Notes will rank senior in right of payment to all senior
subordinated and subordinated Indebtedness (as defined in the Indenture and
repeated herein (below) of the Company. The Registered Notes will rank pari
passu in right of payment with all senior borrowings, including any remaining
Old Notes and borrowings under the Revolving Credit Facility. The Registered
Notes and any remaining Old Notes will be secured by a first priority security
interest in the Collateral. See "Security" below.
The Trustee will act as paying agent and registrar of the Registered Notes.
The Company may change any paying agent and registrar without notice.
Principal, Maturity and Interest
The Registered Notes will consist of an aggregate principal amount of up to
$85,000,000 and will mature on July 1, 2000. Interest on the Registered Notes
will accrue at the rate of 11 3/4% per annum and will be payable semi-annually
on the Interest Payment Dates, commencing on January 1, 1998, to holders of
record on the immediately preceding June 15 and December 15, respectively,
provided that the interest rate will be 12 1/4% on August 7, 1998 if a Sale (as
defined in the Indenture and repeated herein below) has not occurred. Interest
on the Registered Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of original
issuance. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. The Registered Notes will be payable both as to principal
and interest at the office or agency of the Company or, at the option of the
Company, payment of interest may be made by check mailed to the holders of the
Registered Notes at their respective addresses set forth in the register of
holders of Registered Notes or by wire transfer to an account designated by a
holder of the Registered Notes. Until otherwise designated by the Company, the
Company's office or agency will be the office of the Trustee maintained for such
purpose.
"Sale" means (i) the sale, lease or transfer of all or substantially all of
the Company's assets to any Person or group (other than the Principals (as
defined below)) or (ii) the acquisition by any Person or group (as such term is
used in Section 13(d)(3) of the Exchange Act) (other than the Principals and
their Related Parties (as defined below)) of a direct or indirect majority
interest (more than 50%) in the voting power of the Voting Stock (as defined in
the Indenture and repeated herein below) of the Company by way of merger or
consolidation or otherwise.
Security
The Registered Notes and any remaining Old Notes will be secured by a first
priority security interest in the collateral which consists of certain fixed
assets, intellectual property rights and other intangible assets of the Company,
now in existence or hereafter acquired, other than cash, cash equivalents,
accounts receivable and inventory, by a first priority pledge of the Capital
Stock of all current and future United States Subsidiaries and by the Company's
ownership of the shares of capital stock of all current and future foreign
subsidiaries of the Company that issue share certificates. This Collateral
includes two tracts of land owned by the Company, certain leasehold estates as
well as items of equipment located at 5677 and 5640 Airline Road and another
tract owned by the Company and additional equipment at 11576 Memphis-Arlington
Road, both in Arlington, Tennessee in addition to items of equipment located at
4919 Warrensville Center Road in Cleveland, Ohio. The Collateral also includes a
number of patents and trademarks registered to the Company or whose application
is currently pending and which relate to the Company's of business.
29
The Company has entered into a security agreement, a stock pledge agreement
and certain other collateral assignment agreements (collectively, the
"Collateral Agreements") providing for the grant of a security interest in or
pledge of the Collateral (including certain fixed assets, intellectual property
rights, Capital Stock of all current and future United States Subsidiaries, fee
or leasehold interests in real property and other intangible assets of the
Company but excluding cash, cash equivalents, accounts receivable and
inventory), now in existence or hereafter acquired, by the Company to State
Street Bank and Trust Company, N.A., as collateral agent (in such capacity, the
"Collateral Agent"), for the benefit of the holders of the Registered Notes,
such security to be shared with any remaining Holders of Old Notes. The
Collateral Agreements prohibit the creation of indirect Subsidiaries of the
Company. Such pledges and security interests secure the payment and performance
when due of all of the Obligations of the Company under the Indenture, the
Registered Notes and any remaining Old Notes, as provided in the Collateral
Agreements.
The Collateral Agreements will grant certain blanket-type Liens to the
Collateral Agent against the non-real property fixed assets of the Company which
are intended to secure the Obligations of the Company under the Indenture and
the Registered Notes, as well as any remaining Old Notes. The Company has,
subject to the restriction on incurring Indebtedness, and Liens set forth
herein, the right to grant (and suffer to exist) Purchase Money Liens against
non-real property fixed assets of the Company and has the right to acquire any
such assets subject to Purchase Money Liens (and suffer to exist such Liens).
The Collateral Agent's blanket Liens are intended to be, and shall be, at all
times automatically subordinate in priority to all such Purchase Money Liens.
The Company is not required to grant a second priority Lien in any such asset to
the Collateral Agent (and no such second priority Lien shall exist in favor of
the Collateral Agent other than by virtue of the fact that first priority
Purchase Money Liens may be granted after the Collateral Agent's blanket Liens
are in effect). Under certain circumstances, upon written notice by the Company,
the Collateral Agent will release its blanket Liens on such assets or execute
any reasonable subordination of lien documentation with respect thereof. If any
such asset shall at any time remain free from any Purchase Money Lien for a
period of time greater than six (6) months, the Company shall promptly grant the
Collateral Agent a first priority Lien (and any confirmatory Lien) with respect
to such asset to secure the Obligations of the Company under the Registered
Notes and the Indenture, except (x) if such asset is a Minor Asset (as defined),
(y) to the extent not permitted by restrictions on the encumbering of such
non-real property fixed asset (which restrictions are permitted by the terms of
the Indenture) or (z) with respect to fixtures located in real property leased
by the Company under operating leases. Subject to certain exceptions, the
Company shall not be required to grant or perfect any individual (non-blanket)
Lien with respect to any asset of the Company with a market value of $50,000 or
less (a "Minor Asset").
The Collateral Agreements grant the holders of the Registered Notes, and
any remaining Holders of the Old Notes, with respect to real property assets and
interests (including fixtures) of the Company ("Real Property Assets"), a first
priority Lien in all fee real property and certain leasehold interests owned or
leased by the Company as of the date of the Indenture, provided that, with
respect to leasehold interests, such grants are limited to the extent such
leasehold interests may be encumbered pursuant to the terms of their respective
underlying leases. If any Real Property Assets are not mortgageable, the Company
is required to use reasonable efforts with third parties to render such assets
mortgageable. Subject to the restrictions on incurring indebtedness and Liens
set forth herein, with respect to Real Property Assets acquired (including by
way of merger or consolidation) after the date of the Indenture, the Company
shall have the right to grant (and suffer to exist) Purchase Money Liens against
such assets and have the right to acquire any such assets subject to Purchase
Money Liens (and suffer to exist such liens); the Collateral Agent will not be
entitled to a second priority Lien thereon. If any such Real Property Asset
shall at any time remain free from any Purchase Money Lien for a period of time
greater than six (6) months, the Company shall promptly grant the Collateral
Agent a shared first priority Lien with respect to such asset to secure the
Obligations under the Indenture, as well as any remaining Obligations under the
Indenture, except (x) if such asset is a Minor Asset, (y) if such asset is an
interest in real property, the encumbrance of which is prohibited by the
agreement, document or instrument governing such interest in real property, or
(z) with respect to fixtures located on real property leased by the Company
under operating leases.
Notwithstanding anything herein to the contrary, the Company shall not
encumber any asset or property of the Company or suffer to exist any Lien
thereon, other than as expressly permitted herein.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture and the Collateral
Agreements, the Company will be entitled to receive all dividends, interest and
other payments made upon or with respect to the Capital Stock of any
Subsidiary's collateral pledged by it and to exercise any voting, other
consensual rights and other rights pertaining to such collateral pledged by it.
Upon the occurrence and during the continuance of an Event of Default, (a) all
rights of the Company to exercise such voting, other consensual rights or other
rights shall cease upon notice from the Collateral Agent, and all such rights
shall become vested in the Collateral Agent, which, to the extent permitted by
law, shall have the sole right to exercise such voting,
30
other consensual rights or other rights, and (b) all rights of the Company to
receive all dividends, interest and other payments made upon or with respect to
the pledged collateral shall cease and such dividends, interest and other
payments shall be paid to the Collateral Agent, and (c) the Collateral Agent may
sell the pledged collateral or any part thereof in accordance with the terms of
the Collateral Agreements. All funds distributed under the Collateral Agreements
and received by the Collateral Agent for the benefit of the holders of the
Registered Notes and any remaining Holders of the Old Notes shall be distributed
by the Collateral Agent in accordance with the provisions of the Indenture.
Under the terms of the Collateral Agreements, the Collateral Agent will
determine the circumstances and manner in which the pledged collateral shall be
disposed of, including, but not limited to, the determination of whether to
release all or any portion of the pledged collateral from the Liens created by
the Collateral Agreements and whether to foreclose on the pledged collateral
following an Event of Default. Upon the full and final payment and performance
of all obligations of the Company under the Indenture, any remaining Old Notes
and the Registered Notes, the Collateral Agreements shall terminate and the
pledged collateral shall be released. However, the Collateral Agent shall
release its Lien on any after acquired property subject to a Purchase Money
Lien, as contemplated by the section entitled "Security." In addition, in the
event that the pledged collateral is sold, and provided that no Default or Event
of Default is existing, the Collateral Agent shall release simultaneously with
such sale the Liens in favor of the Collateral Agent in the assets sold;
provided, that the Collateral Agent shall have received all documentation
required by the Trust Indenture Act therefor.
Optional Redemption
The Registered Notes and any remaining Old Notes are subject to redemption
at the option of the Company, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on July 1 of the years indicated below:
Redemption
Year Percentage
1997.....................103%
1998 and thereafter......100%
The restrictions on optional redemptions set forth in the Indenture do not
limit the Company's right to make open market purchases of the Registered Notes,
or any remaining Old Notes, from time to time.
Repurchase Upon Change of Control
Upon the occurrence of a Change of Control (as hereinafter defined), each
holder of Registered Notes shall have the right to require the Company to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such holder's Registered Notes pursuant to the offer described below (the
"Change of Control Offer") at a purchase price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (the "Change of Control Payment"). Such requirement may not be
waived by the Company or the Trustee. Within 40 days following any Change of
Control, the Company shall mail a notice to each holder stating: (1) that the
Change of Control Offer is being made pursuant to the covenant entitled "Change
of Control" and that all Registered Notes tendered will be accepted for payment;
(2) the purchase price and the purchase date, which shall be no earlier than 30
days nor later than 40 days from the date such notice is mailed (the "Change of
Control Payment Date"); (3) that any Registered Note not tendered will continue
to accrue interest; (4) that, unless the Company defaults in the payment of the
Change of Control Payment, all Registered Notes accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date; (5) that holders electing to have any Registered Notes
purchased pursuant to a Change of Control Offer will be required to surrender
the Registered Notes, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Registered Notes completed, to the Paying Agent
at the address specified in the notice prior to the close of business on the
third Business Day preceding the Change of Control Payment Date; (6) that
holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the second Business Day
preceding the Change of
31
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the principal amount of Registered Notes
delivered for purchase, and a statement that such holder is withdrawing his
election to have such Registered Notes purchased; and (7) that holders whose
Registered Notes are being purchased only in part will be issued Registered
Notes equal in principal amount to the unpurchased portion of the Registered
Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof. The Company will comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Registered Notes in
connection with a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment Registered Notes or portions thereof tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Registered Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Registered Notes so accepted together with an Officers' Certificate
stating the Registered Notes or portions thereof were tendered to the Company.
The Paying Agent shall promptly mail to each holder of Registered Notes so
accepted payment in an amount equal to the purchase price for such Registered
Notes, and the Trustee shall promptly authenticate and mail to each holder a
Registered Note equal in principal amount to any unpurchased portion of the
Registered Notes surrendered, if any, provided, that each such Registered Note
shall be in a principal amount of $1,000 or an integral multiple thereof. The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Registered
Notes to require that the Company repurchase or redeem the Registered Notes in
the event of a takeover, recapitalization or similar restructuring.
"Change of Control" means (i) the sale, lease or transfer of all or
substantially all of the Company's assets to any Person or group (as such term
is used in Section 13(d)(3) of the Exchange Act) (other than the Principals and
their Related Parties (as defined below)), (ii) the liquidation or dissolution
of the Company, (iii) the acquisition by any Person or group (as such term is
used in Section 13(d)(3) of the Exchange Act) (other than the Principals and
their Related Parties, as defined herein below) of a direct or indirect majority
in interest (more than 50%) of the voting power of the Voting Stock (as defined
herein below) of the Company by way of merger or consolidation or otherwise or
(iv) any transaction the result of which is (x) if such transaction occurs prior
to the first sale of common equity of the Company pursuant to a registration
statement under the Securities Act that results in at least 25% of the then
outstanding common equity of the Company being sold to the public, that the
Principals and their Related Parties beneficially own less, directly or
indirectly, than 35% of the voting power of the Voting Stock of the Company
beneficially owned by the Principals, directly or indirectly, on the date of the
Indenture, and (v) if such transaction occurs thereafter, that any Person or
group (as defined above) (other than the Principals and their Related Parties)
owns, directly or indirectly, more of the voting power of the Voting Stock of
the Company than the Principals and their Related Parties.
"Principals" means KKEP and Herbert W. Korthoff.
"Related Party" with respect to any Principal means (A) the general partner
and each limited partner of KKEP as of the date of the Indenture, (B) any 50%
(or more) owned Subsidiary of either Principal or both Principals jointly, or
(C) any spouse or immediate family member or trust (in the case of an
individual) of such Principal.
Selection and Notice
If less than all of the Registered Notes are to be redeemed at any time,
selection of Registered Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Registered Notes are listed, or, if the Registered Notes
are not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate, provided that no Registered Notes of $1,000 or
less shall be redeemed in part. Notice of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the redemption date to
each Holder of Registered Notes to be redeemed at its registered address. If any
Registered Note is to be redeemed in part only, the notice of redemption that
relates to such Registered Note shall state the portion of the principal amount
thereof to be redeemed. A new Registered Note of the same Series as the original
Registered Note in principal amount equal to the unredeemed portion thereof will
be issued in the name of the Holder thereof upon cancellation of the original
Registered Note. On and after the redemption date, interest ceases to accrue on
Registered Notes or portions thereof called for redemption.
32
Certain Covenants
The Indenture contains, among others, the following covenants:
Restricted Payments
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly make any Restricted Payment unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) immediately after such Restricted Payment (the value of any such
payment, if other than cash, being determined by the Board of
Directors and evidenced by a resolution set forth in an Officers'
Certificate delivered to the Trustee) and after giving effect thereto
on a pro forma basis, the Consolidated Net Worth of the Company would
be at least $25 million; and
(c) the Company's Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
Restricted Payment is made, calculated on a pro forma basis as if such
Restricted Payment had been made at the beginning of such four-quarter
period, would have been at least 3 to 1; and
(d) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the
date of the Indenture, dated June 30, 1993, governing the Series B
Notes (the "Series B Indenture") (including Restricted Payments
permitted by clause (ii) of the next succeeding paragraph), is less
than the sum of (x) 50% of the Consolidated Net Income of the Company
for the period (taken as one accounting period) from the beginning of
the first quarter immediately after the first date on which the
Company's Consolidated Net Worth exceeds $25 million to the end of the
Company's most recently ended four full fiscal quarters for which
internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, 100% of such deficit), plus (y) 100% of the
aggregate net cash proceeds received by the Company from the issue or
sale of Equity Interests of the Company (other than Equity Interests
sold to a Subsidiary of the Company and other than Disqualified Stock)
since the date of the Series B Indenture, plus (z) 100% of the net
cash proceeds received by the Company from the issuance or sale, other
than to a Subsidiary of the Company, of any debt security of the
Company that has been converted into Equity Interests of the Company
(other than Disqualified Stock) since the date of the Series B
Indenture.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock); (iii)
the redemption, repurchase or payoff of Indebtedness under the Revolving Credit
Facility; (iv) the redemption, repurchase or payoff of Purchase Money
Indebtedness; (v) the redemption, repurchase or payoff of any Indebtedness with
proceeds of any Refinancing Indebtedness permitted to be incurred under "Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock"; or
(vi) the repurchase, redemption or other acquisition or retirement for value of
any Equity Interests of the Company or any Subsidiary of the Company held by any
officer or employee of the Company (other than Principals or any Related Party)
or any of the Company's distributors or sales representatives; provided,
however, that the aggregate amount of all such repurchases, redemptions and
other acquisitions and retirements under this clause (vi) on or after the date
of the Indenture shall not exceed $2 million.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the "Restricted Payments" covenants were computed, which
calculations may be based upon the Company's latest available financial
statements.
33
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, incur any Indebtedness (including Acquired Debt) and the
Company will not issue any Disqualified Stock and will not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Company may incur Indebtedness or issue shares of Disqualified Stock if (i) the
Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least equal to 2.50:1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period and (ii) the Weighted Average Life to Maturity of such
Indebtedness is greater than the remaining Weighted Average Life to Maturity of
the Registered Notes.
The foregoing limitations will not apply to (a) the incurrence by the
Company and its Subsidiaries of Indebtedness pursuant to the Revolving Credit
Facility in an aggregate principal amount not to exceed $50 million in the
aggregate at any one time outstanding (as such aggregate amount may be
permanently reduced from time to time pursuant to the requirements of the
Indenture); (b) the incurrence by the Company and its Foreign Subsidiaries of
Hedging Obligations incurred to fix the interest rate on any variable rate
Indebtedness otherwise permitted by the Indenture; (c) the incurrence by the
Company and its Foreign Subsidiaries of Purchase Money Indebtedness that does
not exceed $10 million; (d) the incurrence by the Company of Indebtedness
represented by the Old Notes and the Registered Notes; (e) Indebtedness owed by
the Company to any of its Subsidiaries or any such Subsidiary to the Company or
any other Subsidiary of the Company; (f) the incurrence by the Company (and its
Subsidiaries, as to clause (a) above; and its Foreign Subsidiaries, as to clause
(c) above) of Indebtedness issued in exchange for, or the proceeds of which are
contemporaneously used to extend, refinance, renew, replace, or refund
(collectively, "Refinance") Indebtedness referred to in clauses (a), (c) and (d)
above, and outstanding Indebtedness incurred in compliance with Section 4.08(a)
of the Indenture (the "Refinancing Indebtedness"); provided, however, that such
Refinancing Indebtedness (A) in the case of a Refinancing of Indebtedness under
the Revolving Credit Facility, is limited to an aggregate commitment (inclusive
of revolving credit borrowings and the undrawn face amount of letters of credit,
whether or not constituting Indebtedness) not in excess of $50 million (as such
amount may be permanently reduced from time to time pursuant to Section 4.11 of
the Indenture), and (B) in the case of other Refinancing Indebtedness (1) the
principal amount of such Refinancing Indebtedness shall not exceed the principal
amount of Indebtedness so Refinanced (plus the amount of reasonable expenses
incurred in connection therewith), (2) the Refinancing Indebtedness shall have a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of the Indebtedness being extended, refinanced, renewed,
replaced or refunded, and (3) the Refinancing Indebtedness shall rank in right
of payment no more senior (and at least as subordinated) to the Old Notes and
the Registered Notes than did the Indebtedness being Refinanced (whether
revolving credit borrowings, trade letters of credit, standby letters of credit
or a combination thereof); or (g) the incurrence by the Company or trade letters
of credit incurred in the ordinary course of business in an amount not to exceed
$5 million at any one time outstanding.
Asset Sales
The Company will not, and will not permit any of its Subsidiaries to, (a)
sell, lease, transfer or otherwise dispose of (including by way of a
sale-and-leaseback) any Business Segment (as defined in the Indenture), either
in a single transaction or a group of related transactions, other than the sale
of inventory or materials in the ordinary course of business (provided that the
sale, lease, conveyance or other disposition of all or substantially all of the
assets of the Company shall be governed by the provisions of the Indenture
described below under the caption "Merger, Consolidation or Sale of Assets"), or
(b) sell equity securities of any of its Subsidiaries for net proceeds in excess
of $5 million, in each case whether in a single transaction or a series of
related transactions (each of the foregoing, an "Asset Sale"), unless (x) the
Company (or the Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets sold or otherwise disposed of and (y) at
least 80% of the consideration therefor received by the Company or such
Subsidiary is in the form of cash; provided, however, that the amount of (A) any
liabilities (as shown on the Company's or such Subsidiary's most recent balance
sheet or in the notes thereto), of the Company or any Subsidiary that are
assumed by the transferee of any such assets and (B) any notes or other
obligations received by the Company or any such Subsidiary from such transferee
that are promptly, but in no event more than 30 days after receipt, converted by
the Company or such Subsidiary into cash, shall be deemed to be cash (to the
extent of the cash received) for purposes of this provision.
34
Within 180 days after any Asset Sale (the "Asset Sale Application Period"),
the Company may apply the Net Proceeds from such Asset Sale to either (a)
permanently reduce the availability under the Revolving Credit Facility (and if
the outstanding principal amount under the Revolving Credit Facility exceeds the
availability thereunder after such reduction, then reduce the amount outstanding
to an amount at least equal to such availability), or (b) an investment in
another business or capital expenditure or other fixed assets in the same or a
similar line of business as the Company was engaged in on the date of the Series
B Indenture. Any Net Proceeds from the Asset Sale that are not applied or
invested as provided in the preceding sentence constitute "Excess Proceeds." In
accordance with the provisions of the Indenture, the Company shall make an offer
(an "Asset Sale Offer") to all Holders of the Registered Notes to purchase the
maximum principal amount of Registered Notes that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
outstanding principal amount thereof plus accrued and unpaid interest, if any,
to the date fixed for the closing of such offer; provided, however, that in the
event that the Excess Proceeds from such Asset Sale, plus the Excess Proceeds
from all prior Asset Sale Offers which have not been applied to an Asset Sale
Offer pursuant to the Indenture or the Indenture, are less than $2.0 million,
the application of such aggregate Excess Proceeds to an Asset Sale Offer may be
deferred until such time as such aggregate Excess Proceeds, plus the aggregate
amount of Excess Proceeds resulting from any subsequent Asset Sale(s), are at
least equal to $2.0 million. To the extent that the aggregate amount of
Registered Notes tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Company may use such deficiency for general corporate
purposes. If the aggregate principal amount of Registered Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Registered Notes to be purchased on a pro rata basis.
Liens
Neither the Company nor any of its Subsidiaries may directly or indirectly
create, incur, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired, or any income or profits therefrom or assign or convey any
right to receive income therefrom, except (i) Liens on accounts receivable and
inventory of the Company and its Subsidiaries and on the other assets described
in clause (C) of subdivision (i) of Section 10.01(d) of the Indenture, and the
proceeds thereof, securing Indebtedness (and, whether or not included as
Indebtedness, trade letters of credit and/or standby letters of credit and/or
reimbursement obligations in respect thereof, and any and all related interest,
fees and related obligations) pursuant to the Revolving Credit Facility in an
aggregate principal amount (as to borrowings) and an aggregate undrawn face
amount (as to letters of credit, whether or not constituting Indebtedness) not
to exceed $50 million in the aggregate at any one time outstanding (as such
aggregate amount may be permanently reduced from time to time pursuant to
Section 4.11 of the Indenture), (ii) Purchase Money Liens or construction
mortgages created on any type of property, construction or improvement of such
property by the Company or a Foreign Subsidiary to secure the purchase price or
construction cost or improvement cost of only such property in an amount up to
100% of the total cost of such property, construction or improvement, (iii)
Liens to secure obligations for which the Company is fully indemnified by Dow
Corning, provided that the Company provides the Trustee with an Officers'
Certificate setting forth the good faith opinion of the Company's Board of
Directors that Dow Corning is indemnifying the Company in full for all
liabilities, damages and costs relating to such Lien and the obligations it
secures and (iv) Liens on property of the Company or its Subsidiaries which
secure environmental claims of any governmental authority; provided, that all
such claims do not exceed $1 million in the aggregate, provided further that
such environmental claims are being contested or remedied in good faith by the
Company and, provided further that if the Company obtains security (in the form
of a letter of credit, cash collateral, escrow account or indemnity from a third
party which the Company deems financially capable of performing its obligations
under such indemnity), to secure the payment and satisfaction of any such claim,
such environmental claim shall not be counted towards such $1 million aggregate
limitation to the extent such security secures such payment and satisfaction,
(v) Liens securing the obligations under the Registered Notes and the Indenture,
and (vi) Permitted Liens.
Limitation on Granting Liens and Restrictions on Subsidiary Dividends
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of (a) the Company or
any Subsidiary to grant Liens on the assets of such Person in favor of the
Holders of the Registered Notes, or (b) any Subsidiary to (i) pay dividends or
make any other distributions to the Company or any of its Subsidiaries (A) on
its Capital Stock or (B) with respect to any other interest or participation in,
or measured by, its profits, or (ii) pay any indebtedness owed to the Company or
any of its Subsidiaries, or (c) any Subsidiary to make loans or advances to the
Company or any of its Subsidiaries or (d) any Subsidiary to transfer any of its
properties or assets to the Company or any of its Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (i) the Revolving
Credit Facility, provided that such restrictions do not restrict the granting or
perfecting of Liens on the collateral
35
securing the Registered Notes and any remaining Old Notes, as contemplated by
the Indenture, (ii) the Indenture, the Registered Notes, and any remaining Old
Notes (iii) applicable law, (iv) any instrument governing Indebtedness or
capital stock of a person acquired (including by way of merger or consolidation)
by the Company or any of its Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any person, or the properties or assets of any person, other than
the person, or the property or assets of the person, so acquired, (v) with
respect to clauses (a) and (d) above, (1) restrictions on encumbering in leases
and other agreements entered into prior to the date of the Indenture and (2)
customary restrictions on encumbering in leases and other agreements entered
into on or after the date of the Indenture in the ordinary course of business,
(vi) with respect to clauses (a) and (d) above, Purchase Money obligations,
provided that such encumbrance or restriction does not apply to any other
property or asset of the Company or its Subsidiaries, and (vii) permitted
Refinancing Indebtedness, provided that such restrictions contained in any
agreement governing such Refinancing Indebtedness are no more restrictive taken
as a whole than those contained in any agreements governing the Indebtedness
being refinanced.
Merger, Consolidation, or Sale of Assets
The Company may not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions to, another corporation, person or entity
unless (i) the Company is the surviving corporation or the entity or the person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or other
dispositions shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(ii) the entity or person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made assumes all the
obligations of the Company pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee, under the Registered Notes, any
remaining Old Notes, and the Indenture; (iii) immediately after such transaction
no Default or Event of Default exists; and (iv) the Company or any Corporation
formed by or surviving any such consolidation or merger, or to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been made
(A) will have Consolidated Net Worth (immediately after the transaction but
prior to any purchase accounting adjustments resulting from the transaction)
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the covenant entitled "Incurrence of Indebtedness and Issuance
of Preferred Stock."
Transactions with Affiliates
The Company will not, and will not permit any of its Subsidiaries to,
conduct Affiliate Transactions, except for (a) Affiliate Transactions of
aggregate value less than $1 million which are on terms that are no less
favorable to the Company or the relevant Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Subsidiary with
an unrelated person and which are conducted in good faith and (b) Affiliate
Transactions in which the Company delivers to the Trustee an opinion as to the
fairness to the Company or such Subsidiary from a financial point of view issued
by an investment banking firm of national standing; provided, however, that (i)
any employment agreement entered into by the Company or any of its Subsidiaries
in the ordinary course of business and with the approval of the Company's board
of directors, (ii) transactions between or among the Company and/or its
Subsidiaries, (iii) transactions permitted by the provisions of the Indenture
described above under the covenant "Restricted Payments," (iv) the rendering of
management services by Kidd, Kamm & Company and the payment by the Company for
such services pursuant to the Management Services Agreement (as defined in the
Indenture) and (v) the rendering of services by Kidd, Kamm & Company in
connection with the acquisition of the Predecessor and the payment for such
services by the Company on the closing date of such acquisition, in each case,
shall not be deemed Affiliate Transactions.
Maintenance of Consolidated Net Worth
The Company shall not permit Consolidated Net Worth to be (i) less than
$17.5 million at the end of the fiscal year ending December 31, 1997 or (ii)
less than $20 million at the end of any fiscal year thereafter. It is
management's belief that the Company will be able to achieve this Consolidated
Net Worth requirement.
36
Reports
Whether or not required by the rules and regulations of the Commission, so
long as any Registered Notes are outstanding, the Company will furnish to the
holders of Registered Notes all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and, with respect to the annual information only, a report thereon by
the Company's certified independent accountants.
Payments for Consent
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Registered Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Registered Notes unless such consideration is offered to
be paid or agreed to be paid to all holders of the Registered Notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Events of Default and Remedies
Each of the following constitutes an Event of Default under the Indenture:
(i) default for 30 days in the payment when due of interest on the Registered
Notes; (ii) default in payment when due of principal on the Old Notes or the
Registered Notes; (iii) failure by the Company to comply with the provisions
described under the covenants, "Asset Sales," "Merger, Consolidation, or Sale of
Assets," "Change of Control," "Restricted Payments," "Incurrence of Indebtedness
and Issuance of Preferred Stock" or "Minimum Consolidated Net Worth"; (iv)
failure by the Company for 30 days after notice to comply with certain other
agreements in the Indenture, the Registered Notes or the Collateral Agreements;
(v) default under (after giving effect to any applicable grace periods or any
extension of any maturity date) any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries)
whether such Indebtedness or guarantee existed on the date of the Indenture, or
was or is created after the date of the Indenture if (a) either (x) such default
results from the failure to pay principal of or interest on such Indebtedness or
(y) as a result of such default the maturity of such Indebtedness has been
accelerated, and (b) the principal amount of such Indebtedness, together with
the principal amount of any other such Indebtedness with respect to which a
default (after the expiration of any applicable grace period or any extension of
the maturity date) has occurred, or the maturity of which has been so
accelerated, exceeds $2 million in the aggregate; (vi) failure by the Company or
any of its Subsidiaries to pay final judgments (other than any judgment as to
which a reputable insurance company has accepted full liability) aggregating in
excess of $1 million which judgments are not stayed or discharged within 60 days
after their entry, (vii) breach by the Company of any material representation or
warranty set forth in the Collateral Agreements, which breach is not cured by
the Company or waived within 30 days after notice to comply with such breach of
a material representation or warranty, or repudiation by the Company of its
obligations under the Collateral Agreements or the unenforceability of the
Collateral Agreements against the Company for any reason; and (ix) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Registered
Notes may declare by written notice all the Registered Notes to be due and
payable immediately. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, all outstanding
Registered Notes will become due and payable without further action or notice.
Holders of the Registered Notes may not enforce the Indenture or the Registered
Notes except as provided in the Indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding Registered
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from holders of the Registered Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
The holders of a majority in aggregate principal amount of the Registered
Notes then outstanding, by written notice to the Trustee, may on behalf of the
holders of all of the Registered Notes (a) waive any existing Default or Event
of Default and its consequences under the Indenture except a continuing Default
or Event of Default in the payment of
37
interest on, or the principal of, the Registered Notes, and/or (b) rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree if all existing Events of Default (except nonpayment of
principal or interest that has become due solely because of the acceleration)
have been cured or waived. Pursuant to Section 4.03 of the Indenture, the
Company must deliver an officers' certificate to the Trustee within 120 days
after the end of each fiscal year stating that, to the knowledge of each
signatory officer, each has complied with and is not in default of any of the
terms of the Indenture, or where an Event of Default has occurred, certifying to
any cure.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Registered Notes, any remaining Old Notes, the Indenture, the Security
Agreement, or the Pledge Agreement or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each holder of the Registered
Notes by accepting a Registered Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Registered
Notes. Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Defeasance and Discharge of the Indenture and the Registered Notes
If, among other things, (A) the Company irrevocably deposits, or causes to
be deposited, in trust with the Trustee or the Paying Agent, at any time prior
to the stated maturity of the Registered Notes or the date of redemption of all
the outstanding Registered Notes, as trust funds in trust, money or direct
noncallable obligations of or guaranteed by the United States of America in an
amount sufficient (as to principal, premium (if any) and interest, but without
reinvestment thereof) to pay timely and discharge the entire principal of the
then outstanding Registered Notes and all interest due thereon to maturity or
redemption; (B) the Company delivers to the Trustee an Officer's Certificate
stating that all conditions precedent to satisfaction and discharge of the
Indenture have been complied with, and an Opinion of Counsel to the same effect;
(C) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit; and (D) the Company shall have delivered to the Trustee an
Opinion of Counsel or a ruling received from the Internal Revenue Service to the
effect that the holders of the Registered Notes will not recognize income, gain
or loss for Federal income tax purposes as a result of the Company's exercise of
its option under this provision and will be subject to Federal income tax on the
same amount and in the same manner and as the same times as would have been the
case if such option had not been exercised, then the Indenture shall cease to be
of further effect as to all outstanding Registered Notes (except, among other
things, as to (i) remaining rights of registration of transfer and substitution
and exchange of the Registered Notes, (ii) rights of holders to receive payment
of principal of and interest on the Registered Notes, and (iii) the rights,
obligations and immunities of the Trustee).
Transfer and Exchange
A holder may transfer or exchange Registered Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Registered Note selected for redemption. Also, the Company is not required
to transfer or exchange any Registered Note for a period of 15 days before a
selection of Registered Notes to be redeemed.
The registered holder of a Registered Note will be treated as the owner of
the security for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next succeeding paragraph, the Indenture or the
Registered Notes may be amended or supplemented with the consent of the holders
of at least a majority in principal amount of the Registered Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for Registered Notes) and
38
any existing Default or Event of Default or compliance with any provision of the
Indenture or the Registered Notes may be waived with the consent of the holders
of a majority in principal amount of the then outstanding Registered Notes
(including consents obtained in connection with a tender offer or exchange offer
for Registered Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Registered Notes held by a non-consenting holder of
Registered Notes) (i) reduce the principal amount of Registered Notes whose
holders must consent to an amendment, supplement or waiver, (ii) reduce the
principal of or change the fixed maturity of any Registered Note or alter the
provisions with respect to the redemption of the Registered Notes or alter the
provisions with respect to repurchases or redemptions of the Registered Notes
with net proceeds from Asset Sales or upon a Change of Control, (iii) reduce the
rate of or change the time for payments of interest on any Registered Note, (iv)
waive a Default or Event of Default in the payment of principal of or premium,
if any, or interest on the Registered Notes, (v) make any Registered Note
payable in money other than that stated in the Registered Notes, (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of holders of Registered Notes to receive payments of principal of
or interest on the Registered Notes, (vii) waive a redemption payment with
respect to any Registered Note or (vii) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Registered Notes, the Company and the Trustee may amend or supplement the
Indenture or the Registered Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Registered Notes in addition to or
in place of certificated Registered Notes, to provide for the assumption of the
Company's obligations to holders of the Registered Notes in the case of a merger
or consolidation, to make any change that would provide any additional rights or
benefits to the holders of the Registered Notes or that does not adversely
affect the legal rights under the Indenture of any such holder, or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The holders of a majority in principal amount of the then outstanding
Registered Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent person in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Registered Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified person, Indebtedness
of any other person existing at the time such other person merged with or into
or became a Subsidiary of such specified person, including Indebtedness incurred
in connection with, or in contemplation of, such other person merging with or
into or becoming a Subsidiary of such specified person.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a
39
person shall be deemed to be control. Notwithstanding the above, neither
Jefferies & Company, Inc. nor any of its Affiliates shall be deemed to be
Affiliates of the Company.
"Business Segment" means (i) each Significant Subsidiary or (ii) any assets
or properties of the Company or any Subsidiary, now owned or hereafter acquired,
with an aggregate value of $5 million or greater.
"capital lease obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means any and all shares, interest, participations, rights
or other equivalents (however designed) of corporate stock, including, without
limitation, partnership interests.
"Consolidated Cash Flow" means with respect to any person for any period,
the Consolidated Net Income of such person for such period plus (a) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing Consolidated
Net Income), plus (b) provision for taxes based on income or profits to the
extent such provision for taxes was included in computing Consolidated Net
Income, plus (c) consolidated interest expense of such person for such period,
whether paid or accrued (including amortization of original issue discount,
non-cash interest payments and the interest component of capital lease
obligations), to the extent such expense was deducted in computing Consolidated
Net Income, plus (d) amortization (including amortization of good will and other
intangibles) of such person for such period to the extent such amortization was
deducted in computing Consolidated Net Income, in each case, on a consolidated
basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any person for any period,
the aggregate of the Net Income of such person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided,
that (i) the Net Income of any person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid to the referent person
or a wholly owned Subsidiary, (ii) the Net Income of any person that is a
Subsidiary (other than a subsidiary of which at least 80% of the Capital Stock
having ordinary voting power for the election of directors or other governing
body of such Subsidiary is owned by the referent person directly or indirectly
through one or more Subsidiaries) shall be included only to the extent of the
amount of dividends or distributions paid to the referent person or a wholly
owned Subsidiary, (iii) the Net Income of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any person, the sum of (i)
the consolidated equity of the common stockholders of such person and its
consolidated Subsidiaries plus (ii) the respective amounts reported on such
person's most recent balance sheet with respect to any series of preferred stock
(other than Disqualified Stock) that by its terms is not entitled to the payment
of dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to the
extent of (a) any cash received by such person upon issuance of such preferred
stock and (b) the fair market value of any non-cash consideration received by
such person upon issuance of such preferred stock provided that such value has
been determined in good faith by a nationally-recognized investment bank, plus
(iii) with respect to the Company, the respective amounts reported on the
Company's most recent balance sheet for the Series A Preferred Stock, less (x)
all write-ups, subsequent to the date of the Indenture, in the book value of
assets owned by such person or a consolidated Subsidiary of such person, other
than (A) write-ups resulting from foreign currency translations and (B)
write-ups upon the acquisition of assets acquired in a transaction to be
accounted for by purchase accounting under GAAP, (y) all investments in
unconsolidated Subsidiaries and in persons that are not Subsidiaries (except, in
each case, a Permitted Investment), and (z) all unamortized debt discount and
expense and unamortized deferred financing charges (except deferred financing
charges arising from the issuance of the Registered Notes), all of the foregoing
determined in accordance with GAAP; provided however, that for the purposes of
Section 4.14 in the Indenture, the calculation of consolidated equity of the
common stockholders of such Person and its consolidated Subsidiaries as
expressed in the first clause (i) of this definition shall not require a
deduction for accrued dividends on the Company's Series B Preferred Stock and
Series C Preferred Stock.
"Default" means any event known to the Company or which should have been
known to the Company after due inquiry that is or with the passage of time or
the giving of notice or both would be an Event of Default.
40
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the final
date of maturity of the Registered Notes.
"Equity Interests" means Capital Stock or warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible
into, or exchangeable for Capital Stock).
"Fixed Charges" means, with respect to any person for any period, the sum
of (a) consolidated interest expense of such person for such period, whether
paid or accrued, to the extent such expense was deducted in computing
Consolidated Net Income (including amortization of original issue discount,
non-cash interest payments and the interest component of capital leases but
excluding amortization of deferred financing fees) and (b) the product of (i)
all cash dividend payments (and non-cash dividend payments in the case of a
person that is a Subsidiary) on any series of preferred stock of such person,
times (ii) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local statutory
tax rate of such person, expressed as decimal, in each case, on a consolidated
basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any person for any
period, the ratio of the Consolidated Cash Flow of such person for such period
to the Fixed Charges of such person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, guarantees, repays,
repurchases or redeems any Indebtedness (other than any Indebtedness under the
Revolving Credit Facility, or any other revolving credit borrowings) or issues
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the event for which the
calculation of the Fixed Charge Coverage Ratio is made, then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance or redemption of preferred stock, as if the same had occurred at
the beginning of the applicable period.
"Foreign Subsidiary" means, for any person, any Subsidiary of such person
which derives substantially all of its revenue from sales to non-U.S. persons.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any person, the obligations of
such person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any person, any indebtedness of such
person whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letter of credit (or
reimbursement agreements in respect thereof) or representing the balance
deferred and unpaid of the purchase price of any property (including pursuant to
capital leases but excluding the balance deferred and unpaid of the purchase
price of currency) or representing any Hedging Obligations, except any such
balance that constitutes an accrued expense or trade payment, if and to the
extent any of the foregoing indebtedness (other than Hedging Obligations) would
appear as a liability upon a balance sheet of such person prepared in accordance
with GAAP, and also includes, to the extent not otherwise included, the
Guarantee of items which would be included within this definition.
"Investments" means, with respect to any person all investments by such
person in other persons (including Affiliates) in the forms of loans (including
Guarantees), advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any
41
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP, excluding, however, any gain
(but not loss), together with any related provision for taxes on such gain (but
not loss) realized in connection with any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), and
excluding any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale, net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (a) any Investments in the Company, (b) any
Investments in cash equivalents; (c) Investments by the Company in a person, if
as a result of such Investment (i) such person becomes a wholly-owned Subsidiary
of the Company and the Capital Stock of such Subsidiary is pledged to secure the
obligations under the Registered Notes or (ii) such person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to or is liquidated into, the Company or a wholly-owned
Subsidiary of the Company; (d) Investments by the Company in any other Person
(whether or not the Investment is in the form of Capital Stock or Indebtedness
issued by, or other Equity Interests relating to, such other Person), provided
that (i) such other Person is not then, and does not thereby become, a
Subsidiary of the Company, (ii) the Board of Directors has adopted a resolution
evidencing its determination that such Investment is in furtherance of a
corporate purpose of the Company, (iii) no Default under Section 4.08 of the
Indenture would result from such Investment and (iv) the aggregate amount of all
Investments under this clause (d) does not exceed $10.0 million at any one time
outstanding; and (e) other Investments that do not exceed in the aggregate $2.0
million at any time outstanding.
"Permitted Liens" means (a) Liens in favor of the Company and/or its
Subsidiaries other than with respect to intercompany Indebtedness; (b) Liens on
property of a person existing at the time such person is acquired by, merged
into or consolidated with the Company or any Subsidiary of the Company; (c)
Liens on property existing at the time of acquisition thereof by the Company or
any Subsidiary of the Company; provided, that such Liens were not created in
contemplation of such acquisition; (d) Liens incurred in the ordinary course of
business in respect of Hedging Obligations or to support trade letters of
credit; (e) Liens to secure Indebtedness for borrowed money of a Subsidiary to
the Company or to another wholly-owned Subsidiary; (f) Liens (other than
pursuant to ERISA or environmental laws) to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business; (g) Liens existing on
the date of the Indenture including those securing the Registered Notes; (h)
Liens for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested or remedied in good faith by appropriate
proceeding, promptly instituted and diligently concluded; provided, that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor, (i) Liens arising by reason of any judgment,
decree or order of any court with respect to which the Company or any of its
Subsidiaries shall then in good faith be prosecuting an appeal or other
proceedings for review, the existence of which judgment, order or decree is not
an Event of Default under the Indenture; (j) encumbrances consisting of zoning
restrictions, survey exceptions, utility easements, licenses, rights of way,
easements of ingress or egress over property of the Company or any of its
Subsidiaries, rights or restrictions of record on the use of real property,
minor defects in title, landlord's and lessor's liens under leases on property
located on the premises rented, any interest or title of a lessor in respect of
any capital lease, and similar encumbrances, rights or restrictions on personal
or real property not interfering in any material respect with the ordinary
conduct of the business of the Company or any of its Subsidiaries; (k) Liens and
priority claims incidental to the conduct of business or the ownership of
properties incurred in the ordinary course of business and not in connection
with the borrowing of money or the obtaining of advances or credit, including,
without limitation, liens incurred or deposits made in connection with
mechanic's liens, workers' compensation, unemployment insurance and other types
of social security, or to secure the performance of tenders, bids, and
government contracts; and (l) any extension, renewal, or replacement (or
successive extensions, renewals or replacements), in whole or in part, of Liens
described in clauses (a) through (k) above.
42
"Person" or "person" means any individual, corporation, partnership, joint
venture, association, joint stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Purchase Money Liens" means (i) Liens to secure or securing Purchase Money
Obligations permitted to be incurred under the Indenture and (ii) Liens to
secure Refinancing Indebtedness incurred solely to Refinance Purchase Money
Obligations provided that such Refinancing Indebtedness is incurred no later
than six (6) months after the satisfaction of such Purchase Money Obligations.
"Purchase Money Obligations" means Indebtedness representing, or incurred
to finance, the cost of acquiring any assets (including Purchase Money
Obligations of any other person at the time such other person is merged with or
into or is otherwise acquired by the Company) other than the assets acquired in
the Acquisition, provided that (i) the principal amount of such Indebtedness
does not exceed 100% of such cost, (ii) any Lien securing such Indebtedness does
not extend to or cover any other asset or property other than the asset or
property being so acquired and (iii) such Indebtedness is incurred, and any
Liens with respect thereto are granted, within 180 days of the acquisition of
such property or asset.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Significant Subsidiary" means any Subsidiary which would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subsidiary" means, with respect to any person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
person or one or more of the other Subsidiaries of that person or a combination
thereof.
"Voting Stock" means, with respect to any Person, one or more classes of
the Capital Stock of such Person having general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of such Person (irrespective of whether or not at the time Capital
Stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years (rounded CONFIDENTIAL to the nearest
one-twelfth) obtained by dividing (a) the then outstanding principal amount of
such Indebtedness into (b) the total of the product obtained by multiplying (x)
the amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final maturity, in
respect thereof, by (y) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment.
Book-Entry; Delivery and Form
Most of the Old Notes issued in the First Exchange Offer were issued in the
form of Global Securities (together, the Global Security). The Global Security
was deposited with, and on behalf of, the Depository and registered in the name
of Cede & Co., as nominee of the Depository. It is anticipated that upon
completion of the Exchange Offer a new "Global Security" evidencing the
Registered Notes will be exchanged for the "Global Security" evidencing the Old
Notes.
Ownership of beneficial interests in a Global Security will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Security will be shown on, and the transfer of that ownership will be effected
only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
Global Security, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Securities represented by such Global Security for
all purposes under the Indenture and the Registered Notes. No beneficial owner
of an interest in a Global Security will be able to transfer that interest
except in accordance with DTC's applicable procedures, in addition to those
provided for under the Indenture.
43
Payments of the principal of, and interest on, a Global Security will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Security, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Security as shown on the
records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Security held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC will take any action permitted to be taken by
a holder of Registered Notes (including the presentation of Registered Notes for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in a Global Security is credited and only in
respect of such portion of the aggregate principal amount of Registered Notes as
to which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Registered Notes, DTC will
exchange the applicable Global Security for Certificated Securities, which it
will distribute to its participants.
The Company understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Global Security among participants of
DTC, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Company nor the Trustee will have any responsibility for the performance by DTC
or their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated Securities
Upon acceptance for exchange of a Holder's Old Notes in definitive form,
Registered Notes will be issued in definitive form in the principal amount of
such Old Notes and registered in the name of the registered Holder of such Old
Notes (or in accordance with the "Special Exchange Instructions" in the Letter
of Transmittal) unless the Holder expressly requests in writing that such newly
issued Registered Notes be held in book-entry form at the Depository. The
certificates representing the Registered Notes will be issued in fully
registered form without interest coupons.
Subject to certain conditions, any person having a beneficial interest in
the Global Security may, upon request to the Trustee, exchange such beneficial
interest for Registered Notes in the form of Certificated Securities. Upon any
such issuance, the Trustee is required to register such Certificated Securities
in the name of, and cause the same to be delivered to, such person or persons
(or the nominee of any thereof). All such Certificated Securities evidencing Old
Notes would be subject to the legend requirements applicable to the Old Notes.
In addition, if (i) the Company notifies the Trustee in writing that the
Depository is no longer willing or able to act as a depository and the Company
is unable to locate a qualified successor within 90 days or (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause the issuance
of Registered Notes in the form of Certificated Securities under the Indenture,
then, upon surrender by the Global Note Holder of its Global Note, Registered
Notes in such form will be issued to each person that the Global Note Holder and
the Depository identify as being the beneficial owner of the related Registered
Notes.
44
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the Registered Notes
represented by the Global Security (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Depository. With respect to
Certificated Securities, the Company will make all payments of principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the Holders thereof or,
if no such account is specified, by mailing a check to each such Holder's
registered address. Secondary trading in long-term notes and debentures of
corporate issuers is generally settled in clearing-house or next-day funds. In
contrast, the Registered Notes represented by the Global Security are expected
to be eligible to trade in the PORTAL Market and to trade in the Depository's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such Registered Notes will, therefore, be required by the Depository
to be settled in immediately available funds. The Company expects that secondary
trading in the Certificated Securities will also be settled in immediately
available funds.
Registration Rights; Liquidated Damages
The Company and the Holders entered into the Registration Rights Agreement
as of August 7, 1997. Pursuant to the Registration Rights Agreement, the Company
agreed to (i) file with the Commission the Registration Statement on Form S-4
under the Securities Act with respect to the Registered Notes on or prior to 30
days after the Closing Date, (ii) use its reasonable best efforts to cause such
Registration Statement to become effective under the Securities Act on or prior
to 90 days after the Closing Date, (iii) use its reasonable best efforts to keep
the Registration Statement effective until consummation of the Exchange Offer
pursuant to its terms, and (iv) use its reasonable best efforts to consummate
the Exchange Offer not later than 120 days following the Closing Date unless the
Exchange Offer would not be permitted by a policy of the SEC. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
If the Form S-4 is not available with respect to the Exchange Offer, and,
in any event, if any holder of Transfer Restricted Securities shall notify the
Company that it is either not permitted by law or any policy of the Commission
to participate in the Exchange offer or is a broker dealer, the Company is
required to file with the Commission the Shelf Registration Statement to cover
resales of Transfer Restricted Securities by such holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement. The Company will use its reasonable best
efforts to cause the Shelf Registration Statement to be declared effective by
the Commission as promptly as practicable after the date of filing.
The Registration Rights Agreement requires the Company to pay liquidated
damages if (i) the Registration Statement is not filed with the Commission on or
prior to 30 days after the Closing Date, (ii) the Registration Statement has not
been declared effective by the Commission within 90 days of the Closing Date,
(iii) the Company has not accepted for exchange Registered notes for all Old
Notes validly tendered in accordance with the terms of the Exchange Offer within
30 days after the date on which the Registration Statement is declared effective
by the Commission, or (iv) if a Shelf Registration Statement is filed and
declared effective by the Commission but thereafter ceases to be effective
without being succeeded within 30 days by a subsequent Shelf Registration filed
and declared effective (each event, a "Registration Default"). If a Registration
Default occurs the Company is required to pay liquidated damages to each Holder
during the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to .50% per annum on the principal
amount of Old Notes held by such holder, increasing by an additional .50% per
annum at the beginning of each subsequent 90-day period up to a maximum of 2.0%
per annum; provided that such liquidated damages will, in each case, cease to
accrue (subject to the occurrence of another Registration Default) on the date
on which all Registration Defaults have been cured. The filing and effectiveness
of the Registration Statement of which this Prospectus is a part and the
consummation of the Exchange Offer will eliminate all rights of the Holders
eligible to participate in the Exchange Offer to receive damages that would have
been payable if such actions had not occurred.
All accrued liquidated damages shall be paid to holders of record in the
same manner as interest payments on the Old Notes or the Registered Notes on
semi-annual dates which correspond to the Interest Payment Dates. Holders of Old
Notes will be required to make certain representations to the Company (as
described in the Registration Rights Agreement) in order to participate in the
Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within
45
the time periods set forth in the Registration Rights Agreement in order to have
their Old Notes included in the Shelf Registration Statement and benefit from
the provisions regarding liquidated damages set forth in the preceding sentence.
46
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain material U.S. federal income tax
consequences resulting from the Exchange Offer. The discussion is based on the
Internal Revenue Code of 1986, as amended (the "Code"), U.S. Treasury
Regulations (including temporary and proposed) promulgated thereunder, rulings
and decisions now in effect, all of which are subject to change possibly with
retroactive effect. The discussion assumes that as to any holder, the Registered
Notes and Old Notes are capital assets as of the Exchange Date. This discussion
does not address state, local, foreign or other tax laws and does not purport to
cover all aspects of U.S. federal income taxation that may be relevant to, or
the actual tax effect that any of the matters described herein will have on
certain holders (including insurance companies, tax-exempt organizations,
financial institutions, securities dealers, taxpayers subject to the alternative
minimum tax and persons other than U.S. Holders, as defined below) who may be
subject to special rules not discussed below. As used above, the term "U.S.
Holder" means a beneficial owner of Old Notes or Registered Notes that is, for
U.S. federal income tax purposes, (i) an individual citizen or resident of the
United States, (ii) a U.S. domestic corporation or (iii) otherwise subject to
U.S. federal income tax on a net income basis in respect of the Old Notes or
Registered Notes. HOLDERS OF OLD NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE EXCHANGE
OFFER AND OF THE CONTINUED HOLDING AND DISPOSITION OF EITHER THE OLD NOTES OR
THE REGISTERED NOTES.
Tax Consequences of the Exchange Offer
The exchange of Old Notes for Registered Notes pursuant to the Exchange
Offer will not be a taxable event for United States federal income tax purposes,
and the tax characteristics of the Registered Notes (e.g., tax basis, holding
period, issue price and issue date) will be the same as those of the Old Notes
exchanged therefor.
For purposes of this discussion, any reference to "Notes" is to both the
Old Notes and the Registered Notes. This discussion also assumes that the
exchange dated August 7, 1997, in which the Old Notes were issued in exchange
for existing debt of the Company (the "Pre-Existing Notes") was a taxable
transaction for United States federal income tax purposes.
Payment of Interest
Consequences under the Contingent Payment Regulations
As described above under "Description of the Registered Notes - Principal,
Maturity and Interest," interest on the Registered Notes will accrue at the rate
of 11 3/4 % per annum, provided that the interest rate will increase to 12 1/4%
(such increase, the "Increased Interest") on August 7, 1998 if a Sale (as
defined in the Indenture) has not occurred by that time. In light of this
provision, the Notes may be subject to Treasury Regulations that apply to debt
instruments that provide for one or more contingent payments (the "contingent
payment regulations"), where the contingency is neither "remote" nor
"incidental." Subject to the discussion in the following paragraph, if the
possibility that the Company would be required to pay Increased Interest under
the Notes was not a remote or incidental contingency as of the issue date, a
holder (including a holder who otherwise uses a cash method of accounting for
federal income tax purposes) could be required to accrue all payments on the
Notes (including amounts that would otherwise constitute de minimis original
issue discount ("OID") and projected payments of interest) on a constant yield
basis and, in certain circumstances, to include market discount in income sooner
than otherwise required and to treat gain recognized on the disposition of the
Notes as interest income (rather than as capital gain). If applicable, the
contingent payment regulations would require the Company to prepare for holders
a projected payment schedule to determine the holders' interest accruals and any
necessary adjustments thereto.
However, the Notes would not be subject to the contingent payment
regulations if, based on all the facts and circumstances as of the issue date,
it was either (i) significantly more likely than not that a Sale would occur
within one year, or (ii) significantly more likely than not that a Sale would
not occur within one year. In such a case, the yield to maturity of the Notes
would be calculated based on the payment schedule that would be applicable under
(i) or (ii) above, as appropriate. A holder would be required to take into
account any OID resulting from such calculation on a constant yield basis over
the term of the Notes. Hence, if, as of the issue date of the Notes, it was
significantly more likely than not that a Sale would not occur within one year,
a holder would be required to include in income as OID, calculated on a constant
yield basis, a portion of the Increased Interest prior to the date such amount
is paid. Alternatively, if, as of the issue date of the Notes, it was
significantly more likely than not that a Sale would occur by
47
August 7, 1998, the Notes would be treated as accruing interest at the rate of
11 3/4 % per annum, which would generally be taxable to a holder at the time
such interest is paid or accrued in accordance with such holder's method of tax
accounting. If, contrary to the assumption about the likelihood of a Sale that
is made for purposes of these rules, a Sale actually occurs or does not occur by
August 7, 1998, the Notes would be treated as having been reissued on the date
of the change in circumstances for purposes of applying the OID rules under
sections 1272 and 1273 of the Code, possibly including the contingent payment
regulations.
As of the issue date of the Notes, it was uncertain whether a Sale was, or
was not, significantly more likely than not to occur within one year thereof.
Accordingly, the Company expects that the Notes will be governed by the
contingent payment regulations, which would require a holder to accrue all
payments on the Notes as OID over their term based on the projected payment
schedule to be prepared by the Company (subject to later adjustments). Further,
if a Note is held with a tax basis that differs from the adjusted issue price
(as defined below), a holder would be required to reasonably allocate such
difference to the daily portions of interest or projected payments over the
remaining term of the Notes. Generally, until all remaining contingent payments
on the Notes become fixed, gain and (subject to certain limitations) loss
recognized by a holder with respect to the Notes would be ordinary, rather than
capital, in nature.
Holders are strongly urged to consult their tax advisors as to the tax
considerations relating to the payment of interest on the Notes, in particular
in connection with the possible application of the contingent payment
regulations.
Consequences if the Contingent Payment Regulations do not Apply
If, contrary to the company's expectation, the contingent payment
regulations discussed above were not to apply to the Notes, stated interest on
the Notes generally would be taxable to a holder as ordinary income at the time
that it is paid or accrued, in accordance with the holder's method of accounting
for U.S. federal income tax purposes. In addition, if the stated redemption
price at maturity (defined below) of the Notes exceeds their issue price by more
than a de minimis amount, the Notes will be treated as issued with OID. Such OID
will be includable in a holder's income on a constant yield basis over the term
of the Notes, regardless of such holder's method of accounting. In such a case,
a holder of Notes will be required to include accrued OID in gross income in
advance of the receipt of cash in respect of such income. The stated redemption
price at maturity of a debt instrument is the sum of all payments to be made
with respect to such instrument, other than interest at a single fixed rate (or
certain floating rates) that is unconditionally payable at least annually for
the entire term of the debt instrument (provided, however, that in the case of a
debt instrument providing for alternative payment schedules, such single fixed
rate is the lowest fixed rate payable under any alternative payment schedule).
If the Notes are publicly traded within the meaning of the applicable
Treasury Regulations, their issue price would be the fair market value of the
Notes as of their issue date. If the Notes are not publicly traded under such
regulations, but the Pre-Existing Notes were publicly traded, the issue price of
the Notes would be the fair market value of the Pre-Existing Notes as of such
date. It is unclear whether the Notes are publicly traded within the meaning of
the applicable regulations; however, the Company believes that the Pre-Existing
Notes were publicly traded for this purpose.
Market Discount. A Note generally will be treated as purchased at a market
discount if (i) the amount for which a holder purchased the Note is less than
the Note's issue price and (ii) the Note's stated redemption price at maturity
(or, in the case of a Note issued with OID, the Note's "revised issue price")
exceeds the amount for which the holder purchased the Note by at least 0.25% of
such Note's stated redemption price at maturity (or revised issue price)
multiplied by the number of complete years to maturity. If such excess is not
sufficient to cause the Note to be treated as purchased at a market discount,
then such excess constitutes "de minimis market discount". The Code provides
that for these purposes, the "revised issue price" of a debt instrument
generally equals its issue price plus the amount of any previously accrued OID.
Any gain recognized on the maturity or disposition of, or any partial principal
payment on, a Note purchased at a market discount will be treated as ordinary
income to the extent that such gain or payment does not exceed the accrued
market discount on such Note. Alternatively, a holder who purchases a Note with
market discount may elect to include market discount in income currently over
the term of the Note. Such an election would apply to all debt instruments with
market discount acquired by the electing holder on or after the first taxable
year to which the election applies. This election, once made, may not be revoked
without the consent of the Internal Revenue Service (the "IRS"). Market discount
will accrue on a straight-line basis unless the holder elects to accrue such
market discount on a constant yield basis. Such an election would apply only to
the Note with respect to which such election is made and may not be revoked
without the consent of the IRS. A holder of a Note purchased with market
discount that does not elect to include market discount in income currently will
be required to defer until maturity or disposition deductions for interest on
borrowings allocable to such Note in an amount not exceeding the accrued market
discount on such Note.
Acquisition Premium. A holder who purchased a Note for a price less than or
equal to the stated redemption price at maturity but greater than the adjusted
issue price (such excess being "acquisition premium") generally will be entitled
to a reduction in the amount of OID otherwise required to be included in income.
The adjusted issue price of a Note will be the issue price increased by the
amount of OID previously includible in the gross income of any holder
48
(determined without regard to any reduction for acquisition premium or
amortizable bond premium (discussed below)) reduced by any payments other than
qualified stated interest. The amount of the reduction to which a holder may be
entitled in any given year is equal to a fraction, the numerator of which is the
amount of the acquisition premium and the denominator of which is the excess of
the sum of all amounts payable with respect to the Note after the purchase date,
other than payments of qualified stated interest, over the adjusted issue price
of the Note on the date of purchase.
Amortizable Bond Premium. If a holder's initial tax basis in a Note exceeds
the amount payable at maturity of the Note, the excess will be treated as
"amortizable bond premium." In such case, a holder may elect under section 171
of the Code to amortize the bond premium annually on a constant yield basis.
Such holder's adjusted tax basis in the Note is decreased by the amount of the
allowable amortization. Amortizable bond premium is treated as an offset to
interest income on the related Note rather than as an interest deduction, except
as may be provided in the Treasury regulations. An election to amortize bond
premium would apply to amortizable bond premium on all taxable bonds held at or
acquired after the beginning of such holder's taxable year as to which the
election is made, and may be revoked only with the consent of the IRS.
Election to Treat All Interest as OID. A holder may elect to include in
gross income all interest that accrues on a Note on a constant yield basis. For
purposes of this election, interest includes qualified stated interest and OID,
market discount, de minimis market discount and unstated interest, if any, as
adjusted by acquisition premium, if any. This election will generally apply only
to the Note to which it is made and may not be revoked without the consent of
the IRS. Holders of Notes considering this election should consult their tax
advisors concerning the consequences thereof.
Sale, Exchange or Redemption
In general, a holder of Notes will recognize gain or loss upon the sale,
exchange, redemption, retirement or other disposition of the Notes measured by
the difference between the amount realized on the disposition (to the extent
such amount does not represent accrued but unpaid interest) and the holder's
adjusted basis in the Notes. Assuming the Notes are subject to the contingent
payment regulations, a holder's adjusted basis in a Note generally will equal
the cost of such Note increased by interest previously accrued on the Note and
decreased by the amount of any noncontingent payment and the projected amount of
any contingent payment previously made on the Note. Except as discussed below, a
holder would be required to treat any gain recognized as ordinary income (rather
than capital gain). In certain circumstances after all remaining contingent
payments become fixed, such gain or loss will be capital gain or loss and will
be long-term capital gain or loss if the holder holds the Notes for more than
one year prior to disposition and short-term capital gain or loss if the holder
holds the Notes for one year or less prior to disposition. In the case of an
individual holder of Notes, such long-term capital gain will be subject to tax
at a reduced rate, and will be treated as long-term capital gain eligible for a
further reduced rate if the Notes are held for more than eighteen months.
Alternatively, if the Notes are not subject to the contingent payment
regulations, a holder's adjusted basis in Notes will generally equal the issue
price of the Notes plus the amount of accrued OID, if any, with respect thereto,
and the amount, if any, of income attributable to market discount included in
such holder's income, and reduced by the amount of any amortizable bond premium
applied to reduce interest on the Notes and the amounts of any payments on the
Notes that are not qualified stated interest payments. Any gain or loss
recognized by a holder in such a case would be capital gain or loss and would be
long-term or short-term capital gain or loss, and subject to tax, as discussed
above.
Backup Withholding
Backup withholding of U.S. federal income tax at a rate of 31% may apply to
payments of principal and interest made in respect of Notes, and to payments of
proceeds from the sale, exchange, redemption, retirement or other disposition of
Notes to or through certain brokers, unless, in general, the beneficial owner of
the Notes complies with certain information reporting procedures or is an exempt
recipient. Any amounts withheld from a payment to a beneficial owner pursuant to
these backup withholding rules may be allowed as a refund or credit against the
beneficial owner's U.S. federal income tax.
PLAN OF DISTRIBUTION
Except as described below, a broker-dealer may not participate in the
Exchange Offer in connection with a distribution of the Registered Notes. Such
broker-dealer should be deemed an underwriter in connection with such
distribution and such broker-dealer would be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transactions. A broker-dealer may,
49
however, receive Registered Notes for its own account pursuant to the Exchange
Offer in exchange for Old Notes when such Old Notes were acquired as a result of
market-making activities or other trading activities. Each such broker-dealer
must acknowledge that it will deliver a prospectus in connection with any resale
of such Registered Notes. This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer (other than an "affiliate" of
the Company) in connection with resales of such Registered Notes. The Company
has agreed that for a period of 90 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any such broker-dealer
for use in connection with any such resale.
The Company will not receive any proceeds from any sale of Registered Notes by
broker-dealers. Registered Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Registered Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Registered Notes. Any
broker-dealer that resells Registered Notes that were received by it for its own
account pursuant to the Exchange Offer may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
the Registered Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in a Letter of Transmittal. The Company has agreed to pay all expenses incident
to the Exchange Offer other than commissions or concessions of any brokers and
dealers and transfer taxes and will indemnify the holders of the Old Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
The Registered Notes will constitute new issues of securities with no
established trading market. The Company does not intend to list the Registered
Notes on any national securities exchange or to seek approval for quotation
through any automated quotation system. The Company has been advised by the
Dealer Manager of the First Exchange Offer that following completion of the
Exchange Offer, the Dealer Manager intends to make a market in the Registered
Notes. However, the Dealer Manager is not obligated to do so and any
market-making activities with respect to the Registered Notes may be
discontinued at any time without notice. Accordingly, no assurance can be given
that an active public or other market will develop for the Registered Notes or
as to the liquidity of or the trading market for the Registered Notes. If a
trading market does not develop or is not maintained, Holders of the Registered
Notes may experience difficulty in reselling the Registered Notes or may be
unable to sell them at all. If a market for the Registered Notes develops, any
such market may cease to continue at any time. If a public trading market
develops for the Registered Notes, future trading prices of the Registered Notes
will depend on many factors, including, among other things, prevailing interest
rates, the Company's results of operations and the market for similar securities
and other factors, including the financial condition of the Company.
INFORMATION REGARDING THE COMPANY
Additional information regarding the Company is contained in its filings
with the Commission pursuant to the Exchange Act. See "Available Information"
and "Certain Documents Attached as Exhibits."
ACCOUNTING TREATMENT OF THE EXCHANGE OFFER
The Exchange will be accounted for by the Company as a modification of debt
with the associated issuance costs being expensed as incurred.
50
LEGAL MATTERS
The validity of the Registered Notes and certain other legal matters will
be passed upon for the Company by Fried, Frank, Harris, Shriver & Jacobson,
Washington, D.C.
EXPERTS
The consolidated financial statements and schedule of the Company for the
six month period ending December 31, 1993 and for the fiscal years as of
December 31, 1994, 1995 and 1996 incorporated by reference in this Prospectus
and elsewhere in the Registration Statement of which this Prospectus is a part,
have been audited by Arthur Andersen, LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
51
TABLE OF CONTENTS A manually signed copy of a facsimile of the
Letter of Transmittal will be accepted. The
AVAILABLE INFORMATION........4 Letter of Transmittal, certificates
representing the Old Notes and any other
PROSPECTUS SUMMARY...........6 required documents should be sent by each
Holder or his or her broker, dealer,
commercial bank, trust company or other
THE COMPANY nominee to the Depository at one of the
addresses as set forth below.
RECENT DEVELOPMENTS.........
THE EXCHANGE OFFER.........7 The Depository:
The Depository Trust Company
SUMMARY TERMS OF THE
REGISTERED NOTES........10 By Mail, Hand or Overnight Courier:
55 Water Street
SUMMARY COMBINED FINANCIAL New York, NY 10004
AND OPERATING DATA......11 Telephone: (212) 898-1200
By Facsimile: (212) 709-1525
CAUTIONARY STATEMENT
REGARDING FORWARD- Any questions or requests for assistance or
LOOKING STATEMENTS......13 additional copies of this Prospectus, Letter
of Transmittal, and Notice of Guaranteed
RISK FACTORS..............13 Delivery may be directed to the Exchange
Agent at its telephone number or address
THE EXCHANGE OFFER........18 set forth below. You may also contact your
broker, dealer, commercial bank or trust
USE OF PROCEEDS...........26 company or other nominee for assistance
concerning the Exchange Offer.
CAPITALIZATION............26
SELECTED CONSOLIDATED
FINANCIAL DATA..........27 The Exchange Agent:
DESCRIPTION OF THE State Street Bank and Trust Company
REGISTERED NOTES........28
Two International Place, 4th Floor
Boston, MA 02110
Telephone: (617) 664-5419
By Facsimile: (617) 664-5371
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES........46
PLAN OF DISTRIBUTION......48
INFORMATION REGARDING
THE COMPANY.............49
ACCOUNTING TREATMENT OF
THE EXCHANGE OFFER......49
LEGAL MATTERS.............50
EXPERTS...................50
52
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Restated Certificate of Incorporation provides that each
person who was or is made a party to, or is involved in, any action, suit or
proceeding by reason of the fact that he or she was a director or officer of the
Registrant (or was serving at the request of the Registrant as a director,
officer, employee or agent for another entity) will be indemnified and held
harmless by the Registrant, to the full extent authorized by the Delaware
General Corporation Law.
Under Section 145 of the Delaware General Corporation Law, a corporation
may indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her if he or she acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interest of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. In the case of an action brought by or in the right of a corporation,
the corporation may indemnify a director, officer, employee or agent of the
corporation against expenses (including attorneys' fees) actually and reasonably
incurred by him or her if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interest of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless a court finds that, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court shall deem proper.
The Registrant's Restated Certificate of Incorporation provides that to the
fullest extent permitted by Delaware General Corporation Law as the same exists
or may hereafter be amended, a director of the Registrant shall not be liable to
the Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director. The Delaware General Corporation Law permits Delaware
corporations to include in their certificates of incorporation a provision
eliminating or limiting director liability for monetary damages arising from
breaches of their fiduciary duty. The only limitations imposed under the statute
are that the provision may not eliminate or limit a director's liability (i) for
breaches of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or involving
intentional misconduct or known violations of law, (iii) for the payment of
unlawful dividends or unlawful stock purchases or redemptions, or (iv) for
transactions in which the director received an improper personal benefit.
The Registrant is insured against liabilities which it may incur by reason
of its indemnification of officers and directors in accordance with its Restated
Certificate of Incorporation. In addition, directors and officers are insured,
at the Registrant's expense, against certain liabilities that might arise out of
their employment and are not subject to indemnification under the Restated
Certificate of Incorporation.
The foregoing summaries are necessarily subject to the complete text of the
statutes, Restated Certificate of Incorporation and agreements referred to above
and are qualified in their entirety by reference thereto.
ITEM 21(A). EXHIBITS
3.1 Articles of Incorporation (filed as Exhibit 3.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995
and incorporated herein by reference).
3.2 Bylaws (filed as Exhibit 3.2 to Registrant's Registration on Form S-4
No. 33-69286 filed by the Company on November 10, 1993 and
incorporated herein by reference).
4.1 Indenture dated as of August 7, 1997 between the Registrant and State
Street Bank and Trust Company, as Trustee.
4.2 Form of Note for the Registrant's Series D 11 3/4 % Senior Secured
Step-up Note.
4.3 Registration Rights Agreement dated as of August 7, 1997 between the
Registrant and Holders of the Registrant's Series C 11 3/4 % Senior
Secured Step-up Notes.
53
5 Opinion of Fried, Frank, Harris, Shriver & Jacobson as to the legality
of the Registered Notes being registered.
8 Opinion of Fried, Frank, Harris, Shriver & Jacobson, as to certain
federal income tax consequences.
11 Statement regarding computation of Registrant's Earnings per share
(filed as Exhibit 11.1 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, and incorporated herein by
reference).
12.1 Statement regarding computation of the Registrant's supplemental
ratios of earnings to fixed charges (filed as Exhibit 11.2 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, and incorporated herein by reference).
13.1 Annual Report to security holders filed on Form 10-K for the fiscal
year ended December 31, 1996.
13.2 Quarterly Report to security holders filed on Form 10-Q for the
quarter ended March 31, 1997.
13.3 Quarterly Report to security holders filed on Form 10-Q for the
quarter ended June 30, 1997.
21 List of Subsidiaries of the Registrant (filed as Exhibit 21.1 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and incorporated herein by reference).
23.1 Consent of Arthur Andersen, LLP, with respect to the Registrant.
23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in the
opinion filed as Exhibit 5).
24 Power of Attorney (included in the Registration Statement at p. II-3).
25 State Street Bank and Trust Company Statement of Eligibility and
Qualification under the Trust Indenture Act of 1939 on Form T-1.
99.1 Letter of Transmittal for Exchange Offer.
ITEM 21(B). FINANCIAL STATEMENT SCHEDULES
All financial statement schedules of the Company which are required to be
included herein are included in the Annual Report of the Company on Form 10-K
for the fiscal year ended December 31, 1996 and the Company's Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997, all three
of which are attached hereto as Exhibits and incorporated herein by reference.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
54
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ARLINGTON, STATE OF
TENNESSEE, ON OCTOBER 2, 1997.
WRIGHT MEDICAL TECHNOLOGY, INC.
By:/s/Thomas M. Patton
Thomas M. Patton
Vice President and General Counsel
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THIS 2nd DAY OF OCTOBER, 1997.
NAME TITLE
*/s/Richard D. Nikolaev Director, President and
Richard D. Nikolaev Chief Executive Officer
(Principal Executive
Officer)
*/s/Lewis H. Ferguson, III Director
Lewis H. Ferguson, III
*/s/William J. Kidd Director
William J. Kidd
*/s/Kurt L. Kamm Director
Kurt L. Kamm
55
*/s/Walter S. Hennig Director
Walter S. Hennig
*/s/Gregory K. Butler Vice President and Chief
Gregory K. Butler Financial Officer
(Principal Financial
Officer)
*/s/Joyce B. Jones Controller
Joyce B. Jones (Principal Accounting
Officer)
*By:/s/Thomas M. Patton Attorney-in-fact
Thomas M. Patton
56
EXHIBIT INDEX
Exhibit
No. Description
*3.1 Articles of Incorporation (filed as Exhibit 3.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995
and incorporated herein by reference).
*3.2 Bylaws (filed as Exhibit 3.2 to Registrant's Registration on Form S-4
No. 33-69286 filed by the Company on November 10, 1993 and
incorporated herein by reference).
*4.1 Indenture dated as of August 7, 1997 between the Registrant and State
Street Bank and Trust Company, as Trustee.
*4.2 Form of Note for the Registrant's Series D 11 3/4 % Senior Secured
Step-up Note.
*4.3 Registration Rights Agreement dated as of August 7, 1997 between the
Registrant and Holders of the Registrant's Series C 11 3/4 % Senior
Secured Step-up Notes.
*5 Opinion of Fried, Frank, Harris, Shriver & Jacobson as to the legality
of the Registered Notes being registered.
8 Opinion of Fried, Frank, Harris, Shriver & Jacobson, as to certain
federal income tax consequences.
*11 Statement regarding computation of Registrant's Earnings per share
(filed as Exhibit 11.1 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, and incorporated herein by
reference).
*12.1 Statement regarding computation of the Registrant's supplemental
ratios of earnings to fixed charges (filed as Exhibit 11.2 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, and incorporated herein by reference).
*13.1 Annual Report to security holders filed on Form 10-K for the fiscal
year ended December 31, 1996.
*13.2 Quarterly Report to security holders filed on Form 10-Q for the
quarter ended March 31, 1997.
*13.3 Quarterly Report to security holders filed on Form 10-Q for the
quarter ended June 30, 1997.
*21 List of Subsidiaries of the Registrant (filed as Exhibit 21.1 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and incorporated herein by reference).
*23.1 Consent of Arthur Andersen, LLP, with respect to the Registrant.
*23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in the
opinion filed as Exhibit 5).
*24 Power of Attorney (included in the Registration Statement at p. II-3).
*25 State Street Bank and Trust Company Statement of Eligibility and
Qualification under the Trust Indenture Act of 1939 on Form T-1.
*99.1 Letter of Transmittal for Exchange Offer.
* Previously filed with Form S-4 on September 3, 1997.