<PAGE> 1
This filing is made pursuant
to Rule 424(b)(1) under
the Securities Act of
1933 in connection with
Registration No. 333-55731
PROSPECTUS
OFFER TO EXCHANGE
8 1/8% SENIOR SUBORDINATED NOTES DUE 2008 (THE "NEW NOTES")
FOR ALL OUTSTANDING 8 1/8% SENIOR SUBORDINATED NOTES DUE 2008
(THE "INITIAL NOTES") OF
FURON LOGO
------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME ON JULY 22, 1998 UNLESS EXTENDED.
------------------------
Furon Company (the "Company") is offering (the "Exchange Offer"), upon the
terms and subject to the conditions set forth in this Prospectus (the
"Prospectus") and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange $1,000 principal amount of its 8 1/8% Senior
Subordinated Notes Due 2008 (the "New Notes"), which have been registered under
the Securities Act of 1933, as amended (the "Securities Act"), for each $1,000
principal amount of its outstanding 8 1/8% Senior Subordinated Notes Due 2008
(the "Initial Notes"), of which $125,000,000 in aggregate principal amount was
issued on March 4, 1998 and is outstanding as of the date hereof. The form and
terms of the New Notes are the same as the form and terms of the Initial Notes
except that (i) the New Notes will have been registered under the Securities
Act, and, therefore, the New Notes will not bear legends restricting the
transfer thereof and (ii) holders of the New Notes will not be entitled to
certain rights of holders of the Initial Notes under the Registration Rights
Agreement (as defined), which rights will terminate upon the consummation of the
Exchange Offer. The New Notes will evidence the same indebtedness as the Initial
Notes (which they replace) and will be entitled to the benefits of the Indenture
(as defined). The Initial Notes and the New Notes are sometimes referred to
herein collectively as the "Notes." See "The Exchange Offer" and "Description of
the Notes."
The New Notes will bear interest at the same rate and on the same terms as
the Initial Notes. Consequently, the New Notes will bear interest at the rate of
8 1/8% per annum and the interest thereon will be payable semi-annually on March
1 and September 1 of each year, commencing September 1, 1998. The New Notes will
bear interest from and including the date of issuance of the Initial Notes
(March 4, 1998). Holders whose Initial Notes are accepted for exchange will be
deemed to have waived the right to receive any interest accrued on the Initial
Notes.
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after March 1, 2003, at the redemption prices set forth
herein, plus accrued and unpaid interest and Liquidated Damages (as defined), if
any, to the date of redemption. In addition, at any time prior to March 1, 2001
the Company may, at its option, redeem up to 35% of the original aggregate
principal amount of the Notes at a redemption price equal to 108.125% of the
principal amount thereof plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the redemption date, with the net cash proceeds of
one or more Public Equity Offerings (as defined); provided that at least 65% of
the original aggregate principal amount of the Notes remains outstanding
immediately after each such redemption. See "Description of the
Notes -- Optional Redemption."
In the event of a Change of Control (as defined), each holder of the Notes
will have the right, at the holder's option, to require the Company to purchase
the Notes at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages, if any, to the date of
purchase. See "Description of the Notes -- Repurchase at the Option of
Holders -- Change of Control."
The Notes are general unsecured obligations of the Company subordinate in
the right of payment to all existing and future Senior Debt (as defined) of the
Company, including all obligations under the Credit Facility (as defined). As of
May 2, 1998, the Company had approximately $27.0 million of Senior Debt
outstanding (excluding unused commitments of approximately $173.0 million under
the Credit Facility). See "Capitalization" and "Description of the
Notes -- Subordination."
------------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE NOTES, SEE "RISK FACTORS," BEGINNING ON
PAGE 7.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
THE DATE OF THIS PROSPECTUS IS JUNE 17, 1998.
------------------------
<PAGE> 2
THE COMPANY WILL ACCEPT FOR EXCHANGE ANY AND ALL VALIDLY TENDERED INITIAL
NOTES NOT WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON JULY 22, 1998,
UNLESS THE EXCHANGE OFFER IS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION (THE
"EXPIRATION DATE"). TENDERS OF INITIAL NOTES MAY BE WITHDRAWN AT ANY TIME PRIOR
TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE. THE EXCHANGE OFFER IS
NOT CONDITIONED UPON ANY MINIMUM PRINCIPAL AMOUNT OF INITIAL NOTES BEING
TENDERED FOR EXCHANGE. INITIAL NOTES MAY BE TENDERED ONLY IN INTEGRAL MULTIPLES
OF $1,000. IN THE EVENT THE COMPANY TERMINATES THE EXCHANGE OFFER AND DOES NOT
ACCEPT FOR EXCHANGE ANY INITIAL NOTES, THE COMPANY WILL PROMPTLY RETURN ALL
PREVIOUSLY TENDERED INITIAL NOTES TO THE HOLDERS THEREOF.
------------------------
Based on interpretations by the staff of the Commission set forth in
no-action letters issued to third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer in exchange for Initial Notes may be
offered for resale, resold and otherwise transferred by a holder thereof (other
than (i) a broker-dealer who purchases such New 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), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that the holder is acquiring the New Notes in the ordinary course of its
business and is not participating, and had no arrangement or understanding with
any person to participate, in the distribution of the New Notes. Holders of
Initial Notes wishing to accept the Exchange Offer must represent to the
Company, as required by the Registration Rights Agreement, that such conditions
have been met.
The Initial Notes were issued March 4, 1998 to qualified institutional
buyers and are eligible for trading in the Private Offerings, Resales and
Trading through Automated Linkages ("PORTAL") market. There is no existing
trading market for the New Notes and the Company does not intend to list the New
Notes on any securities exchange or to seek approval for quotation through any
automated quotation system. There can be no assurance that an active market for
the New Notes will develop. To the extent that a market for the New Notes does
develop, the market value of the New Notes will depend on market conditions
(such as yields on alternative investments), general economic conditions, the
Company's financial condition and certain other factors. Such conditions might
cause the New Notes, to the extent that they are traded, to trade at a
significant discount from face value. See "Risk Factors -- Absence of Public
Market For Notes."
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such New
Notes. Any broker-dealer that resells New 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. 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 New Notes received
in exchange for Initial Notes where such Initial Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has indicated its intention to make this Prospectus (as
it may be amended or supplemented) available to any broker-dealer for use in
connection with any such resale for the period required by the Securities Act.
See "Plan of Distribution."
The Company will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection with
this Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF INITIAL NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT
i
<PAGE> 3
BE IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH
JURISDICTION.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL SEPTEMBER 15, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS OFFERING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS IN CONNECTION
THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
THE NEW NOTES WILL BE AVAILABLE INITIALLY ONLY IN BOOK-ENTRY FORM. THE
COMPANY EXPECTS THAT THE NEW NOTES ISSUED PURSUANT TO THE EXCHANGE OFFER WILL BE
ISSUED IN THE FORM OF ONE OR MORE FULLY REGISTERED GLOBAL NOTES THAT WILL BE
DEPOSITED WITH, OR ON BEHALF OF, THE DEPOSITORY TRUST COMPANY ("DTC" OR
"DEPOSITARY") AND REGISTERED IN ITS NAME OF CEDE & CO., AS ITS NOMINEE.
BENEFICIAL INTERESTS IN THE GLOBAL NOTE REPRESENTING THE NEW NOTES WILL BE SHOWN
ON, AND TRANSFERS THEREOF WILL BE EFFECTED ONLY THROUGH, RECORDS MAINTAINED BY
THE DEPOSITARY AND ITS PARTICIPANTS. AFTER THE INITIAL ISSUANCE OF SUCH GLOBAL
NOTE, NEW NOTES IN CERTIFICATED FORM WILL BE ISSUED IN EXCHANGE FOR THE GLOBAL
NOTE IN ACCORDANCE WITH THE TERMS AND CONDITIONS SET FORTH IN THE INDENTURE. SEE
"DESCRIPTION OF THE NOTES -- BOOK ENTRY, DELIVERY AND FORM."
------------------------
MARKET DATA
The market data presented herein are based upon estimates by management of
the Company, utilizing various third party sources, where available. While
management believes that such estimates are reasonable and reliable, in certain
cases, such estimates cannot be verified by information available from
independent sources. Accordingly, no assurance can be given that such market
data are accurate in all material respects.
ii
<PAGE> 4
AVAILABLE INFORMATION
The Company is subject to the reporting requirements of Section 13(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission ("SEC" or "Commission"). The Registration Statement,
including the exhibits and schedules thereto, as well as reports, proxy and
information statements and other information filed by the Company may be
inspected and copied at the public reference facilities maintained by the SEC at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, or at its regional
offices located at Northwest Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, New York, New York 10048.
Copies of such material can be obtained at prescribed rates from the Public
Reference Section of the SEC, 450 Fifth Street, N.W., Washington, D.C. 20549.
The SEC maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. Such reports and other information may be found on the Internet at
http://www.sec.gov. Copies of such material also can be obtained from the
Company upon request.
The Company's common stock is listed on the New York Stock Exchange.
Reports, proxy and information statements and other information concerning the
Company can be inspected at the New York Stock Exchange.
In the event that the Company ceases to be subject to the informational
reporting requirements of the Exchange Act, the Company has agreed that, so long
as any Notes remain outstanding, it will furnish to the Trustee and deliver or
cause to be delivered to the holders of the Notes copies of (i) 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 and, with respect to annual information only, a report
thereon by the Company's independent public accountants and (ii) all reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports.
------------------------
INCORPORATION BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
FURON COMPANY, ATTENTION: CHIEF FINANCIAL OFFICER, 29982 IVY GLENN DRIVE, LAGUNA
NIGUEL, CALIFORNIA 92677, (949) 831-5350. IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JULY 15, 1998.
The following documents are hereby incorporated by reference into this
Prospectus:
(1) 1998 Annual Report on Form 10-K (Incorporated by reference to the
Registrant's 1998 Annual Report on Form 10-K filed on April 9, 1998).
(2) The Proxy Statement prepared by the Company in connection with its
1998 Annual Meeting of Shareholders (Incorporated by reference to the
Registrant's 1998 Definitive Proxy Statement on Schedule 14A filed on May
6, 1998).
(3) The Company's Quarterly Report on Form 10-Q for the three months
ended May 2, 1998 (Incorporated by reference to the Registrant's Quarterly
Report on Form 10-Q filed on May 29, 1998).
(4) All documents hereafter filed by the Registrant pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the date on
which the Exchange Offer is consummated.
iii
<PAGE> 5
THE COMPANY
OVERVIEW
Furon Company ("Furon" or "the Company"), founded in 1955 and incorporated
in California in 1957, is a leading designer, developer and manufacturer of
highly engineered products made primarily from specially formulated high
performance polymer materials. Furon's products are used in a wide range of
applications primarily by original equipment manufacturers ("OEMs") in
industrial markets and by end-users in healthcare markets. The Company focuses
on niche markets and applications for which it can provide its customers
application-specific product solutions based on the Company's polymer based
materials technology, engineering expertise and production technology. In
January 1997, as part of its strategy to leverage its materials and
manufacturing technology expertise into other attractive market segments, the
Company acquired Medex, Inc. ("Medex"), a producer of polymer based medical
device products.
Previously the Company operated and reported under a single segment.
Subsequent to the acquisition of Medex, management determined to operate the
Company under two segments. The Company's products are segmented into two broad
categories: industrial products and medical device products.
Furon's executive offices are located at 29982 Ivy Glenn Drive, Laguna
Niguel, California 92677. The telephone number is (949) 831-5350.
THE EXCHANGE OFFER
THE EXCHANGE OFFER............ The Company is hereby offering to exchange
$1,000 principal amount of New Notes for each
$1,000 principal amount of Initial Notes that
are properly tendered and accepted. The Company
will issue New Notes on or promptly after the
Expiration Date. As of the date hereof, there
is $125,000,000 aggregate principal amount of
Initial Notes outstanding. See "The Exchange
Offer."
REGISTRATION RIGHTS
AGREEMENT..................... The Initial Notes were sold by the Company on
March 4, 1998 (the "Closing Date") to Lehman
Brothers Inc., Bear, Stearns & Co. Inc. and BNY
Capital Markets, Inc. (the "Initial
Purchasers") pursuant to a Purchase Agreement,
dated February 26, 1998, by and among the
Company and the Initial Purchasers (the
"Purchase Agreement"). The Initial Purchasers
subsequently sold the Initial Notes to third
parties. See "The Exchange Offer -- Purpose of
the Exchange Offer." Pursuant to the Purchase
Agreement, the Company and the Initial
Purchasers entered into a Registration Rights
Agreement, dated as of March 4, 1998 (the
"Registration Rights Agreement"), which grants
the holders of the Initial Notes certain
exchange and registration rights. The Exchange
Offer is intended to satisfy such rights, which
will terminate upon the consummation of the
Exchange Offer. The holders of the New Notes
will not be entitled to any exchange or
registration rights with respect to the New
Notes. See "The Exchange Offer -- Termination
of Certain Rights."
EXPIRATION DATE............... The Exchange Offer will expire at 5:00 p.m. New
York City time, on July 22, 1998, unless the
Exchange Offer is extended by the Company in
its sole discretion, in which case the term
"Expiration Date" shall mean the latest date
and time to which the Exchange Offer is
extended. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments."
ACCRUED INTEREST ON THE NEW
NOTES AND THE INITIAL NOTES... The New Notes will bear interest from and
including the date of issuance of the Initial
Notes (March 4, 1998). Holders whose
1
<PAGE> 6
Initial Notes are accepted for exchange will be
deemed to have waived the right to receive any
interest accrued on the Initial Notes. See "The
Exchange Offer -- Interest on the New Notes."
CONDITIONS TO THE EXCHANGE
OFFER......................... The Company reserves the right in its sole and
absolute discretion, subject to applicable law,
at any time and from time to time, (i) to delay
the acceptance of the Initial Notes for
exchange, (ii) to terminate the Exchange Offer
if certain specified conditions have not been
satisfied, (iii) to extend the Expiration Date
of the Exchange Offer and retain all Initial
Notes tendered pursuant to the Exchange Offer,
subject, however, to the right of holders of
Initial Notes to withdraw their tendered
Initial Notes, or (iv) to waive any condition
or otherwise amend the terms of the Exchange
Offer in any respect. See "The Exchange
Offer -- Terms of the Exchange Offer." In
addition, the Exchange Offer is subject to
certain customary conditions that may be waived
by the Company. The Exchange Offer is not
conditioned upon any minimum aggregate
principal amount of Initial Notes being
tendered for exchange. See "The Exchange
Offer -- Conditions."
PROCEDURES FOR TENDERING
INITIAL NOTES................. Each holder of Initial Notes wishing to accept
the Exchange Offer must complete, sign and date
the Letter of Transmittal, or a facsimile
thereof, in accordance with the instructions
contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal,
or such facsimile, together with such Initial
Notes and any other required documentation to
The Bank of New York (the "Exchange Agent"), at
the address set forth herein. By executing the
Letter of Transmittal, the holder will
represent to and agree with the Company that,
among other things, (i) the New Notes to be
acquired by such holder of Initial Notes in
connection with the Exchange Offer are being
acquired by such holder in the ordinary course
of its business, (ii) such holder has no
arrangement or understanding with any person to
participate in a distribution of the New Notes,
(iii) that if such holder is a broker-dealer
registered under the Exchange Act or is
participating in the Exchange Offer for the
purposes of distributing the New Notes, such
holder will comply with the registration and
prospectus delivery requirements of the
Securities Act in connection with a secondary
resale transaction of the New Notes acquired by
such person and cannot rely on the position of
the staff of the Commission set forth in
no-action letters (see "The Exchange
Offer -- Resale of the New Notes"), (iv) such
holder understands that a secondary resale
transaction described in clause (iii) above and
any resales of New Notes obtained by such
holder in exchange for Initial Notes acquired
by such holder directly from the Company should
be covered by an effective registration
statement containing the selling securityholder
information required by Item 507 or Item 508,
as applicable, of Regulation S-K of the
Commission and (v) such holder is not an
"affiliate," as defined in Rule 405 under the
Securities Act, of the Company. Any
broker-dealer that resells New 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. If the holder is a
broker-dealer that will
2
<PAGE> 7
receive New Notes for its own account in
exchange for Initial Notes that were acquired
as a result of market-making activities or
other trading activities, such holder will be
required to acknowledge in the Letter of
Transmittal that such holder will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
such New Notes; however, by so acknowledging
and by delivering a prospectus, such holder
will not be deemed to admit that it is an
"underwriter" within the meaning of the
Securities Act. See "The Exchange Offer --
Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. Any beneficial owner whose Initial Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender such Initial 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 such owner's own behalf, such
owner must, prior to completing and executing
the Letter of Transmittal and delivering such
owner's Initial Notes, either make appropriate
arrangements to register ownership of the
Initial 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."
GUARANTEED DELIVERY
PROCEDURES.................... Holders of Initial Notes who wish to tender
their Initial Notes and whose Initial Notes are
not immediately available or who cannot deliver
their Initial 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
Initial Notes according to the guaranteed
delivery procedures set forth under "The
Exchange Offer -- Guaranteed Delivery
Procedures."
ACCEPTANCE OF THE INITIAL
NOTES AND DELIVERY OF THE NEW
NOTES....................... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Company
will accept for exchange any and all Initial
Notes that are properly tendered in the
Exchange Offer prior to the Expiration Date.
The New Notes issued pursuant to the Exchange
Offer will be delivered within five business
days following the Expiration Date. See "The
Exchange Offer -- Terms of the Exchange Offer."
WITHDRAWAL RIGHTS............. Tenders of Initial Notes may be withdrawn at
any time prior to the Expiration Date. See "The
Exchange Offer -- Withdrawal of Tenders."
EXCHANGE AGENT................ The Bank of New York, the Trustee under the
Indenture, is serving as the Exchange Agent in
connection with the Exchange Offer. The mailing
address of the Exchange Agent is 101 Barclay
St. -- Floor 7E, New York, New York 10286. For
assistance and requests for additional copies
of this Prospectus, the Letter of Transmittal
or the Notice of Guaranteed Delivery, the
telephone number for the Exchange Agent is
(212) 815-6337, and the facsimile number for
the Exchange Agent is (212) 815-6339.
3
<PAGE> 8
THE NEW NOTES
The Exchange Offer applies to the entire aggregate principal amount of the
Initial Notes. The form and terms of the New Notes are the same as the form and
terms of the Initial Notes except that (i) the exchange will have been
registered under the Securities Act and, therefore, the New Notes will not bear
legends restricting the transfer thereof and (ii) holders of the New Notes will
not be entitled to certain rights of holders of the Initial Notes under the
Registration Rights Agreement, which rights will terminate upon consummation of
the Exchange Offer. The New Notes will evidence the same indebtedness as the
Initial Notes (which they replace) and will be issued under, and be entitled to
the benefits of, the Indenture. For further information and for definitions of
certain capitalized terms used below, see "Description of the Notes."
INTEREST PAYMENT DATES........ Interest on the New Notes will accrue from the
date of original issuance of the Initial Notes
for which they are exchanged (the "Issue Date")
and will be payable semi-annually on March 1
and September 1, commencing on September 1,
1998.
MATURITY DATE................. March 1, 2008.
OPTIONAL REDEMPTION........... The New Notes will be redeemable at the option
of the Company, in whole or in part, at any
time on or after March 1, 2003, at the
redemption prices set forth herein, plus
accrued and unpaid interest, thereon to the
applicable redemption date. In addition, at any
time prior to March 1, 2001, the Company may
redeem up to 35% of the original aggregate
principal amount of the Notes at a redemption
price equal to 108.125% of the principal amount
thereof plus accrued and unpaid interest and
Liquidated Damages, if any, to the redemption
date, with the net cash proceeds of one or more
Public Equity Offerings, provided that at least
65% of the original aggregate principal amount
of the Notes remains outstanding immediately
after each such redemption. See "Description of
the Notes -- Optional Redemption."
CHANGE OF CONTROL............. Upon a Change of Control, each holder will have
the right, at the holder's option, to require
the Company to purchase the New Notes at a
price equal to 101% of the principal amount
thereof plus accrued and unpaid interest and
Liquidated Damages, if any, to the purchase
date. See "Description of the
Notes -- Repurchase at the Option of
Holders -- Change of Control."
RANKING....................... The New Notes will be general unsecured
obligations of the Company subordinate in right
of payment to all existing and future Senior
Debt of the Company, and senior in right of
payment or pari passu with all other
indebtedness of the Company. As of May 2, 1998,
the Company had approximately $27.0 million of
Senior Debt outstanding excluding unused
commitments of approximately $173.0 million
under the Credit Facility (as defined). See
"Capitalization" and "Description of the
Notes -- Subordination."
CERTAIN COVENANTS............. The Indenture pursuant to which the New Notes
will be issued (the "Indenture") contains
certain covenants that, among other things,
limit the ability of the Company and its
Restricted Subsidiaries (as defined) to (i)
incur additional indebtedness and issue
preferred stock; (ii) pay dividends or make
certain other restricted payments; (iii) enter
into transactions with affiliates; (iv) create
certain liens; (v) make certain asset
dispositions; (vi) merge or consolidate with,
or transfer substantially all of its assets to,
another Person. See "Description of the
Notes -- Certain Covenants." In
4
<PAGE> 9
addition, under certain circumstances, the
Company will be required to offer to purchase
the Notes at a price equal to 100% of the
principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any,
to the date of purchase, with the net cash
proceeds of certain sales and other
dispositions of assets. See "Description of the
Notes -- Repurchase at the Option of
Holders -- Asset Sales."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE NOTES, SEE "RISK FACTORS."
5
<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table presents summary consolidated financial information and
other data for the Company for the periods indicated. The financial information
and other data for the fiscal years ended February 3, 1996, February 1, 1997,
and January 31, 1998 are derived from the Company's audited consolidated
financial statements, which were audited by Ernst & Young LLP, independent
auditors. The financial information and other data for the three months ended
May 3, 1997 and May 2, 1998 are derived from the Company's unaudited financial
statements and, in the opinion of management, contain all adjustments
(consisting solely of normal recurring accruals) necessary for a fair
presentation of the Company's consolidated financial position at such dates and
results of operations and cash flows for such periods. The results of operations
for fiscal 1997 and fiscal 1998 include the results of Medex from the date of
its acquisition, January 2, 1997. The results of operations for the three months
ended May 2, 1998 are not necessarily indicative of results to be expected for
the Company's full fiscal year. The following financial information and other
data should be read in conjunction with "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements and the related notes
thereto, and the other information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
--------------------------------------- -------------------
FEBRUARY 3, FEBRUARY 1, JANUARY 31, MAY 3, MAY 2,
1996 1997 1998 1997 1998
----------- ----------- ----------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................... $344,886 $390,105 $485,631 $119,649 $119,805
Cost of sales....................................... 249,102 281,581 329,325 81,330 82,539
-------- -------- -------- -------- --------
Gross profit........................................ 95,784 108,524 156,306 38,319 37,266
Selling, general and administrative expenses........ 78,337 84,325 115,555 28,139 27,561
Write-off of acquired in-process research and
development(1).................................... -- 53,700 -- -- --
Nonrecurring charges(1)............................. -- 4,329 (660) -- (417)
Other (income) expense.............................. (3,282) (4,265) (1,114) (247) (721)
Interest expense, net............................... 2,315 2,669 10,788 2,886 2,932
-------- -------- -------- -------- --------
Income (loss) before income taxes................... 18,414 (32,234) 31,737 7,541 7,911
Provision for income taxes.......................... 5,245 7,517 9,997 2,564 2,492
-------- -------- -------- -------- --------
Net income (loss).......................... $ 13,169 $(39,751) $ 21,740 $ 4,977 $ 5,419
======== ======== ======== ======== ========
OTHER DATA:
EBITDA(2)........................................... $ 35,804 $ 45,623 $ 64,185 $ 16,064 $ 16,227
Capital expenditures................................ 13,570 18,936 13,401 2,892 5,166
Depreciation and amortization....................... 15,075 17,159 22,320 5,637 5,801
Ratio of EBITDA to interest expense, net............ 15.5x 17.1x 5.9x 5.6x 5.5x
Ratio of total debt to EBITDA....................... 1.1x 3.9x 2.3x 10.9x 9.9x
Ratio of earnings to fixed charges(3)............... 9.0x -- 3.9x 3.6x 3.7x
</TABLE>
<TABLE>
<CAPTION>
FEBRUARY 1, JANUARY 31, MAY 3, MAY 2,
1997 1998 1997 1998
----------- ----------- -------- --------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 78,824 $ 72,444 $ 83,579 $ 86,290
Total assets................................................ 343,351 346,349 342,488 375,413
Total debt.................................................. 177,984 149,623 174,986 159,908
Shareholders' equity........................................ 61,344 81,139 64,957 85,650
</TABLE>
- - ---------------
(1) In connection with the acquisition of Medex, the Company wrote-off $53.7
million of acquired in-process research and development and recorded
nonrecurring charges of $4.3 million for expenses related to severance and
facility rationalization.
(2) "EBITDA," as presented, represents income (loss) before income taxes plus
depreciation and amortization, interest expense, net, write-off of acquired
in process research and development and nonrecurring charges. EBITDA is
included because management understands that such information is considered
by certain investors to be an additional basis for evaluating the Company's
ability to pay interest, repay debt, and make capital expenditures. EBITDA
should not be considered an alternative to measures of operating performance
as determined in accordance with generally accepted accounting principles,
including net income (loss) as a measure of the Company's operating results
and cash flows as a measure of the Company's liquidity. Because EBITDA is
not calculated identically by all companies, the presentation herein may not
be comparable to other similarly titled measures of other companies.
(3) For purposes of this computation, earnings consist of income (loss) before
income taxes plus fixed charges. Income before income taxes is stated after
amortization of goodwill, depreciation, other non-cash charges and interest
expense, net. Fixed charges consist of interest expense, net. Earnings were
insufficient to cover fixed charges by $29.6 million for fiscal 1997 due to
the write-off of acquired in-process research and development and
nonrecurring charges.
6
<PAGE> 11
RISK FACTORS
Prospective purchasers of the Notes offered hereby should consider
carefully the following factors, as well as the other information contained in
this Prospectus.
THIS PROSPECTUS CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT,
INCLUDING, WITHOUT LIMITATION, STATEMENTS THAT INCLUDE THE WORDS "BELIEVES,"
"EXPECTS," "ANTICIPATES" OR SIMILAR EXPRESSIONS AND STATEMENTS RELATING TO
ANTICIPATED COST SAVINGS, THE COMPANY'S STRATEGIC PLANS, CAPITAL EXPENDITURES,
INDUSTRY TRENDS AND PROSPECTS AND THE COMPANY'S FINANCIAL POSITION. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND
OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE
COMPANY TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH
FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT ITS PLANS,
INTENTIONS AND EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH PLANS, INTENTIONS OR EXPECTATIONS
WILL BE ACHIEVED. CAUTIONARY STATEMENTS ARE SET FORTH BELOW AND ELSEWHERE IN THE
PROSPECTUS INCLUDING, WITHOUT LIMITATION, UNDER THE CAPTIONS "PROSPECTUS
SUMMARY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS." 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 THE CAUTIONARY STATEMENTS
AND RISK FACTORS CONTAINED THROUGHOUT THIS PROSPECTUS.
SUBSTANTIAL LEVERAGE AND DEBT SERVICE
The Company is highly leveraged. On May 2, 1998, the Company's total debt
outstanding was approximately $159.9 million. See "Capitalization" and "Selected
Consolidated Financial Data." The Company also had borrowing availability under
the Credit Facility of approximately $173.0 million.
The Company's ability to make scheduled payments of principal of, or to pay
the premium, if any, interest or Liquidated Damages, if any, thereon, or to
refinance its indebtedness (including the Notes), or to fund planned capital
expenditures, will depend upon its future performance, which, in turn, is
subject to general economic, financial, competitive, legislative, regulatory,
judicial and other factors that are beyond its control. Based upon current
levels of operations and anticipated growth in revenues and cost savings,
management believes that the Company's cash flow from operations, amounts
available under the Credit Facility and available cash will be adequate to meet
its anticipated future requirements for working capital, capital expenditures
and scheduled payments of principal and interest on its indebtedness, including
the Notes. There can be no assurance, however, that the Company's business will
generate cash flow at or above anticipated levels or that the Company will be
able to borrow funds under the Credit Facility in an amount sufficient to enable
the Company to service its indebtedness, including the Notes, or make
anticipated capital expenditures. If the Company is unable to generate
sufficient cash flow from operations or to borrow sufficient funds in the
future, it may be required to sell assets, reduce capital expenditures,
refinance all or a portion of its existing indebtedness (including the Notes) or
obtain additional financing. There can be no assurance that any such refinancing
would be available on commercially reasonable terms, or at all, or that any
additional financing could be obtained, particularly in view of the Company's
high level of indebtedness and the restrictions on the Company's ability to
incur additional indebtedness under the Credit Facility and the Indenture.
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including but not limited to: (i) making
it more difficult for the Company to satisfy its obligations with respect to the
Notes; (ii) increasing the Company's vulnerability to general adverse economic
and industry conditions; (iii) limiting the Company's ability to obtain
additional financing to fund future working capital, capital expenditures and
other general corporate requirements; (iv) requiring the dedication of a
substantial portion of the Company's cash flow from operations to the payment of
principal of, and interest on, its indebtedness, thereby reducing the
availability of such cash flow to fund working capital, capital expenditures or
other general corporate requirements; (v) limiting the Company's flexibility in
planning for, or reacting to, changes in its business and the industry in which
it competes; and (vi) placing the Company at a competitive disadvantage relative
to less leveraged or better capitalized competitors. In addition, the Indenture
and the
7
<PAGE> 12
Credit Facility contain financial and other restrictive covenants that limit,
among other things, the ability of the Company to borrow additional funds.
Failure by the Company to comply with such covenants could result in events of
default under the Indenture and the Credit Facility which, if not cured or
waived, could permit the indebtedness thereunder to be accelerated which would
have a material adverse effect on the Company's business, financial condition
and results of operations. In addition, the degree to which the Company is
leveraged could prevent it from repurchasing all of the Notes tendered to it
upon the occurrence of a Change of Control. See "Description of Certain
Indebtedness" and "Description of Notes -- Repurchase at the Option of
Holders -- Change of Control."
SENSITIVITY TO GENERAL ECONOMIC AND INDUSTRY CONDITIONS
The Company's industrial products business, and the industrial equipment,
transportation, electronics and process industries markets it serves, are
cyclical in nature and affected by the general trends of the economy. During
economic downturns, these markets tend to experience declines, which in turn
diminish demand for the Company's products and can lead to decreases in prices
for such products. As a result of this cyclicality, the Company has experienced,
and in the future could experience, reduced net sales and profit margins. There
can be no assurance that a prolonged economic downturn would not have a material
adverse effect on the Company.
COMPETITION
The Company has a number of competitors, some of which are larger and have
greater financial resources than the Company. There can be no assurance that the
Company will have sufficient resources to continue to make the investments
necessary to maintain its current competitive position, or that other
competitors with greater financial resources will not attempt to enter the
market. The failure to remain competitive could have a material adverse effect
on the Company's business, financial condition and results of operations.
RAW MATERIALS
Furon estimates that material costs represented approximately 37% of the
Company's fiscal 1998 net sales. Furon purchases its raw materials, primarily
polymer resins from numerous suppliers. The largest amount of resins used by the
Company are polytetrafluouroethylene ("PTFE") and related resins, a nylon sold
under the trade name Rilsan and certain silicone polymers. The Company purchases
its requirements for PTFE and related resins and silicone polymers from the
major suppliers of these resins. Elf Atochem North America, Inc. is the
Company's sole source for Rilsan. Rilsan is used primarily in the production of
heavy duty air brake tubing. Sources of material which can be substituted for
Rilsan are available in the event a shortage of Rilsan develops. Although the
Company seeks to reduce dependence on those sole and limited source suppliers,
the partial or complete loss of certain of these sources could have at least a
temporary adverse effect on the Company's results of operations and damage
customer relationships. Prices for polymer resins have varied widely in recent
years. The increase in the price or the unavailability of one or more of these
resins could have a material adverse effect on the Company's business, financial
condition or results of operations.
CONCENTRATION OF BUYING POWER
Many existing and potential customers for the Company's medical device
products have combined into group purchasing organizations ("GPOs") which are
quite large and which often enter into exclusive purchase commitments with as
few as one or two providers of medical device products for a period of several
years. If the Company is not one of the selected providers, it may be precluded
from making sales to members of a GPO for several years. Even if the Company is
one of the selected providers, the Company may be required to commit to pricing
which has an adverse effect on its net sales and profit margins.
TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS
The markets for some of the Company's products are characterized by
frequent refinement and enhancement of existing products, new product
introductions and by declining average selling prices over
8
<PAGE> 13
product life cycles. The Company's future prospects are highly dependent upon
the timely completion and introduction of new products at competitive
performance and price levels. The Company also must respond to current
competitors which may choose to increase their presence in the Company's
markets, and to new competitors which may choose to enter those markets. In
addition, while the Company is not aware of any new fundamental technologies for
highly engineered polymer products that are likely to be a significant factor in
the near future, no assurance can be given that the Company's competitors will
not introduce new technological improvements that could place the Company at a
competitive disadvantage. The failure by the Company to make timely introduction
of new products or respond to competitive threats could have a material adverse
effect on its business, financial condition or results of operations.
ACQUISITIONS AND INTEGRATION OF OPERATIONS
The Company's business strategy, particularly for the medical device
business, contemplates continued expansion, including growth through
acquisitions, joint ventures or strategic alliances. There can be no assurance
that the Company will be able to consummate future acquisitions, joint ventures
or strategic alliances, if any, on terms that are favorable to the Company. The
Company's ability to grow in this manner is dependent upon, and may be limited
by the availability of suitable acquisition candidates or partners and capital
resources available to the Company. Moreover, the Company may incur significant
expenses in connection with the consummation of these transactions.
Additionally, the integration of the operations of the Company and any past,
present or future acquired businesses or companies, and the coordination of
their respective sales and marketing staffs and the implementation of
appropriate operational, financial and management systems and controls may
require significant financial resources and substantial attention from
management. Any inability of the Company to integrate any past, present or
future acquired business or companies successfully in a timely and efficient
manner could have a material adverse effect on the Company's business, financial
condition or results of operations.
INTERNATIONAL SALES AND OPERATIONS
International sales accounted for 22.5% and 25.5% of the Company's net
sales in fiscal 1997 and fiscal 1998, respectively, and the Company expects that
international sales may increase as a percentage of net sales in the future. As
a result of its international sales and foreign operations, including
manufacturing facilities in Germany, Belgium and the United Kingdom, the Company
generates certain revenues and incurs certain operating expenses in foreign
currencies and is therefore, subject to changes in currency exchange rates in
relation to the U.S. dollar. There can be no assurance that measures taken by
the Company to mitigate its exchange rate risk, including manufacturing and
procuring its products in the same country or region in which products are sold
and periodically engaging in hedging transactions such as forward exchange
contracts, will eliminate or substantially reduce such risk.
International manufacturing and sales are subject to inherent risks,
including changes in local economic or political conditions, the imposition of
currency exchange restrictions, unexpected changes in regulatory environments,
potentially adverse tax consequences and the exchange rate risk discussed above.
There can be no assurance that these factors will not have a material adverse
impact on the Company's production capabilities or otherwise adversely affect
the Company's business, financial condition or results of operations.
GOVERNMENT REGULATION
Government regulation is a significant factor in the research, development,
testing, production and marketing of the Company's medical device products.
Noncompliance with applicable requirements may result in the recall or seizure
of products, total or partial suspension of production, refusal of the
government to allow commercial distribution of products, refusal of the
government to allow new products to be marketed, civil penalties, injunctions
and criminal prosecution. There can be no assurance that the Company's existing
products will be found to comply with such regulations or that new products will
be granted marketing clearance in a timely manner or at all.
9
<PAGE> 14
The United States Food and Drug Administration (the "FDA"), pursuant to the
Federal Food, Drug, and Cosmetic Act (the "FDC Act"), regulates the introduction
of medical devices, as well as manufacturing procedures, labelling, adverse
event reporting and recordkeeping with respect to such products. The process of
obtaining market clearances from the FDA for new products can be time consuming
and expensive and there can be no assurance that such clearances will be granted
or that FDA review will not involve delays adversely affecting the marketing and
sale of products. Current regulations depend heavily on administrative
interpretation and there can be no assurance that interpretations made by the
FDA or other regulatory bodies will not adversely affect the Company. The FDA
and state agencies routinely inspect the Company to determine whether the
Company is in compliance with various regulations relating to manufacturing
practices, testing, quality control and product labelling. Such
audits/inspections can result in the agencies requiring the Company to take
certain corrective actions for non-complying conditions observed during the
audits/inspections. A determination that the Company is in violation of such
regulations could lead to the imposition of civil sanctions, including fines,
recall orders or product seizures, injunctions and criminal sanctions.
Certain countries will require the Company to obtain clearances for its
products prior to marketing the products in those countries. In addition,
certain countries impose product specifications, standards or other requirements
which differ from or are in addition to those mandated in the United States. The
European Union and certain other countries are in the process of implementing a
required to obtain permission to market new products. These changes could have a
material adverse effect on the Company's ability to market its devices in such
countries and could hinder or delay the successful implementation of the
Company's planned international expansion.
PRODUCT LIABILITY
The Company faces an inherent business risk of exposure to product
liability claims in the event that the use of its products is alleged to have
resulted in injury or other adverse effects. The Company currently maintains
product liability insurance coverage but there can be no assurance that the
Company will be able to obtain such insurance on acceptable terms in the future,
if at all, or that any such insurance will provide adequate coverage against
claims. The Company's financial condition and its ability to market and sell its
products could be adversely affected by a successful product liability claim. A
successful product liability claim against the Company for which there is not
adequate insurance coverage could have a material adverse impact on its
business, financial condition or results of operations.
ENVIRONMENTAL LIABILITIES AND REGULATIONS
Compliance with environmental laws and regulations designed to regulate the
discharge of materials into the environment or otherwise protect the environment
requires continuing management effort and expenditures by the Company. The
Company does not believe that the operating costs incurred in the ordinary
course of business to satisfy air and other permit requirements, properly
dispose of hazardous wastes and otherwise comply with these laws and regulations
form or are reasonably likely to form a material component of its operating
costs or have or are reasonably likely to have a material adverse effect on its
competitive and consolidated financial positions.
There can be no assurance that the cost of the Company's compliance with
environmental laws or its environmental liabilities will not have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Business -- Environmental Matters" in the Company's 1998 Annual
Report on Form 10-K.
LEGAL PROCEEDINGS
The Company is involved in various legal proceedings. While the Company
believes that the ultimate resolution of its pending legal proceedings is not
reasonably likely to have a material adverse effect on its business, financial
condition or results of operations, no assurance to that effect can be given.
See "Business -- Legal Proceedings."
10
<PAGE> 15
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant degree upon the continued
contributions of senior management, certain of whom would be difficult to
replace. There can be no assurance that the services of such personnel will
continue to be available to the Company. The Company is also dependent upon the
continued services of its engineering, research and development, sales and
marketing and manufacturing and service personnel and on its ability to attract,
train and retain highly skilled personnel in each of these areas. The failure of
the Company to hire and retain such key management and other personnel could
have a material adverse effect on the Company's business, financial condition or
results of operations.
YEAR 2000 COMPLIANCE
While year 2000 considerations are not expected to materially impact
Furon's internal operations, they may have an effect on some of Furon's
customers and suppliers, and thus indirectly affect Furon. It is not possible to
quantify the aggregate cost to Furon with respect to customers and suppliers
with year 2000 problems, although the Company does not anticipate it will have a
material adverse impact on its business, financial condition or results of
operations.
SUBORDINATION AND RANKING OF THE NOTES
The Notes will be subordinate to all Senior Debt, which include borrowings
under the Credit Facility. In the event of a bankruptcy, liquidation or
reorganization of the Company, the assets of the Company will be available to
pay obligations on the Notes only after all Senior Debt has been paid in full,
and there may not be sufficient assets remaining to pay amounts due on any or
all of the Notes. In addition, the Company may not pay principal or premium, if
any, or interest on the Notes if certain Senior Debt is not paid when due or any
other default on such Senior Debt occurs and the maturity of such Senior Debt is
accelerated in accordance with its terms, unless in either case such amount has
been paid in full or the default has been cured or waived and such acceleration
has been rescinded. In addition, if any default occurs with respect to certain
Senior Debt and certain other conditions are satisfied, the Company may not make
any payments on the Notes for a designated period of time. As of May 2, 1998,
the Company had approximately $27.0 million of Senior Debt outstanding,
excluding unused commitments of approximately $173.0 million under the Credit
Facility. See "Capitalization" and "Description of the Notes -- Subordination."
FRAUDULENT CONVEYANCE STATUTES
The incurrence by the Company of the indebtedness evidenced by the Notes is
subject to review under relevant U.S. federal and state fraudulent conveyance
statutes ("Fraudulent Conveyance Statutes") in a bankruptcy case or a lawsuit by
or on behalf of creditors of the Company. The statutes provide that if a court
determines that at the time the Notes were issued and the proceeds applied, (i)
the Company issued the Notes and applied the proceeds with the intent of
hindering, delaying or defrauding creditors or (ii) the Company received less
than a reasonably equivalent value or fair consideration for issuing the Notes,
and, after so applying the proceeds, the Company (A) was insolvent or rendered
insolvent by reason of such transactions, (B) was engaged in a business or
transaction for which its assets constituted unreasonably small capital or (C)
intended to incur, or believed that it would incur, debts beyond its ability to
pay as they matured (as the foregoing terms are defined in or interpreted under
Fraudulent Conveyance Statutes), such court could invalidate the Notes or
subordinate all or a part of the Notes to existing and future indebtedness of
the Company, recover any payments made on the Notes or take other action
detrimental to the holders of the Notes.
Based upon the financial and other information currently available to it,
the Company believes that the indebtedness and obligations evidenced by the
Notes will be incurred and proceeds of the Notes will be used for proper
purposes and in good faith. The Company believes that at the time of, and after
giving effect to, the incurrence of the indebtedness and obligations evidenced
by the Notes, it will be solvent and will have sufficient capital to carry on
its business and that it will pay its debts as they mature. No assurance can be
given, however, that a court would concur with such beliefs and positions. The
measure of insolvency for these
11
<PAGE> 16
purposes will vary depending upon the law of the jurisdiction being applied.
Generally, a company will be considered insolvent for these purposes if the
present fair salable value of the company's assets is less than its liabilities.
In rendering their opinion on the validity of the Notes, counsel for the Company
and counsel for the Initial Purchasers will express no opinion as to the effect
of Fraudulent Conveyance Statutes or laws affecting the enforcement of
creditors' rights generally.
ABSENCE OF PUBLIC MARKET FOR NOTES
The Initial Notes have not been registered under the Securities Act or any
state securities law and, unless so registered, may not be offered or sold
except pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and any applicable state
securities laws.
Although the New Notes may be resold or otherwise transferred by the
holders (who are not affiliates of the Company) without compliance with the
registration requirements under the Securities Act, they will be new securities
for which there is currently no established trading market. The Company does not
intend to apply for listing of the New Notes on a national securities exchange
or for quotation of the New Notes on an automated dealer quotation system. The
liquidity of any market for the New Notes will depend upon the number of holders
of the Notes, the interest of securities dealers in making a market in the New
Notes and other factors. Accordingly, there can be no assurance as to the
development or liquidity of any market for the New Notes. If an active trading
market for the New Notes does not develop, the market price and liquidity of the
New Notes may be adversely affected. If the New Notes are traded, they may trade
at a discount from their face value, depending upon prevailing interest rates,
the market for similar securities, the performance of the Company and certain
other factors.
Notwithstanding the registration of the New Notes in the Exchange Offer,
holders who are "affiliates" (as defined under Rule 405 of the Securities Act)
of the Company may publicly offer for sale or resell the New Notes only in
compliance with provisions of Rule 144 under the Securities Act.
RESTRICTIVE DEBT COVENANTS
The Indenture and the Credit Facility contain covenants that will restrict,
among other things, the ability of the Company to incur additional indebtedness,
pay dividends, make certain investments, enter into transactions with
affiliates, allow its Restricted Subsidiaries to make certain payments, make
certain asset dispositions, merge or consolidate with, or transfer substantially
all of its assets to another Person, encumber assets under certain
circumstances, restrict dividends and other payments from Restricted
Subsidiaries, make capital expenditures or engage in certain business
activities. In addition, the Credit Facility prohibits the Company from
prepaying certain of its indebtedness, including the Notes. Under the Credit
Facility, the Company will also be required to maintain specified financial
covenants, including a minimum fixed charge coverage ratio and maximum leverage
ratios and minimum consolidated net worth (each as defined in the Credit
Facility). No assurance can be given that the Company's future operating results
will be sufficient to enable compliance with such covenants, or in the event of
a default, to remedy such default. In the event of a default under the Credit
Facility, the Company could be prohibited from making payments of principal and
interest on the Notes and all amounts due under the Credit Facility could be
declared immediately due and payable. See "Description of Certain Indebtedness"
and "Description of Notes -- Certain Covenants."
LIMITATION ON CHANGE OF CONTROL OFFER
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to purchase all or a portion of such holder's
Notes at a price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the purchase date.
Further, the provisions of the Indenture may not afford holders of Notes
protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Company that may
adversely affect holders of Notes, if such transaction does not result in a
Change of Control. A change in control may result in a default under the Credit
Facility. Upon a default under the Credit Facility or other future Senior Debt,
the lenders thereunder could prohibit the Company from repurchasing the Notes or
could
12
<PAGE> 17
require the payment in full of all such Senior Debt before repurchase of the
Notes. The Indenture will require that prior to a repurchase of the Notes upon a
Change of Control, the Company must either repay all outstanding indebtedness
under the Credit Facility or obtain any required consent to such repurchase. If
the Company does not obtain such consent or repay its outstanding indebtedness
under the Credit Facility, the Company would remain effectively prohibited from
offering to purchase Notes. In such case, the Company's failure to offer to
purchase Notes could become an Event of Default under the Indenture. If a Change
of Control were to occur, there can be no assurance that the Company would have
sufficient financial resources or would be able to arrange financing to repay
all of its obligations under the Credit Facility, the Indenture and other
indebtedness that may become payable upon the occurrence of such Change of
Control. See "Description of Certain Indebtedness" and "Description of the
Notes -- Repurchase at the Option of Holders -- Change of Control."
FAILURE TO EXCHANGE INITIAL NOTES
New Notes will be issued in exchange for Initial Notes only after timely
receipt by the Exchange Agent of such Initial Notes, a properly completed and
duly executed Letter of Transmittal and all other required documentation.
Therefore, holders of Initial Notes desiring to tender such Initial Notes in
exchange for New Notes should allow sufficient time to ensure timely delivery.
Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to tenders of Initial
Notes for exchange. Initial Notes that are not tendered or are tendered but not
accepted will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. In addition, any
holder of Initial Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the New Notes will be required to comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Each broker-dealer that receives New
Notes for its own account in exchange for Initial Notes, where such Initial
Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. Any broker-dealer that resells New
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. 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. To the extent that
Initial Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Initial Notes could be
adversely affected due to the limited amount, or "float," of the Initial Notes
that are expected to remain outstanding following the Exchange Offer. Generally,
a lower "float" of a security could result in less demand to purchase such
security and could, therefore, result in lower prices for such security. For the
same reason, to the extent that a large amount of Initial Notes are not tendered
or are tendered and not accepted in the Exchange Offer, the trading market for
the New Notes could be adversely affected. See "Plan of Distribution" and "The
Exchange Offer."
13
<PAGE> 18
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Initial Notes were sold by the Company on the Closing Date to the
Initial Purchasers pursuant to the Purchase Agreement. The Initial Purchasers
subsequently sold the Initial Notes, and the Company and the Initial Purchasers
entered into the Registration Rights Agreement on March 4, 1998. Pursuant to the
Registration Rights Agreement, the Company agreed that, unless the Exchange
Offer is not permitted by applicable law or Commission policy, it would file
with the Commission a registration statement under the Securities Act (a
"Registration Statement") with respect to the New Notes within 90 days after the
Closing Date and use its best efforts to cause such Registration Statement to
become effective under the Securities Act within 150 days after the Closing
Date. A copy of the Registration Rights Agreement has been filed as an exhibit
to the Registration Statement. The Registration Statement is intended to satisfy
certain of the Company's obligations under the Registration Rights Agreement and
the Purchase Agreement.
RESALE OF THE NEW NOTES
With respect to the New Notes, based upon an interpretation by the staff of
the Commission set forth in certain no-action letters issued to third parties,
the Company believes that a holder (other than (i) a broker-dealer who purchases
such New Notes directly from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act or (ii) any such holder that
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) who exchanges Initial Notes for New Notes in the ordinary course
of business and who is not participating, does not intend to participate, and
has no arrangement with any person to participate, in a distribution of the New
Notes, will be allowed to resell New Notes to the public without further
registration under the Securities Act and without delivering to the purchasers
of the New Notes a prospectus that satisfies the requirements of Section 10 of
the Securities Act. However, if any holder acquires New Notes in the Exchange
Offer for the purpose of distributing or participating in the distribution of
the New Notes or is a broker-dealer, such holder cannot rely on the position of
the staff of the Commission enumerated in certain no-action letters issued to
third parties and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction,
unless an exemption from registration is otherwise available. Each broker-dealer
that receives New Notes for its own account in exchange for Initial Notes, where
such Initial Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities, must acknowledge that it
will deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes. Any broker-dealer that resells New
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. 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 New Notes received in exchange for Initial Notes
where such Initial Notes were acquired by such broker-dealer as a result of
market-making or other trading activities. Pursuant to the Registration Rights
Agreement, the Company has agreed to make this Prospectus, as it may be amended
or supplemented from time to time, available to broker-dealers for use in
connection with any resale for the period required by the Securities Act. See
"Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and the Letter of Transmittal, the Company will accept any and all Initial Notes
validly tendered and not withdrawn prior to the Expiration Date. The Company
will issue $1,000 principal amount of New Notes in exchange for each $1,000
principal amount of outstanding Initial Notes surrendered pursuant to the
Exchange Offer. Initial Notes may be tendered only in integral multiples of
$1,000.
The form and terms of the New Notes are the same as the form and terms of
the Initial Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the New Notes will not bear
14
<PAGE> 19
legends restricting the transfer thereof and (ii) holders of the New Notes will
not be entitled to any of the rights of holders of Initial Notes under the
Registration Rights Agreement, which rights will terminate upon the consummation
of the Exchange Offer. The New Notes will evidence the same indebtedness as the
Initial Notes (which they replace) and will be issued under, and be entitled to
the benefits of, the Indenture, which also authorized the issuance of the
Initial Notes, such that both series of Notes will be treated as a single class
of debt securities under the Indenture.
As of the date of this Prospectus, $125,000,000 in aggregate principal
amount of the Initial Notes are outstanding and registered in the name of Cede &
Co., as nominee for DTC. Only a registered holder of the Initial Notes (or such
holder's legal representative or attorney-in-fact) as reflected on the records
of the Trustee under the Indenture may participate in the Exchange Offer. There
will be no fixed record date for determining registered holders of the Initial
Notes entitled to participate in the Exchange Offer.
Holders of the Initial Notes do not have any appraisal or dissenters'
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Exchange Act, and the rules and regulations of the Commission
thereunder.
The Company shall be deemed to have accepted validly tendered Initial Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Initial Notes for the purposes of receiving the New Notes from the Company.
Holders who tender Initial Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Initial
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City Time on July
22, 1998, 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.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders an announcement thereof and (iii) issue a press release or
other public announcement which shall include disclosure of the approximate
number of Initial Notes deposited to date, each prior to 9:00 a.m., New York
City Time, on the next business day after the previously scheduled Expiration
Date. Without limiting the manner in which the Company may choose to make a
public announcement 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 public announcement, other than by making a
timely release to an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Initial Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "-- Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such delay,
extension or termination to the Exchange Agent. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof to the registered holders. If the Exchange
Offer is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders, 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.
15
<PAGE> 20
INTEREST ON THE NEW NOTES
The New Notes will bear interest at a rate equal to 8 1/8% per annum.
Interest on the New Notes will be payable semi-annually on March 1 and September
1 of each year, commencing September 1, 1998. Holders of New Notes will receive
interest from the date of initial issuance of the Initial Notes. Holders of
Initial Notes that are accepted for exchange will be deemed to have waived the
right to receive any interest accrued on the Initial Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Initial Notes may tender such Initial Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Initial Notes
must complete, sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile to
the Exchange Agent at the address set forth below under "-- Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Initial Notes must be received by the Exchange Agent along with the Letter
of Transmittal, (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Initial Notes, if such procedure is
available, into the Exchange Agent's account at the Depositary pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder must comply with
the guaranteed delivery procedures described below.
The tender by a holder that is not withdrawn prior to 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.
THE METHOD OF DELIVERY OF INITIAL NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR INITIAL NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Initial Notes whose Initial Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Initial Notes, either make appropriate
arrangements to register ownership of the Initial 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.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Initial Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box entitled "Special Issuance Instructions" or the box entitled "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution. In the event that signatures on a Letter of Transmittal
or a notice of withdrawal, as the case may be, are required to be guaranteed,
such guarantee must be made by a member firm of a registered national securities
exchange or of the National Association of Securities Dealers, Inc., a
commercial bank or trust company having an office or correspondent in the United
States or an "eligible guarantor institution" within the meaning of Rule 17Ad-15
under the Exchange Act which is a member of one of the recognized signature
guarantee programs identified in the Letter of Transmittal (an "Eligible
Institution").
16
<PAGE> 21
If the Letter of Transmittal is signed by a person other than the
registered holder of any Initial Notes listed therein, such Initial Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Initial
Notes.
If the Letter of Transmittal or any Initial Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Initial Notes. All
questions as to the validity, form, eligibility (including time of receipt),
compliance with conditions, acceptance and withdrawal of tendered Initial Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Initial Notes not properly tendered or any Initial Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Initial Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Initial Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Initial Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Initial Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived.
While the Company has no present plan to acquire any Initial Notes that are
not tendered in the Exchange Offer or to file a registration statement to permit
resales of any Initial Notes that are not tendered pursuant to the Exchange
Offer, the Company reserves the right in its sole discretion to purchase or make
offers for any Initial Notes that remain outstanding subsequent to the
Expiration Date or, as set forth below under "-- Conditions," to terminate the
Exchange Offer and to the extent permitted by applicable law, purchase Initial
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.
By tendering, each holder of Initial Notes will represent to the Company
that, among other things (i) New Notes to be acquired by such holder of Initial
Notes in connection with the Exchange Offer are being acquired by such holder in
the ordinary course of business of such holder, (ii) such holder has no
arrangement or understanding with any person to participate in the distribution
of the New Notes, (iii) such holder acknowledges and agrees that any person who
is a broker-dealer registered under the Exchange Act or is participating in the
Exchange Offer for the purposes of distributing the New Notes must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the New Notes acquired by such
person and cannot rely on the position of the staff of the Commission set forth
in certain no-action letters, (iv) such holder understands that a secondary
resale transaction described in clause (iii) above and any resales of New Notes
obtained by such holder in exchange for Initial Notes acquired by such holder
directly from the Company should be covered by an effective registration
statement containing the selling securityholder information required by Item 507
or Item 508, as applicable, of Regulation S-K of the Commission and (v) such
holder is not an "affiliate," as defined in Rule 405 under the Securities Act,
of the Company. If the holder is a broker-dealer that will receive New Notes for
such holder's own account in exchange for Initial Notes that were acquired as a
result of market-making activities or other trading activities, such holder will
be required to acknowledge in the Letter of Transmittal that such holder will
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus, such holder will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. Any broker-dealer
that resells New 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.
17
<PAGE> 22
RETURN OF INITIAL NOTES
If any tendered Initial Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Initial Notes are withdrawn
or are submitted for a greater principal amount than the holders desire to
exchange, such unaccepted, withdrawn or non-exchanged Initial Notes will be
returned without expense to the tendering holder thereof (or, in the case of
Initial Notes tendered by book-entry transfer into the Exchange Agent's account
at the Depositary pursuant to the book-entry transfer procedures described
below, such Initial Notes will be credited to an account maintained with the
Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Initial Notes at the Depositary for purposes of the Exchange Offer within
two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make book
entry delivery of Initial Notes by causing the Depositary to transfer such
Initial Notes into the Exchange Agent's account at the Depositary in accordance
with the Depositary's procedures for transfer. However, although delivery of
Initial Notes may be effected through book-entry transfer at the Depositary, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address set forth below under
"-- Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Initial Notes and (i) whose Initial Notes
are not immediately available or (ii) who cannot deliver their Initial 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
setting forth the name and address of the holder, the certificate number(s)
of such Initial Notes and the principal amount of Initial 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 (or a facsimile thereof), together with the
certificate(s) representing the Initial 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 facsimile
thereof), as well as the certificate(s) representing all tendered Initial
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 Initial Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Initial Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Initial 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 the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Initial Notes to be withdrawn (the "Depositor"), (ii) identify the Initial
Notes to be withdrawn (including the
18
<PAGE> 23
certificate number or numbers and principal amount of such Initial Notes) and
(iii) be signed by the holder in the same manner as the original signature on
the Letter of Transmittal by which such Initial Notes were tendered (including
any required signature guarantees). 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 Initial Notes so withdrawn will be deemed not to
have been validly tendered for purposes of the Exchange Offer and no New Notes
will be issued with respect thereto unless the Initial Notes so withdrawn are
validly retendered. Properly withdrawn Initial Notes may be retendered by
following one of the procedures described above under "-- Procedures for
Tendering" at any time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the New Notes for any Initial
Notes, and may terminate the Exchange Offer as provided herein before the
acceptance of such Initial Notes, if the Exchange Offer violates applicable law,
rules or regulations or an applicable interpretation of the staff of the
Commission.
If the Company reasonably determines that such condition (that the Exchange
Offer does not violate applicable law, rules, regulations or interpretation of
the Staff) is not satisfied, the Company may (i) refuse to accept any Initial
Notes and return all tendered Initial Notes to the tendering holders or (ii)
extend the Exchange Offer and retain all Initial Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Initial Notes (see "-- Withdrawal of Tenders").
LIQUIDATED DAMAGES
The Company and the Initial Purchasers entered into the Registration Rights
Agreement pursuant to which the Company agreed that it will, at its cost, for
the benefit of the Holders, (i) to the extent not prohibited by any applicable
law or applicable interpretation of the staff of the Commission (A) prepare and,
on or prior to 90 days (the "Filing Date") after the date of original issuance
of the Initial Notes (the "Issue Date"), file with the Commission a Registration
Statement under the Securities Act with respect to an offer by the Company to
the holders of the Initial Notes (the "Exchange Offer") to issue and deliver to
such holders, in exchange for the Initial Notes, a like principal amount of
notes (the "New Notes") identical to the Initial Notes in all material respects,
except that such notes will not have provisions regarding restrictions on
transfer, (B) use their best efforts to cause the Registration Statement
relating to the Exchange Offer to be declared effective by the Commission under
the Securities Act on or prior to 150 days after the Issue Date, and (C)
commence the Exchange Offer and use their best efforts to issue, on or prior to
the date (the "Consummation Date") that is 30 days immediately following the
date that the Exchange Registration Statement shall have been declared
effective, the New Notes. The offer and sale of the New Notes pursuant to the
Exchange Offer shall be registered pursuant to the Securities Act on an
appropriate form (the "Exchange Registration Statement") and duly registered or
qualified under all applicable state securities or Blue Sky laws and will comply
with all applicable tender offer rules and regulations under the Exchange Act
and state securities or Blue Sky laws. The Exchange Offer shall not be subject
to any condition, other than that the Exchange Offer does not violate any
applicable law or interpretation of the staff of the Commission.
If (i) the Company is not permitted to file the Exchange Offer Registration
Statement or to consummate the Exchange Offer because the Exchange Offer is not
permitted by any applicable law or applicable interpretation of the Staff of the
Commission or (ii) any holder of a Initial Note notifies the Company on or prior
to the 20th day following the Issue Date that (A) such holder is prohibited by
law or Commission policy from participating in the Exchange Offer, (B) New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus and the Prospectus contained in the Exchange Registration Statement
is not appropriate or available for such resales by such holder or (C) such
holder is a broker-dealer and owns Initial Notes acquired directly from the
Company or any of its Affiliates (each such event referred to in clauses (i) and
(ii), a "Shelf Filing Event"), the Company shall at its own expense use its best
efforts to cause to be filed on or prior to 30 days after the date on which the
Company determines that it is not required to file the Exchange Offer
Registration Statement pursuant to clause (i) above or 30 days after the date on
which the
19
<PAGE> 24
Company receives the notice specified in clause (ii) above, a shelf registration
statement pursuant to Rule 415 under the Act (which may be an amendment to the
Exchange Offer Registration Statement (in either event, the "Shelf Registration
Statement")), relating to all Initial Notes the holders of which have provided
to the Company in writing, within 15 days after receipt of a request therefor,
the information specified in item 507 of Regulation S-K of the Act and such
other information as the Company shall reasonably request and shall use its best
efforts to have the Shelf Registration Statement declared effective by the
Commission on or prior to 90 days after the filing thereof. In such
circumstances, the Company shall use its best efforts to keep the Shelf
Registration Statement continuously effective under the Securities Act, until
(A) two years following the Issue Date or (B) if sooner, the date immediately
following the date that all Transfer Restricted Notes (as defined) covered by
the Shelf Registration Statement have been sold pursuant thereto or otherwise
cease to be Transfer Restricted Notes (the "Effectiveness Period").
For purposes of the foregoing, a "Transfer Restricted Note" means each
Initial Note, until the earliest to occur of (a) the date on which such Initial
Note is exchanged in the Exchange Offer and entitled to be resold to the public
by the holder thereof without complying with the prospectus delivery
requirements of the Act, (b) the date on which such Initial Note has been
disposed of in accordance with a Shelf Registration Statement, (c) the date on
which such Initial Note is disposed of by a broker-dealer pursuant to the "Plan
of Distribution" section hereof (including delivery of the Prospectus
contemplated therein) or (d) the date on which such Initial Note is distributed
to the public pursuant to Rule 144 under the Act.
If the Company fails to comply with the above provisions or if the Exchange
Offer Registration Statement or the Shelf Registration statement fails to become
effective, then, liquidated damages (the "Liquidated Damages") shall become
payable in respect of the Initial Notes as follows:
If (i) any Registration Statement required by the Registration Rights
Agreement is not filed with the Commission on or prior to the date
specified for such filing in the Registration Rights Agreement, (ii) any
such Registration Statement has not been declared effective by the
Commission on or prior to the date specified for such effectiveness in the
Registration Rights Agreement (the "Effectiveness Target Date"), (iii) the
Exchange Offer has not been consummated within 30 Business Days after the
Effectiveness Target Date with respect to the Exchange Offer Registration
Statement or (iv) any Registration Statement required by the Registration
Rights Agreement is filed and declared effective but shall thereafter cease
to be effective or fail to be usable in connection with resales of Transfer
Restricted Notes during the periods specified herein and is not succeeded
within 30 days by another effective Registration Statement or by a
post-effective amendment to such Registration Statement that cures such
failure and that is itself declared effective immediately; provided that
such Registration Statement shall not cease to be effective or useable in
connection with resales of Transfer Restricted Securities for more than 30
days in any calendar year (each such event referred to in clauses (i)
through (iv), a "Registration Default"), then the Company hereby agrees to
pay Liquidated Damages to each holder of Transfer Restricted Notes with
respect to the first 90-day period immediately following the occurrence of
such Registration Default, in an amount equal to $.05 per week per $1,000
principal amount of Transfer Restricted Notes held by such holder for each
week or portion thereof that the Registration Default continues. The amount
of the Liquidated Damages shall increase by an additional $.05 per week per
$1,000 in principal amount of Transfer Restricted Notes with respect to
each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of Liquidated Damages of $.25 per week per
$1,000 principal amount of Transfer Restricted Notes; provided that the
Company and the Guarantors shall in no event be required to pay Liquidated
Damages for more than one Registration Default at any given time.
Notwithstanding anything to the contrary set forth herein, (1) upon filing
of the Exchange Offer Registration Statement (and/or, if applicable, the
Shelf Registration Statement), in the case of (i) above, (2) upon the
effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above,
(3) upon consummation of the Exchange Offer, in the case of (iii) above, or
(4) upon the filing of a post-effective amendment to the Registration
Statement or an additional Registration Statement that causes the Exchange
Offer Registration Statement (and/or, if applicable, the Shelf Registration
Statement) to again be declared
20
<PAGE> 25
effective or made usable in the case of (iv) above, the Liquidated Damages
payable with respect to the Transfer Restricted Notes as a result of such
clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued Liquidated Damages shall be paid by wire transfer of
immediately available funds or by federal funds check and to holders of
certificated securities by wire transfer to the accounts specified by them
or by mailing checks to their registered addresses if no such accounts have
been specified. All obligations of the Company set forth in the preceding
paragraph that are outstanding with respect to any Transfer Restricted Note
at the time such security ceases to be a Transfer Restricted Note shall
survive until such time as all such obligations with respect to such
security shall have been satisfied in full.
No holder of Transfer Restricted Notes shall be entitled to Liquidated
Damages payable in connection with any Shelf Registration Statement unless and
until such holder shall have provided certain information reasonably requested
by the Company for use in connection with such Shelf Registration Statement.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which will be available upon request to the Company.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Initial Notes eligible to participate in the Exchange
Offer will terminate upon consummation of the Exchange Offer except with respect
to the Company's continuing obligations (i) to indemnify such holders (including
any broker-dealers) and certain parties related to such holders against certain
liabilities (including liabilities under the Securities Act), (ii) to provide,
upon the request of any holder of a transfer-restricted Initial Note, the
information required by Rule 144A(d)(4) under the Securities Act in order to
permit resales of such Initial Notes pursuant to Rule 144A and (iii) to provide
copies of the latest version of the Prospectus to broker-dealers upon their
request for the period required by the Securities Act.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent of 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 addressed as
follows:
<TABLE>
<S> <C> <C>
By Hand Or Overnight Delivery: Facsimile Transmissions: By Registered or Certified
(Eligible Institutions Only) Mail:
The Bank of New York The Bank of New York
101 Barclay Street (212) 815-6339 101 Barclay Street, 7E
Corporate Trust Services Window New York, New York 10286
Ground Level To Confirm by Telephone Attention: Reorganization
Attention: Reorganization or for Information Call: Section,
Section, Odell Romeo
Odell Romeo (212) 815-6337
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A
FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
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, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company,
21
<PAGE> 26
however, 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 cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$4.1 million. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Initial Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Initial 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.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Initial
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take, and the Company takes no position with respect
to the advisability of the Exchange Offer.
The Initial Notes that are not exchanged for the New Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Initial
Notes may be resold only (i) to a person whom the seller reasonably believes is
a QIB in a transaction meeting the requirements of Rule 144A, (ii) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the Company
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the New Notes.
22
<PAGE> 27
USE OF PROCEEDS
The net proceeds from the sale of the Initial Notes were used to repay a
portion of existing indebtedness outstanding under the Credit Facility. The
proceeds from the Credit Facility were used principally to finance the Company's
acquisition of Medex on January 2, 1997. The outstanding principal amount of
indebtedness under the Credit Facility was $27.0 million as of May 2, 1998. For
the three months ended May 2, 1998, the weighted average interest rate on the
loans under the Credit Facility was 6.3%. Amounts borrowed under the Credit
Facility mature November 12, 2001.
The Company will not receive any proceeds from the Exchange Offer. In
consideration for issuing the New Notes as contemplated in this Prospectus, the
Company will receive in exchange Initial Notes in like principal amount, the
terms of which are identical to the New Notes except that (i) the exchange will
have been registered under the Securities Act, and, therefore, the New Notes
will not bear legends restricting the transfer thereof and (ii) holders of the
New Notes will not be entitled to certain rights of holders of the Initial Notes
under the Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. The Initial Notes surrendered in exchange
for New Notes will be retained by the Company and the Exchange Offer will not
result in any increase in the indebtedness of the Company.
CAPITALIZATION
The following table sets forth as of May 2, 1998 the capitalization of the
Company. The table should be read in conjunction with the historical
consolidated financial statements of the Company, together with the related
notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
AS OF MAY 2,
1998
--------------
(IN THOUSANDS)
<S> <C>
Long-term debt (including current portion):
Credit Facility(1)........................................ $ 27,00
Industrial revenue bonds.................................. 6,175
8 1/8% Senior Subordinated Notes due 2008................. 125,000
Other..................................................... 1,733
--------
Total long-term debt.............................. 159,908
Shareholders' equity........................................ 85,650
--------
Total capitalization.............................. $245,558
========
</TABLE>
- - ---------------
(1) The Credit Facility provides for revolving loans in an aggregate principal
amount of up to $200.0 million. See "Description of Certain Indebtedness."
23
<PAGE> 28
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial information
and certain other data for the Company for the periods indicated. The financial
information and other data are derived from the Company's audited consolidated
financial statements for each of the fiscal years ended January 29, 1994,
January 28, 1995, February 3, 1996, February 1, 1997, and January 31, 1998 which
were audited by Ernst & Young LLP, independent auditors. The financial
information and other data for the three months ended May 3, 1997 and May 2,
1998 are derived from the Company's unaudited financial statements and, in the
opinion of management, contain all adjustments (consisting solely of normal
recurring accruals) necessary for a fair presentation of the Company's
consolidated financial position at such dates and results of operations and cash
flows for such periods. The results of operations for fiscal 1997 and fiscal
1998 include the results of Medex from the date of its acquisition, January 2,
1997. The results of operations for the three months ended May 2, 1998 are not
necessarily indicative of results to be expected for the Company's full fiscal
year. The following financial information and other data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements and the
related notes thereto, and the other information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
------------------------------------------------------------------- -------------------
JANUARY 29, JANUARY 28, FEBRUARY 3, FEBRUARY 1, JANUARY 31, MAY 3, MAY 2,
1994 1995 1996 1997 1998 1997 1998
----------- ----------- ----------- ----------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................. $285,194 $312,060 $344,886 $ 390,105 $485,631 $119,649 $119,805
Cost of sales......................... 204,727 217,827 249,102 281,581 329,325 81,330 82,539
-------- -------- -------- --------- -------- -------- --------
Gross profit.......................... 80,467 94,233 95,784 108,524 156,306 38,319 37,266
Selling, general and administrative
expenses............................ 66,458 77,368 78,337 84,325 115,555 28,139 27,561
Write-off of acquired in-process
research and development(1)......... -- -- -- 53,700 -- -- --
Nonrecurring charges(1)............... -- -- -- 4,329 (660) -- (417)
Other (income) expense................ (1,436) (2,092) (3,282) (4,265) (1,114) (247) (721)
Interest expense, net................. 2,477 1,360 2,315 2,669 10,788 2,886 2,932
-------- -------- -------- --------- -------- -------- --------
Income (loss) before income taxes..... 12,968 17,597 18,414 (32,234) 31,737 7,541 7,911
Provision for income taxes............ 4,798 6,159 5,245 7,517 9,997 2,564 2,492
-------- -------- -------- --------- -------- -------- --------
Net income (loss)..................... $ 8,170 $ 11,438 $ 13,169 $ (39,751) $ 21,740 $ 4,977 $ 5,419
======== ======== ======== ========= ======== ======== ========
OTHER DATA:
EBITDA(2)............................. 2$7,652... $ 32,458 $ 35,804 $ 45,623 $ 64,185 $ 16,064 $ 16,227
Capital expenditures.................. 8,458 12,912 13,570 18,936 13,401 2,892 5,166
Depreciation and amortization......... 12,207 13,501 15,075 17,159 22,320 5,637 5,801
Net cash provided by operating
activities.......................... 20,823 7,852 25,517 44,023 50,325 12,129 3,543
Net cash used in investing
activities.......................... (585) (12,565) (47,614) (171,079) (19,014) (2,586) (2,805)
Net cash provided by (used in)
financing activities................ (9,761) (8,264) 15,706 127,697 (29,952) (3,553) 4,223
Ratio of earnings to fixed
charges(3).......................... 6.2x 13.9x 9.0x -- 3.9x 3.6x 3.7x
Ratio of EBITDA to interest expense,
net................................. 11.2x 23.9x 15.5x 17.1x 5.9x 5.6x 5.5x
Ratio of total debt to EBITDA......... 1.0x 0.6x 1.1x 3.9x 2.3x 10.9x 9.9x
BALANCE SHEET DATA:
Working capital....................... $ 51,639 $ 54,725 $ 60,426 $ 78,824 $ 72,444 $ 83,579 $ 86,290
Total assets.......................... 175,224 179,873 211,484 343,351 346,349 342,488 375,413
Total debt............................ 26,763 20,756 38,721 177,984 149,623 174,986 159,908
Shareholders' equity.................. 80,815 91,599 102,882 61,344 81,139 64,957 85,650
</TABLE>
- - ---------------
(1) In connection with the acquisition of Medex, the Company wrote-off $53.7
million of acquired in-process research and development and recorded
nonrecurring charges of $4.3 million for expenses related to severance and
facility rationalization.
(2) "EBITDA," as presented, represents income (loss) before income taxes plus
depreciation and amortization, interest expense, net, write-off of acquired
in-process research and development and nonrecurring charges. EBITDA is
included because management understands that such information is considered
by certain investors to be an additional basis for evaluating the Company's
ability to pay interest, repay debt and make capital expenditures. EBITDA
should not be considered an alternative to measures of operating performance
as determined in accordance with generally accepted accounting principles,
including net income (loss) as a measure of the Company's operating results
and cash flows as a measure of the Company's liquidity. Because EBITDA is
not calculated identically by all companies, the presentation herein may not
be comparable to other similarly titled measures of other companies.
(3) For purposes of this computation, earnings consist of income (loss) before
income taxes plus fixed charges. Income before income taxes is stated after
amortization of goodwill, depreciation, other non-cash charges and interest
expense, net. Fixed charges consist of interest expense, net. Earnings were
insufficient to cover fixed charges by $29.6 million for fiscal 1997 due to
the write-off of acquired in-process research and development and
nonrecurring charges.
24
<PAGE> 29
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following is a summary of certain indebtedness of the Company which
will be outstanding following the consummation of the Exchange Offer. To the
extent the summary contains descriptions of the terms of such indebtedness, such
descriptions do not purport to be complete and are qualified in their entirety
by reference to the Credit Facility described below or other credit documents
entered into in connection with the Credit Facility, which are available upon
request from the Company.
The Company is party to a Credit Agreement (the "Credit Facility") among a
syndicate of financial institutions (the "Lenders") and The Bank of New York
("BNY") as the Administrative Agent. On February 3, 1998, in connection with the
offering of the Initial Notes, the Company amended the Credit Facility to, among
other things, reduce the maximum principal amount available under the Credit
Facility from $250.0 million to $200.0 million. The following is a summary of
the material provisions of the Credit Facility, as amended, and is subject to
the detailed provisions of the Credit Facility and the various related documents
entered into therewith.
General. The Credit Facility provides up to a maximum principal amount of
$200.0 million, which includes a sublimit for borrowings in certain foreign
currencies. Amounts borrowed under the Credit Facility mature November 12, 2001.
Interest Rates; Fees. Borrowings under the Credit Facility bear interest,
at the Company's option, at a rate per annum equal to either: (i) The greater of
(a) BNY's prime commercial lending rate as publicly announced to be in effect
from time to time and (b) 1/2% plus the federal funds rate (as published by
Federal Reserve Bank of New York) (the "Base Rate"); or (ii) LIBOR (adjusted for
reserves) plus an applicable margin subject to performance grid pricing based on
the leverage ratio of total debt to EBITDA (as defined) for interest periods of
one, two, three or six months; or (iii) with respect to swing line loans, at the
Base Rate or a rate negotiated between BNY and the Company. Any amounts not paid
when due bear interest at the rate otherwise applicable plus 2%.
The Credit Facility provides for the payment of a commitment fee based on
the average daily unused amount of the Facility, and subject to a certain rate
per annum determined by performance grid pricing based on the leverage ratio of
total debt to EBITDA.
Security. The obligations under the Credit Facility and the related
documents are unsecured.
Voluntary Prepayments. Loans under the Credit Facility may be prepaid at
any time in whole, or from time to time in part, without premium or penalty,
subject to certain minimum amounts and payments of any breakage costs. All
prepayments would be accompanied by payment of accrued interest on the amount
prepaid to the date of prepayment.
Mandatory Prepayments. The Company is required to prepay loans made under
the Credit Agreement, in the amounts and as otherwise set forth in the Credit
Agreement, in the event of certain asset sales (including prior to making any
asset sale offer to the holders of the Notes) and the issuance of equity
securities or refinancing debt.
Conditions and Covenants. The obligations of the Lenders under the Credit
Facility are subject to the satisfaction of certain conditions precedent to
number of affirmative and negative covenants that, among other things, restrict
the ability of the Company to dispose of assets, incur additional indebtedness,
pay dividends or make other payments on subordinated debt or on equity, create
liens on assets, make investments, capital expenditures, engage in mergers or
acquisitions, or transactions with affiliates, and which require the compliance
with certain financial covenants (including leverage ratios, fixed charge
coverage ratio, minimum revenues from certain lines of business and minimum
consolidated net worth).
Events of Default. Events of default under the Credit Agreement include,
among other things: (i) failure to make payments when due; (ii) breaches of
representations and warranties; (iii) default in the performance of covenants;
(iv) default under certain other agreements governing indebtedness (including
the Indenture); (v) certain events of bankruptcy; (vi) failure to satisfy
certain ERISA requirements; (vii) certain judgments; (viii) the voluntary
prepayment or redemption of, or making of any other payments on, the Notes
(except required payments subject to the subordination provisions of the
Indenture); and (ix) the designation of any indebtedness as Senior Debt under
the Indenture without the consent of requisite lenders.
25
<PAGE> 30
DESCRIPTION OF THE NOTES
GENERAL
The Initial Notes were issued and the New Notes will be issued pursuant to
an Indenture (the "Indenture") by and among the Company and The Bank of New
York, as trustee (the "Trustee"). The terms of the Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes are
subject to all such terms, and Holders of 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. Copies of the Indenture and
Registration Rights Agreement are available as set forth under "-- Additional
Information." The definitions of certain terms used in the following summary are
set forth below under "-- Certain Definitions." For purposes of this summary,
the term "Company" refers only to Furon Company and not to any of its
Subsidiaries.
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all current and future Senior Debt,
including permitted borrowings under the Credit Facility. The Notes will rank
pari passu in right of payment with all senior subordinated Indebtedness of the
Company issued in the future, if any, and senior in the right of payment to all
subordinated Indebtedness of the Company issued in the future, if any. The
principal amount of Senior Debt outstanding at May 2, 1998 was approximately
$27.0 million. The Indenture permits the incurrence of additional indebtedness,
including additional Senior Debt, subject to certain restrictions.
As of the Issue Date, all of the Company's Subsidiaries were Restricted
Subsidiaries. Under certain circumstances, the Company will be able to designate
current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be subject to any of the restrictive covenants set forth
in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $125.0 million, and
mature on March 1, 2008. Interest on the Notes accrues at the rate of 8.125% per
annum and is payable semi-annually in arrears on March 1 and September 1
commencing on September 1, 1998, to Holders of record on the immediately
preceding February 15 and August 15. Interest on the Notes accrues 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 is computed on the basis of a
360-day year comprised of twelve 30-day months. Principal, premium, if any, and
interest and Liquidated Damages, if any, on the Notes will be payable at the
office or agency of the Company maintained for such purpose within the City and
State of New York or, at the option of the Company, payment of interest and
Liquidated Damages, if any, may be made by check mailed to the Holders of the
Notes at their respective addresses set forth in the register of Holders of
Notes; provided that all payments of $1,000 or more principal, premium, if any,
interest and Liquidated Damages, if any, with respect to Notes the Holders of
which have given wire transfer instructions to the Company at least ten Business
Days prior to the applicable payment date will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof. Until otherwise designated by the Company, the Company's office or
agency in New York will be the principal corporate trust office of the Trustee
maintained for such purpose. The Notes will be issued in denominations of $1,000
and integral multiples thereof.
SUBORDINATION
The payment of principal of, premium, if any, interest on the Notes,
Liquidated Damages, if any, Change of Control Payments or other obligations of
the Company in respect of the Notes (collectively, the "Senior Subordinated Note
Payments") is subordinated in right of payment, as set forth in the Indenture,
to the prior payment in full, in cash or Cash Equivalents, of all Senior Debt,
whether outstanding on the date of the Indenture or thereafter incurred.
26
<PAGE> 31
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, in
an assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full, in cash or Cash Equivalents, of all Obligations due in respect
of such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt (whether or not
an allowable claim in such proceeding)) before the Holders of Notes will be
entitled to receive any payment with respect to the Notes, and until all
Obligations with respect to Senior Debt are paid in full, in cash or Cash
Equivalents, any distribution to which the Holders of Notes would be entitled
shall be made to the holders of Senior Debt (except that Holders of Notes may
receive and retain (i) Permitted Junior Securities and (ii) payments made from
the trust described under "-- Legal Defeasance and Covenant Defeasance").
The Company also may not make any Senior Subordinated Note Payment or any
deposit pursuant to provisions described under "-- Legal Defeasance and Covenant
Defeasance" (except in Permitted Junior Securities or from the trust described
under "-- Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of, premium, if any, or interest on Designated Senior
Debt occurs and is continuing beyond any applicable period of grace or (ii) any
other default occurs and is continuing with respect to Designated Senior Debt
that permits holders of the Designated Senior Debt as to which such default
relates to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from the Company or the representative of
the holders of any Designated Senior Debt. Payments on the Notes may and shall
be resumed (a) in the case of a payment default, upon the date on which such
default is cured or waived and (b) in case of a nonpayment default, the earlier
of the date on which such nonpayment default is cured or waived or 179 days
after the date on which the applicable Payment Blockage Notice is received,
unless the maturity of any Designated Senior Debt has been accelerated. No new
period of payment blockage may be commenced unless and until 360 days have
elapsed since the effectiveness of the immediately prior Payment Blockage
Notice. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default has been
cured or waived for a period of at least 90 consecutive days.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. The principal amount of
Senior Debt outstanding at May 2, 1998 was approximately $27.0 million. The
Indenture limits, subject to certain financial tests, the amount of additional
Indebtedness, including Senior Debt, that the Company and its Restricted
Subsidiaries can incur. See "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock."
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to March 1,
2003. Thereafter, the Notes will be subject to redemption at any time 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 and Liquidated Damages,
if any, thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on March 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003.............................................. 104.063%
2004.............................................. 102.708%
2005.............................................. 101.354%
2006 and thereafter............................... 100.000%
</TABLE>
27
<PAGE> 32
Notwithstanding the foregoing, at any time prior to March 1, 2001, the
Company may on any one or more occasions redeem up to 35% of the aggregate
principal amount of the Notes originally issued under the Indenture at a
redemption price of 108.125% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the redemption date,
with the net cash proceeds of any Public Equity Offering; provided that at least
65% of the aggregate principal amount of Notes originally issued on the Issue
Date remain outstanding immediately after each occurrence of such redemption;
and provided, further, that each such redemption shall occur within 60 days of
the date of the closing of such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
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
Notes are listed, or, if the 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 Notes of $1,000 or less shall be redeemed in part. Notices 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 Notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new 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 Note. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on Notes or portions of them called
for redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each Holder of Notes will 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 Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the purchase date (the
"Change of Control Payment"). Within 30 days following any Change of Control,
the Company will mail a notice to each Holder describing the transaction or
transactions that constitute the Change of Control and offering to repurchase
Notes on the date specified in such notice, which date shall be no earlier than
30 days and no later than 60 days from the date such notice is mailed (the
"Change of Control Payment Date"), pursuant to the procedures required by the
Indenture and described in such notice. 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 Notes as a result of a
Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly 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 Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture provides that,
prior to complying with the provisions of this covenant, but in any event within
60 days following a Change of Control, the Company will either repay all
28
<PAGE> 33
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of Notes
required by this covenant. 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.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The Credit Facility limits the ability of the Company to purchase any Notes
and also provides that certain change of control events with respect to the
Company would constitute a default thereunder. Any future credit facility or
other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing Notes,
the Company could seek the consent of its lenders to the purchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture which would, in turn, constitute a default under the Credit
Facility. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the Holders of Notes. See "-- Subordination."
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or such Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value (as determined in good faith by the Board of Directors and evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee), of the assets or Equity Interests issued or sold or
otherwise disposed of and (ii) at least 75% of the consideration therefor
received by the Company or such Restricted Subsidiary is in the form of cash or
Cash Equivalents; provided that the amount of (x) any liabilities (as shown on
the Company's or such Restricted Subsidiary's most recent balance sheet) of the
Company or any Restricted Subsidiary of the Company (other than contingent
liabilities and liabilities that are by their terms subordinated to the Notes or
any Guarantee thereof) that are assumed by the transferee of any such assets
pursuant to customary assumption and indemnity agreements that releases the
Company or such Restricted Subsidiary from further liability and (y) any
securities, notes or other obligations received by the Company or any such
Restricted Subsidiary from such transferee that are converted by the Company or
such Restricted Subsidiary into cash (to the extent of the cash received) within
30 days after consummation of such Asset Sale, shall be deemed to be cash for
purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or the Restricted Subsidiary, as applicable, may apply such Net
Proceeds, at its option, (a) to repay Senior Debt under any Credit Facility or
(b) to the acquisition of a controlling interest in a Permitted Business, the
making of a capital expenditure or the acquisition of other assets, of which
substantially all are long-term, that are used or useful in a Permitted Business
or the acquisition of all or substantially all of the assets of a Permitted
Business. Pending the final application of any such Net Proceeds, the Company
may temporarily reduce Senior Debt under any Credit Facility or otherwise invest
such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph shall be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million,
the Company shall be required to make an offer to all Holders of
29
<PAGE> 34
Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes
that may be purchased out of the Excess Proceeds, at an offer price in cash in
an amount equal to 100% of the principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to the date of purchase, in
accordance with the procedures set forth in the Indenture. To the extent that
the aggregate amount of Notes tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes. If the aggregate principal amount of Notes
surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any dividend, payment or distribution on account of such
Equity Interests in connection with any merger or consolidation involving the
Company or any of its Restricted Subsidiaries) or to the direct or indirect
holders of the Company's or any of its Restricted Subsidiaries' Equity Interests
in their capacity as such (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or a Restricted
Subsidiary of the Company or dividends or distributions payable to the Company
or any Wholly Owned Restricted Subsidiary); (ii) purchase, redeem or otherwise
acquire or retire for value (including without limitation, in connection with
any merger or consolidation involving the Company or any of its Restricted
Subsidiaries) any Equity Interests of the Company or any direct or indirect
parent of the Company or other Affiliate of the Company (other than any such
Equity Interests owned by the Company or a Wholly Owned Restricted Subsidiary of
the Company); (iii) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Subordinated Obligations,
except a payment of interest or principal at Stated Maturity; or (iv) make any
Restricted Investment (all such payments and other actions set forth in clauses
(i) through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to 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) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock";
and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and any of its Restricted
Subsidiaries after the Issue Date (excluding Restricted Payments permitted
by clauses (ii), (iii), (iv), (v), (vi), (vii) or (viii) of the next
succeeding paragraph), is less than the sum of (i) 50% of the Consolidated
Net Income of the Company for the period (taken as one accounting period)
from the beginning of the first fiscal quarter immediately following the
Issue Date to the end of the Company's most recently ended fiscal quarter
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, less 100% of such deficit), plus (ii) 100% of the aggregate Net
Cash Proceeds received by the Company as a contribution to its common
equity capital or from the issue or sale since the Issue Date of Equity
Interests of the Company (other than Disqualified Stock), or of
Disqualified Stock or debt securities of the Company that have been
converted into such Equity Interests (other than Equity Interests (or
Disqualified Stock or convertible debt securities) sold to a Subsidiary of
the Company and other than Disqualified Stock or convertible debt
securities that have been converted into Disqualified Stock), plus (iii) to
the extent not already included in Consolidated Net
30
<PAGE> 35
Income of the Company for such period without duplication, any Restricted
Investment that was made by the Company or any of its Restricted
Subsidiaries after the Issue Date is sold for cash or otherwise liquidated
or repaid for cash, the lesser of (A) the cash return of capital with
respect to such Restricted Investment (less the cost of disposition, if
any) and (B) the initial amount of such Restricted Investment, plus (iv)
50% of any dividends received by the Company or a Wholly Owned Restricted
Subsidiary after the Issue Date from an Unrestricted Subsidiary of the
Company, to the extent that such dividends were not otherwise included in
Consolidated Net Income of the Company for such period, plus (v) to the
extent not already included pursuant to clause (iii) above and to the
extent that any Unrestricted Subsidiary is redesignated as a Restricted
Subsidiary after the Issue Date, the lesser of (A) the fair market value of
the Company's Investment in such Subsidiary as of the date of such
redesignation or (B) such fair market value as of the date on which such
Subsidiary was originally designated as an Unrestricted Subsidiary, plus
(vi) to the extent that any Restricted Investment made after the Issue Date
becomes a Permitted Investment, the lesser of (A) the fair market value of
such Restricted Investment as of the date such Restricted Investment
becomes a Permitted Investment, or (B) the initial amount of such
Restricted Investment.
The foregoing provisions shall 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, defeasance or other
acquisition of Subordinated Obligations or Equity Interests of the Company in
exchange for, or out of the net cash 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); provided that the amount of any
such net cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause (c)
(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or
other acquisition of Subordinated Obligations with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any
dividend or distribution by a Restricted Subsidiary of the Company to the
holders of its common Equity Interests on a pro rata basis; (v) the loan of cash
to any Company-sponsored employee stock ownership plan for the purpose of
acquiring Equity Interests of the Company; provided that the aggregate amount of
all such loans shall not exceed $1,500,000 in any twelve-month period; (vi)
contributions by the Company to a Company-grantor employee benefit trust for the
purpose of repurchasing, redeeming or otherwise acquiring for value any Equity
Interests of the Company by such trust, provided that contributions made after
the Issue Date do not exceed at any time (x) the aggregate amount deducted after
the Issue Date from the Company's or any of its Restricted Subsidiaries'
employee wages for such employee benefit plus (y) $5,000,000; (vii) loans and
advances to officers, directors and employees for business related travel,
relocation expenses and similar expenses, in each case in the ordinary course of
business; and (viii) other Restricted Payments in an aggregate amount since the
Issue Date not to exceed $10.0 million, provided that, with respect to clauses
(ii), (iii), (v), (vi), (vii) and (viii) above, no Default or Event of Default
shall have occurred and be continuing immediately after such transaction.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary of the Company, pursuant to the Restricted Payment. The fair market
value of any non-cash Restricted Payment which exceeds $1.0 million shall be
determined by the Board of Directors of the Company, such determination to be
based upon an opinion or appraisal issued by an Independent Financial Advisor if
such fair market value exceeds $5.0 million. The Company shall deliver to the
Trustee all resolutions of the Board of Directors of the Company with respect to
the valuation of non-cash Restricted Payments not previously delivered to the
Trustee each time the aggregate amount of non-cash Restricted Payments for which
resolutions have not been delivered to the Trustee exceeds $5.0 million. Not
later than the date of making any Restricted Payment in excess of $5.0 million,
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 covenant described above under the caption
"-- Certain Covenants -- Restricted Payments" were computed, together with a
copy of any fairness opinion or appraisal required by the Indenture.
31
<PAGE> 36
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under this covenant. All such outstanding Investments will be deemed to
constitute Investments in an amount equal to the fair market value of such
Investments at the time of such designation. Such designation will only be
permitted if such Restricted Payment would be permitted at such time and if such
Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary.
Any designation of an Unrestricted Subsidiary by the Board of Directors
shall be evidenced to the Trustee by filing with the Trustee a certified copy of
the resolution of the Board of Directors of the Company giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the terms of the Indenture governing the designation of
Unrestricted Subsidiaries and was permitted by the covenant described above
under the caption "-- Certain Covenants -- Restricted Payments." If, at any
time, any Unrestricted Subsidiary fails to meet the foregoing requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of the Company as of
such date (and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant described
under the caption "-- Certain Covenants -- Incurrence of Indebtedness and
Issuance of Preferred Stock," calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period,
and (ii) no Default or Event of Default would be in existence immediately
following such designation.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company shall not issue any Disqualified Stock and
shall not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that the Company may incur Indebtedness (including Acquired
Debt) or the Company may issue shares of Disqualified Stock if 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 additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2.00 to 1.0,
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.
The provisions of the first paragraph of this covenant shall not apply to
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
(i) the incurrence by the Company of Indebtedness under one or more
Credit Facilities, letters of credit and related guarantees under any such
Credit Facility; provided that the aggregate principal amount of all
Indebtedness (with letters of credit being deemed to have a principal
amount equal to the maximum potential liability of the Company thereunder)
outstanding under such Credit Facilities after giving effect to such
incurrence, does not exceed $150.0 million, less the aggregate amount of
Asset Sale proceeds applied to reduce any amount borrowed under any Credit
Facility pursuant to the provisions described under the caption
"-- Repurchase at the Option of Holders -- Asset Sales"; provided that the
Company may incur an additional $50.0 million of Indebtedness under such
Credit Facilities, provided
32
<PAGE> 37
such additional Indebtedness may be incurred pursuant to the Fixed Charge
Coverage Ratio under the first paragraph of this covenant;
(ii) the incurrence by the Company and its Restricted Subsidiaries of
the Existing Indebtedness;
(iii) the incurrence by the Company of Indebtedness represented by the
Notes issued on the Issue Date;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace Indebtedness incurred pursuant to this
clause (iv), not to exceed 5% of Tangible Net Assets at any time
outstanding;
(v) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in respect of
Indebtedness that was permitted by the Indenture to be incurred by such
entity other than pursuant to clause (vi) below;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Restricted Subsidiaries; provided, however, that (i) if the
Company is the obligor on such Indebtedness, such Indebtedness is expressly
subordinated to the prior payment in full in cash of all Obligations with
respect to the Notes and the Indenture and (ii)(A) any subsequent event or
issuance or transfer of Equity Interests that results in any such
Indebtedness being held by a Person other than the Company or a Restricted
Subsidiary of the Company and (B) any sale or other transfer of any such
Indebtedness to a Person that is not either the Company or a Restricted
Subsidiary of the Company shall be deemed, in each case, to constitute an
incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be, that was not permitted by this clause (vi);
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred in the normal course
of business or as required by any Credit Facility for the purpose of fixing
or hedging currency, commodity or interest rate risk (including with
respect to any floating rate Indebtedness that is permitted by the terms of
the Indenture to be outstanding) in connection with the conduct of their
respective businesses and not for speculative purposes;
(viii) the guarantee by the Company or any of its Restricted
Subsidiaries of Indebtedness of the Company or a Restricted Subsidiary of
the Company that was permitted to be incurred by another provision of this
covenant "-- Incurrence of Indebtedness and Issuance of Preferred Stock,"
provided that any such guarantee of Indebtedness is a Permitted Investment
or otherwise permitted by the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments";
(ix) Indebtedness incurred by the Company or any Restricted Subsidiary
under performance bonds, letter of credit obligations to provide security
for worker's compensation claims, trade payables, payment obligations in
connection with self-insurance or similar requirements and bank overdrafts
incurred in the ordinary course of business; provided that any Obligations
arising in connection with such bank overdraft Indebtedness is extinguished
within five Business Days;
(x) the incurrence by the Company or any of its Restricted
Subsidiaries of additional Indebtedness in an aggregate principal amount
(or accreted value, as applicable) at any time outstanding, including all
Permitted Refinancing Indebtedness pursuant to this clause (x), not to
exceed $25.0 million;
(xi) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt and Preferred Stock, provided, however, that if any such
Indebtedness or Preferred Stock ceases to be Non-Recourse Debt and
Preferred Stock of an Unrestricted Subsidiary, such event shall be deemed
to constitute an incurrence of Indebtedness by a Restricted Subsidiary of
the Company that was not permitted by this clause (xi); and
33
<PAGE> 38
(xii) the incurrence by a Restricted Subsidiary that is a Foreign
Subsidiary of Indebtedness in an amount not to exceed 75% of the net book
value of the non-Affiliate accounts receivable of such Restricted Foreign
Subsidiary determined in accordance with GAAP.
For purposes of determining compliance with this covenant, in the event
that an item of Indebtedness meets the criteria of more than one of the
categories of Permitted Debt described in clauses (i) through (xii) above or is
entitled to be incurred pursuant to the first paragraph of this covenant, the
Company shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant and such item of Indebtedness shall be
treated as having been incurred pursuant to only one of such clauses or pursuant
to the first paragraph hereof. Accrual of interest, the accretion of accreted
value and the payment of interest in the form of additional Indebtedness will
not be deemed to be an incurrence of Indebtedness for purposes of this covenant.
Liens
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause
or suffer to exist or become effective any Lien of any kind securing
Indebtedness which is pari passu or subordinate to the Notes or trade payables,
unless the Notes are equally and ratably secured with the obligations so secured
until such time as such obligations are no longer secured by any Lien; provided
that in any case involving a Lien securing indebtedness subordinated to the
Notes, such Lien is subordinated to the Lien securing the Notes to the same
extent that such subordinated indebtedness is subordinated to the Notes.
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary of the Company to (i)(x) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest
or participation in, or measured by, its profits, or (y) pay any Indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii) transfer
any of its properties or assets to the Company or any of its Restricted
Subsidiaries, except for such encumbrances or restrictions existing under or by
reason of (a) Existing Indebtedness as in effect on the Issue Date, or as
amended thereafter on terms, taken as a whole, no less favorable to the Holders
of the Notes than the terms of such Indebtedness as in effect on the Issue Date,
(b) the Credit Facility as in effect as of the Issue Date, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive, taken as a whole, with
respect to such dividend and other payment restrictions than those contained in
the Credit Facility as in effect on the Issue Date, (c) the Indenture and the
Notes, (d) applicable law, (e) any instrument governing Indebtedness or Capital
Stock of a Person acquired by the Company or any of its Restricted Subsidiaries
as in effect at the time of such acquisition (except to the extent such
Indebtedness was incurred in connection with or 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, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the Indenture to
be incurred, (f) by reason of customary non-assignment provisions in leases and
other agreements entered into in the ordinary course of business, (g) purchase
money obligations for property acquired in the ordinary course of business that
impose restrictions of the nature described in clause (iii) above on the
property so acquired, (h) Indebtedness of Restricted Subsidiaries, provided that
such Indebtedness was permitted to be incurred pursuant to the Indenture, (i)
Permitted Refinancing Indebtedness, provided that the restrictions contained in
the agreements governing such Permitted Refinancing Indebtedness are no more
restrictive, taken as a whole, than those contained in the agreements governing
the Indebtedness being refinanced, (j) any agreement for sale of a Restricted
Subsidiary that restricts distributions or transfers of assets by that
Restricted Subsidiary
34
<PAGE> 39
pending its sale, (k) provisions with respect to the disposition or distribution
of assets or property in joint venture agreements and other similar agreements
entered into in the ordinary course of business and (l) secured Indebtedness
otherwise permitted to be incurred pursuant to the provisions of the covenant
described under the caption "-- Certain Covenants -- Liens" that limit the right
of the debtor to dispose of the assets securing such Indebtedness.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company will 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 disposition shall have been
made is a corporation organized or existing under the laws of the United States
of America, 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 the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Registration Rights Agreement, the Notes
and the Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately before and after such transaction
no Default or Event of Default shall have occurred; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of
the Company, the Company or 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 shall have been
made 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
first paragraph of covenant described above under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock";
provided, however, if the sole purpose of such merger is the reincorporation of
the Company into another State, such merger with or into the Wholly Owned
Restricted Subsidiary shall be permitted, so long as the amount of Indebtedness
of the Company and its Restricted Subsidiaries is not increased thereby.
Limitation on Guarantees of Indebtedness
The Indenture provides that the Company will not permit any of its
Restricted Subsidiaries, directly or indirectly, to Guarantee payment of any
other Indebtedness of the Company unless such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for the Guarantee of the payment of the Notes by such Restricted
Subsidiary, which Guarantee shall be (i) in the case of Indebtedness that is
subordinated to the Notes, senior to such Restricted Subsidiary's Guarantee of
or pledge to secure such other Indebtedness, (ii) in the case of Indebtedness
that is pari passu with the Notes, pari passu with such Restricted Subsidiary's
Guarantee of or pledge to secure such other Indebtedness, and (iii) in the case
of Indebtedness that is Senior Debt, subordinated to the Guarantee of such
Senior Debt to the same extent as the Notes are subordinated to such Senior
Debt. Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged upon the release of
such Guarantee of any Senior Debt so long as no Rating Event has occurred and is
continuing or upon any sale, exchange or transfer, to any Person not an
Affiliate of the Company, of all of the Company's stock in, or all or
substantially all the assets of, such Restricted Subsidiary, which sale,
exchange or transfer is made in compliance with the applicable provisions of the
Indenture. A "Rating Event" means the assigning of a rating on the Notes (a)
from Moody's Investors Services, Inc., lower than "B2" or (b) from Standard &
Poor's Rating Group lower than "B." Nothing in this covenant shall be construed
to permit any Restricted Subsidiary of the Company to incur Indebtedness
otherwise prohibited by the covenant described above under the caption
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock".
35
<PAGE> 40
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any properties or assets to, or purchase any property or
assets from, or enter into or make or amend any transaction, contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate of any such Person (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to
the Trustee (x) with respect to any Affiliate Transaction or series of related
Affiliate Transactions involving aggregate consideration in excess of $5.0
million, a resolution of its Board of Directors set forth in an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and that such Affiliate Transaction has been approved by a majority of the
disinterested members of its Board of Directors and (y) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point of
view issued by an Independent Financial Advisor; provided that none of the
following shall be deemed to be Affiliate Transactions: (a) any employment
agreement entered into by the Company or any of its Restricted Subsidiaries in
the ordinary course of business of the Company or such Restricted Subsidiary, as
the case may be; (b) transactions between or among the Company and/or its
Restricted Subsidiaries; (c) Restricted Payments that are permitted by the
covenant described above under the caption "-- Certain Covenants -- Restricted
Payments"; and (d) fees, compensation and benefits paid to, and indemnity
provided on behalf of, officers, directors or employees of the Company or any of
its Restricted Subsidiaries, as determined by the Board of Directors of the
Company or of any such Restricted Subsidiary, to the extent such fees,
compensation and benefits are reasonable and customary.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company may enter into a sale and leaseback
transaction if (i) the Company could have incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock" and
(ii) the gross cash proceeds of such sale and leaseback transaction are at least
equal to the fair market value (as determined in good faith by the Board of
Directors and set forth in an Officers' Certificate delivered to the Trustee) of
the property that is the subject of such sale and leaseback transaction and
(iii) the transfer of assets in such sale and leaseback transaction is permitted
by, and the Company applies the proceeds of such transaction in compliance with,
the covenant described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales."
Anti-Layering
The Indenture provides that the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any indebtedness that is
subordinate or junior in right of payment to any Indebtedness and senior in any
respect in right of payment to the Notes.
Business Activities
The Indenture provides that the Company will not, and the Company will not
permit any of its Restricted Subsidiaries to, directly or indirectly, engage in
any line of business other than a Permitted Business, except to such extent as
would not be material to the Company and its Restricted Subsidiaries taken as a
whole.
Payments for Consent
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to any
36
<PAGE> 41
Holder of any Notes for or as an inducement to any consent, waiver or amendment
of any of the terms or provisions of the Indenture or the Notes unless such
consideration is offered to be paid or is paid to all Holders of the 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.
Reports
The Indenture provides that whether or not the Company is required by the
rules and regulations of the SEC, so long as any Notes are outstanding and
irrespective of whether the Exchange Offer Registration Statement or the Shelf
Registration Statement has been declared effective by the SEC, the Company will
furnish to each of the Holders of Notes within the time periods specified in the
SEC's rules and regulations, beginning with annual financial information for the
year ended January 31, 1998, (i) all quarterly and annual financial information
that would be required to be contained in a filing with the SEC on Forms 10-Q
and 10-K if the Company were required to file such financial information,
including a "Management's Discussion and Analysis of Financial Condition and
Results of Operations" that describes the financial condition and results of
operations of the Company and any consolidated Subsidiaries and, with respect to
the annual information only, reports thereon by the Company's independent public
accountants (which shall be firm(s) of established national reputation) and (ii)
all information that would be required to be filed with the SEC on Form 8-K if
the Company were required to file such reports. In addition, whether or not
required by the rules and regulations of the SEC, the Company shall file a copy
of all such information and reports with the SEC for public availability within
the time periods specified in the SEC's rules and regulations (unless the SEC
will not accept such a filing) and make such information available to securities
analysts and prospective investors upon request. For so long as any Notes remain
outstanding, the Company shall furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages, if any, with respect to, the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (ii) default in
payment when due of the principal of or premium, if any, on the Notes (whether
or not prohibited by the subordination provisions of the Indenture); (iii)
failure by the Company to comply with the provisions described under the
captions "-- Certain Covenants -- Merger, Consolidation, or Sale of Assets,"
(iv) failure by the Company or any of its Subsidiaries for 30 days after notice
from the Trustee or Holders of 25% of the principal amount of the Notes to
comply with the provisions described under the captions "-- Repurchase at the
Option of Holders -- Asset Sales," "-- Repurchase at the Option of
Holders -- Change of Control," "-- Certain Covenants -- Restricted Payments," or
"-- Certain Covenants -- Incurrence of Indebtedness and Issuance of Preferred
Stock"; (v) failure by the Company or any of its Subsidiaries for 60 days after
notice from the Trustee or Holders of 25% of the principal amount of the Notes
to comply with any of its other agreements in the Indenture or the Notes; (vi)
default under 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 now exists, or is created after the Issue Date, which default (a)
is caused by a failure to pay principal of or premium, if any, or interest on
such Indebtedness at final maturity prior to the expiration of the grace period
provided in such Indebtedness on the date of such default (a "Payment Default")
or (b) results in the acceleration of such Indebtedness prior to its express
maturity and, in each case, the principal amount of any such Indebtedness,
together with the principal amount of any other such Indebtedness under which
there has been a Payment Default or the maturity of which has been so
accelerated, aggregates without duplication $10.0 million or more; (vii) failure
by the Company or any of its Significant Subsidiaries to pay final judgments
aggregating in excess of $10.0 million (excluding amounts covered by insurance),
which judgments are not paid, discharged or stayed for a period of 60 days; and
(viii) certain events of bankruptcy or insolvency with respect to the Company or
any of its Significant Subsidiaries.
37
<PAGE> 42
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 Notes may
declare all the Notes to be due and payable immediately; provided, however, that
so long as Senior Debt or any commitment therefor is outstanding under the
Credit Facility, any such notice shall not be effective until the earlier of (a)
five Business Days after such notice is delivered to the representative for such
Senior Debt or (b) the acceleration of the Senior Debt under the Credit
Facility. Notwithstanding the foregoing, in the case of an Event of Default
arising from certain events of bankruptcy or insolvency with respect to the
Company, any Significant Subsidiary or any group of Subsidiaries that, taken
together, would constitute a Significant Subsidiary, all outstanding Notes will
become due and payable without further action or notice. Holders of the Notes
may not enforce the Indenture or the Notes except as provided in the Indenture.
Subject to certain limitations, Holders of a majority in principal amount of the
then outstanding Notes may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Holders of the 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.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the principal intention of avoiding payment of the premium that the Company
would have had to pay if the Company then had elected to redeem the Notes
pursuant to the optional redemption provisions of the Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Notes. If an Event of Default
occurs prior to March 1, 2003 by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding the prohibition on redemption of the Notes prior to March 1, 2003, then
the premium specified in the Indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes 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
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND SHAREHOLDERS
No director, officer, employee, incorporator, partner, member or
stockholder of the Company or any Subsidiary of the Company, or of any member,
partner or stockholder of any such entity, as such, shall have any liability for
any obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each Holder of Notes by accepting a Note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the Notes.
Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the SEC that such a waiver is against
public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages, if any, on such Notes when such payments are due from
the trust referred to below, (ii) the Company's obligations with respect to the
Notes concerning issuing temporary Notes, registration of Notes, mutilated,
destroyed, lost or stolen Notes and the maintenance of an office or agency for
payment and money for security payments held in trust, (iii) the rights, powers,
trusts, duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company
38
<PAGE> 43
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "-- Events of Default and Remedies" will no longer
constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the Issue Date, there has been a
change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the Holders
of the outstanding Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
Notes over the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and (viii)
the Company must deliver to the Trustee an Officers' Certificate and an opinion
of counsel, each stating that all conditions precedent provided for relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange 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 Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then
39
<PAGE> 44
outstanding (including, without limitation, consents obtained in connection with
a purchase of, or tender offer or exchange offer for, Notes), and any existing
default or compliance with any provision of the Indenture or the Notes may be
waived with the consent of the Holders of a majority in principal amount of the
then outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders"), (iii) reduce the rate of or change
the time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders"), or (viii) make any change in
the foregoing amendment and waiver provisions. In addition, any amendment to the
provisions of Article 10 of the Indenture (which relate to subordination) will
require the consent of the Holders of at least 75% in aggregate principal amount
of the Notes then outstanding if such amendment would adversely affect the
rights of Holders of Notes. Without the consent of at least 75% in principal
amount of the Notes then outstanding (including consents obtained in connection
with a tender offer or exchange offer for Notes), no waiver or amendment to the
Indenture may make any change in the provisions described above under the
captions "-- Change of Control" and "-- Asset Sales" that adversely affect the
rights of any Holder of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of 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 Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the SEC 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 SEC for permission to continue or
resign.
The Holders of a majority in principal amount of the then outstanding 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 such person's 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 Notes, unless such Holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
40
<PAGE> 45
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Furon Company, 29982
Ivy Glenn Drive, Laguna Niguel, California 92677, Attn: Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The New Notes will be represented by one or more global notes in
registered, global form without interest coupons (the "Global Note"). The Global
Note initially will be deposited upon issuance with the Trustee as custodian for
the Depositary, in New York, New York, and registered in the name of the
Depositary or its nominee, in each case for credit to an account of a direct or
indirect participant as described below.
Except as set forth below, the Global Note may be transferred, in whole and
not in part, only to another nominee of the Depositary or to a successor of the
Depositary or its nominee. Beneficial interests in the Global Notes may not be
exchanged for Notes in certificated form except in the limited circumstances
described below. See "-- Depositary Procedures -- Exchange of Book-Entry Notes
for Certificated Notes."
Transfer of beneficial interests in the Global Notes will be subject to the
applicable rules and procedures of the Depositary and its direct or indirect
participants, which may change from time to time.
The Notes may be presented for registration of transfer and exchange at the
offices of the Registrar.
DEPOSITARY PROCEDURES
The following description of the operations and procedures of the
Depositary are provided solely as a matter of convenience. These operations and
procedures are solely within the control of the Depositary and are subject to
change from time to time. The Company takes no responsibility for these
operations and procedures and urges investors to contact the Depositary directly
to discuss these matters.
The Depositary has advised the Company that the Depositary is a
limited-purpose trust company created to hold securities for its participating
organizations (collectively, the "Participants") and to facilitate the clearance
and settlement of transactions in those securities between Participants through
electronic book-entry changes in accounts of Participants. The Participants
include securities brokers and dealers (including the Initial Purchasers),
banks, trust companies, clearing corporations and certain other organizations.
Access to the Depositary's system is also available to other entities such as
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
(collectively, "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of the Depositary only through
the Participants or Indirect Participants. The ownership interest and transfer
of ownership interest of each actual purchaser of each security held by or on
behalf of the Depositary are recorded on the records of the Participants and
Indirect Participants.
The Depositary has also advised the Company that pursuant to procedures
established by it, (i) upon deposit of the Global Notes, the Depositary will
credit the accounts of Participants designated by the Initial Purchasers with
portions of the principal amount of Global Notes and (ii) ownership of such
interests in the Global Notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by the Depositary
(with respect to Participants) or by Participants and the Indirect Participants
(with respect to other owners of beneficial interests in the Global Notes).
The laws of some states require that certain persons take physical delivery
in definitive form of securities that they own. Consequently, the ability to
transfer beneficial interest in a Global Note to such persons may be limited to
that extent. Because the Depositary can act only on behalf of Participants,
which in turn act on behalf of Indirect Participants and certain banks, the
ability of a person having a beneficial interest in a Global Note to pledge such
interest to persons or entities that do not participate in the Depositary
system, or otherwise take actions in respect of such interests, may be affected
by the lack of physical certificate evidencing such interests. For certain other
restrictions on the transferability of the Notes see, "-- Depositary
Procedures -- Exchange of Book-Entry Notes for Certificated Notes."
41
<PAGE> 46
EXCEPT AS DESCRIBED BELOW OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal, premium and interest on a Global Note
registered in the name of the Depositary or its nominee will be payable by the
Trustee to the depositary or its nominee in its capacity as the registered
Holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee will treat the persons in whose names the Notes, including the
Global Notes, are registered as the owners thereof for the purpose of receiving
such payments and for any and all other purposes whatsoever. Consequently,
neither the Company, the Trustee nor any agent of the Company or the Trustee has
or will have any responsibility or liability for (i) any aspect of the
Depositary's records or any Participant's or Indirect Participant's records
relating to or payments made on account of beneficial ownership interests in the
Global Notes, or for maintaining, supervising or reviewing any of the
Depositary's records or any Participant's or Indirect Participant's records
relating to the beneficial ownership interests in the Global Notes or (ii) any
other matter relating to the actions and practices of the Depositary or any of
its Participants or Indirect Participants.
The Depositary has advised the Company that its current practice, upon
receipt of any payment in respect of securities such as the Notes (including
principal and interest), is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the relevant
security such as the Global Notes as shown on the records of the Depositary.
Payments by Participants and the Indirect Participants to the beneficial owners
of Notes will be governed by standing instructions and customary practices and
will not be the responsibility of the Depositary, the Trustee or the Company.
Neither the Company nor the Trustee will be liable for any delay by the
Depositary or its Participants in identifying the beneficial owners of the
Notes, and the Company and the Trustee may conclusively rely on and will be
protected in relying on instructions from the Depositary or its nominee as the
registered owner of the Notes for all purposes.
Interests in the Global Note will trade in the Depositary's Same-Day Funds
Settlement System and secondary market trading activity in such interests will,
therefore, settle in immediately available funds, subject in all cases to the
rules and procedures of the Depositary and its Participants.
Transfers between Participants in the Depositary will be effective in
accordance with the Depositary's procedures, and will be settled in same-day
funds.
The Depositary has advised the Company that it will take any action
permitted to be taken by a Holder of Notes only at the direction of one or more
Participants to whose account the Depositary interests in the Global Notes are
credited and only in respect of such portion of the aggregate principal amount
of the Notes as to which such Participant or Participants has or have given
direction. However, if there is an Event of Default under the Notes, the
Depositary reserves the right to exchange Global Notes for legended Notes in
certificated form, and to distribute such Notes to its Participants.
The information in this section concerning the Depositary and its book
entry systems has been obtained from sources that the Company believes to be
reliable, but the Company takes no responsibility for the accuracy thereof.
Although the Depositary has agreed to the foregoing procedures to
facilitate transfers of interests in the Global Note among Participants in the
Depositary, it is under no obligation to perform or to continue to perform such
procedures, and such procedures may be discontinued at any time. None of the
Company nor the Trustee will have any responsibility for the performance by the
Depositary or its respective participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
42
<PAGE> 47
Exchange of Book-Entry Notes for Certificated Notes
A Global Note is exchangeable for definitive Notes in registered
certificated form if (i) the Depositary (A) notifies the Company that it is
unwilling or unable to continue as depositary for the Global Note and the
Company thereupon fails to appoint a successor depositary or (B) has ceased to
be a clearing agency registered under the Exchange Act or (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause issuance of
the Notes in certificated form. In addition, beneficial interests in a Global
Note may be exchanged for certificated Notes upon request but only upon at least
20 days prior written notice given to the Trustee by or on behalf of the
Depositary in accordance with customary procedures. In all cases, certificated
Notes delivered in exchange for any Global Note or beneficial interest therein
will be registered in names, and issued in any approved denominations, requested
by or on behalf of the Depositary (in accordance with its customary procedures).
Same Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium and Liquidated Damages, if any,
and interest) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to certificated
Notes, the Company will make all payments of principal, premium, if any, and
interest 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. The Company expects that
secondary trading in the certificated Notes will also be settled in immediately
available funds.
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, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by 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 that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than 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 and its Restricted Subsidiaries taken as a whole will be
governed by the covenants described above under the captions "-- Repurchase at
the Option of Holders -- Change of Control" and "-- Certain Covenants -- Merger,
Consolidation, or Sale of Assets" and not by the provisions of the covenant
described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales"), and (ii) the issue or sale by the Company or any of
its Restricted Subsidiaries of Equity Interests of any of the Company's
Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a
single transaction or a series of related transactions (a) that have a fair
market value in excess of $3.0 million or (b) for Net Proceeds in excess of $3.0
million. Notwithstanding the foregoing: (i) a transfer of assets by the Company
to a Wholly Owned Restricted Subsidiary of the Company or by a Wholly Owned
Restricted Subsidiary of the Company to the Company or to another Wholly Owned
Restricted Subsidiary of the Company, (ii) an issuance or sale of Equity
Interests by a Wholly Owned
43
<PAGE> 48
Restricted Subsidiary of the Company to the Company or to another Wholly Owned
Restricted Subsidiary of the Company, and (iii) (A) a Permitted Investment or
(B) a Restricted Payment that is permitted by the covenant described above under
the caption "-- Certain Covenants -- Restricted Payments" will not be deemed to
be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments (after excluding amounts
paid in respect of insurance, taxes, assessments, utilities, operating and labor
and similar charges) during the remaining term of the lease included in such
sale and leaseback transaction (including any period for which such lease has
been extended or may, at the option of the lessor, be extended).
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"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 required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participation, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership (whether general or limited) or membership interests and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than one
year from the date of acquisition, (iii) certificates of deposit and eurodollar
time deposits with maturities of not more than one year from the date of
acquisition, bankers' acceptances with maturities of not more than one year from
the date of acquisition and overnight bank deposits, in each case with any
domestic commercial bank having capital and surplus in excess of $250.0 million
and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations
with a term of not more than seven days for underlying securities of the types
described in clauses (ii) and (iii) above entered into with any financial
institution meeting the qualifications specified in clause (iii) above, (v)
commercial paper having the highest rating obtainable from Moody's Investors
Service, Inc. ("Moody's") or one of the two highest ratings from Standard &
Poor's Rating Group ("S&P") with maturities of not more than one year from the
date of acquisition, (vi) readily marketable obligations issued or
unconditionally and fully guaranteed by any state of the United States of
America maturing within one year from the date of acquisition thereof, and at
the time of acquisition, having one of the two highest ratings obtainable from
Moody's and S&P, and (vii) money market funds at least 95% of the assets of
which are comprised of assets specified in clauses (i) through (vi).
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer other than by a merger
or consolidation (in one transaction or a series of related transactions) of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries, taken as a whole, to any Person or group of related Persons for
purposes of Section 13(d) of the Exchange Act (a "Group") together with any
Affiliates thereof (whether or not otherwise in compliance with the provisions
of the Indenture) unless immediately following such sale, lease, exchange or
other transfer in compliance with the Indenture such assets are owned, directly
or indirectly, by the Company or a Wholly Owned Restricted Subsidiary of the
Company; (ii) the approval by the holders of Capital Stock of the Company of any
plan or proposal for the liquidation or dissolution of the Company (whether or
not otherwise in compliance with the provisions of the Indenture); (iii) the
acquisition in one or more transactions by way of merger, consolidation or other
business transaction or the purchase of beneficial ownership (within the meaning
of Rule 13d-3 under the Exchange Act) by any Person or Group, whether directly
or indirectly, of at least 35% of the Company's then outstanding voting
securities entitled to vote on a regular basis for the Board of Directors; or
(iv) the first day on which a majority of the members of the Board of Directors
are not Continuing Directors.
44
<PAGE> 49
Clause (i) of the definition of "Change of Control" includes a sale, lease,
exchange or other transfer of "all or substantially all" of the assets of the
Company and its Subsidiaries, taken as a whole, to a Group. There is little case
law interpreting the phrase "all or substantially all" in the context of an
indenture. Because there is no precise established definition of this phrase,
the ability of a holder of Notes to require the Company to repurchase such Notes
as a result of a sale, lease, exchange or other transfer of all or substantially
all of the Company's assets to a Person or a Group may be uncertain.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus, without
duplication, (i) 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 such Consolidated Net Income), plus (ii) provision for
taxes based on income or profits of such Person and its Restricted Subsidiaries
for such period, to the extent that such provision for taxes was included in
computing such Consolidated Net Income, plus (iii) consolidated interest expense
(net of interest income) of such Person and its Restricted Subsidiaries for such
period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation and amortization
(including amortization of goodwill, other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses or charges (excluding any such non-cash expense to the
extent that it represents an accrual of or reserve for cash expenses in any
future period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Restricted Subsidiaries for such period to the
extent that such depreciation and amortization were deducted in computing such
Consolidated Net Income, minus (v) non-cash items increasing such Consolidated
Net Income for such period, 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 Restricted Subsidiaries
(for such period, on a consolidated basis, determined in accordance with GAAP);
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted 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 in cash to the referent Person or a Restricted Subsidiary,
(ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of that Net Income is not at the date of determination
permitted without any prior governmental approval (that has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary or its stockholders, (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, (iv) the
cumulative effect of a change in accounting principles shall be excluded, and
(v) the Net Income (but not loss) of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its Subsidiaries.
"Continuing Director" means, as of any date of determination, any member of
the Board of Directors who (i) was a member of the Board of Directors on the
date of the Indenture or (ii) was nominated for election or elected to the Board
of Directors with the approval of a majority of the Continuing Directors who
were members of the Board of Directors at the time of such nomination or
election.
"Credit Facility" means that certain First Amended and Restated Credit
Agreement, dated as of March 27, 1997 and amended as of February 3, 1998,
between Furon Company, the various lenders thereto, The Bank of New York, as
swing line lender and administration agent, and BNY Capital Markets, Inc., as
arranging agent, providing for up to $200.0 million of revolving credit
borrowings, as such agreement may be amended, restated, modified, renewed,
refunded, replaced or refinanced from time to time thereafter, including any
notes, guaranties, security or pledge agreements, letters of credit and other
documents or instruments executed pursuant thereto and any appendices, exhibits
or schedules to any of the foregoing, as
45
<PAGE> 50
the same may be in effect from time to time, in each case, as such agreements
may be amended, modified, supplemented, renewed, refunded, replaced, refinanced,
extended or restated from time to time (whether with the original agents and
lenders or other agents and lenders or otherwise, and whether provided under the
original credit agreement or other credit agreements or otherwise), including
any appendices, exhibits or schedules to any of the foregoing.
"Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the Credit Facility) or commercial
paper facility with banks or other institutional lenders providing for revolving
credit loans, other borrowings (including term loans), receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time.
"Default" means any event that is or with the passage of time or the giving
of notice (or both) would be an Event of Default.
"Designated Senior Debt" means (i) any Indebtedness outstanding under the
Credit Facility and (ii) any other Senior Debt permitted hereunder the principal
amount of which is $25.0 million or more and that has been designated by the
Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable at the option of the holder thereof), 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 date that is 91 days after the date on
which the Notes mature, except to the extent that such Capital Stock is solely
redeemable with, or solely exchangeable for, any Capital Stock of such Person
that is not Disqualified Stock.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means up to $17.0 million in aggregate principal
amount of Indebtedness of the Company and its Restricted Subsidiaries (other
than Indebtedness under the Credit Facility and the Notes) in existence on the
Issue Date, until such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any
Indebtedness (other than revolving credit borrowings under any Credit Facility)
or issues preferred stock subsequent to the commencement of the period for which
the Fixed Charge Coverage Ratio is being calculated but on or prior to the date
on which the event for which the calculation of the Fixed Charge Coverage Ratio
is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be
calculated giving pro forma effect to such incurrence, assumption, guarantee or
redemption of Indebtedness, or such issuance or redemption of preferred stock,
as if the same had occurred at the beginning of the applicable four-quarter
reference period. In addition, for purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date shall be deemed to have occurred on the first day of the four-quarter
reference period and Consolidated Cash Flow for such reference period shall be
calculated without giving effect to clause (iii) of the proviso set forth in the
definition of Consolidated Net Income, (ii) the Consolidated Cash Flow
attributable to discontinued operations, as determined in accordance with GAAP,
and operations or businesses disposed of prior to the Calculation Date, shall be
excluded, and (iii) the Fixed Charges attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of the
referent Person or any of its Restricted Subsidiaries following the Calculation
Date.
46
<PAGE> 51
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense (net of interest
income) of such Person and its Restricted Subsidiaries for such period, whether
paid or accrued (including, without limitation, amortization of debt issuance
costs and original issue discount, non-cash interest payments, the interest
component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, (iii) any interest expense on Indebtedness of
another Person that is guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries (whether or not such guarantee or Lien is called upon)
and (iv) the product of (a) all dividend payments, whether or not in cash, on
any series of Preferred Stock of such Person or any of its Restricted
Subsidiaries, other than dividend payments on Equity Interests payable solely in
Equity Interests of the Company (other than Disqualified Stock) and other than
dividends paid or accrued for the benefit of the Company or a Restricted
Subsidiary, times (b) 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 a decimal, in each case,
on a consolidated basis and in accordance with GAAP.
"Foreign Subsidiary" shall mean a Restricted Subsidiary that is formed
under the laws of a jurisdiction other than that of the United States of America
or of a state or territory thereof.
"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, the statements and pronouncements of
the Financial Accounting Standards Board and such other statements by such other
entities as have been approved by a significant segment of the accounting
profession, which are applicable at the Issue Date.
"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.
"Guarantee" means any guarantee of the Notes to be executed by any
Subsidiary of the Company pursuant to the covenant described above under the
caption "-- Certain Covenants -- Limitation on Guarantees of Indebtedness."
"Hedging Obligations" means, with respect to any Person, the net payment
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 commodity prices, interest rates or currency exchange 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 letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense, customer advance, progress
payment or trade payable, if and to the extent any of the foregoing indebtedness
(other than letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
as well as all Indebtedness of others secured by a Lien on any asset of such
Person (whether or not such Indebtedness is assumed by such Person) and, to the
extent not otherwise included, the guarantee by such Person of any Indebtedness
of any other Person. The amount of any Indebtedness outstanding as of any date
shall be (i) the accreted value thereof, in the case of any Indebtedness that
does not require current payments of interest, and (ii) the principal amount
thereof, together with any interest thereon that is more than 30 days past due,
in the case of any other Indebtedness.
47
<PAGE> 52
"Independent Financial Advisor" means a reputable accounting, appraisal or
investment banking firm that is, in the reasonable judgment of the Board of
Directors, qualified to perform the task for which such firm has been engaged
hereunder and disinterested and independent with respect to the Company and its
Affiliates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other Obligations),
advances of assets or capital contributions, purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If the Company or any of its Restricted
Subsidiaries sells or otherwise disposes of any Equity Interests of any direct
or indirect Restricted Subsidiary of the Company such that, after giving effect
to any such sale or disposition, such Person is no longer a direct or indirect
Restricted Subsidiary of the Company, the Company or such Restricted Subsidiary,
as the case may be, shall be deemed to have made an Investment on the date of
any such sale or disposition equal to the fair market value of the Equity
Interests of such Restricted Subsidiary not sold or disposed of in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "-- Certain Covenants -- Restricted Payments." "Investments"
shall exclude extensions of trade credit by the Company and the Restricted
Subsidiaries on commercially reasonable terms in the ordinary course of
business.
"Issue Date" means the date on which the Initial Notes were first issued
and delivered.
"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 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 any asset 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 and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries, (ii) any extraordinary gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss), and (iii) any non-cash write-off or charge
(excluding any such non-cash write-off or charge to the extent that it
represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) directly
related to the acquisition of a Person in a Permitted Business if such non-cash
write-off or charge is made within three months of such acquisition.
"Net Proceeds" means the aggregate cash proceeds or Cash Equivalents
received by the Company or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale), net
of all costs relating to such Asset Sale (including, without limitation, legal,
accounting, investment banking and brokers fees, and sales and underwriting
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 Senior Debt (other than Senior Debt under one or
more of the Company's Credit Facilities) secured by a Lien on the assets that
were the subject of such Asset Sale, and any reserve for adjustment in respect
of the sale price of such asset or assets established in accordance with GAAP.
"Non-Recourse Debt and Preferred Stock" means Indebtedness or Preferred
Stock (i) as to which neither the Company nor any of its Restricted Subsidiaries
(a) provides any guarantee or credit support of any kind (including any
undertaking, guarantee, indemnity, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise) or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
48
<PAGE> 53
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes being offered hereby) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) the incurrence of which will not result in any recourse against any of the
assets or stock of the Company or its Restricted Subsidiaries.
"Obligations" means any principal, premium, if any, interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company or its Subsidiaries whether or not a
claim for post-filing interest is allowed in such proceeding), penalties, fees,
charges, expenses, indemnifications, reimbursement obligations, damages
(including Liquidated Damages), guarantees and other liabilities or amounts
payable under the documentation governing any Indebtedness or in respect
thereof.
"Officers' Certificate" means a certificate signed on behalf of the Company
by either the principal executive officer or the principal financial officer,
the treasurer or the principal accounting officer of the Company, that meets the
requirements of the Indenture.
"Permitted Business" means the lines of business conducted by the Company
and its Subsidiaries on the date hereof and businesses reasonably related
thereto and reasonable extensions thereof.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Subsidiary of the Company in a Person
engaged in a Permitted Business, if as a result of such Investment (i) such
Person becomes a Restricted Subsidiary 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 Restricted
Subsidiary; (d) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "-- Repurchase at the Option
of Holders -- Asset Sales"; (e) any acquisition of assets solely in exchange for
the issuance of Equity Interests (other than Disqualified Stock) of the Company;
(f) Investments arising in connection with Hedging Obligations; (g) any
Investment acquired by the Company or any of its Restricted Subsidiaries (x) in
exchange for any other Investment or accounts receivable held by the Company or
any such Restricted Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of such
other Investment or accounts receivable or (y) as a result of a foreclosure by
the Company or any of its Restricted Subsidiaries with respect to any Investment
or other transfer of title with respect to any Investment in default; (h) any
Investment existing on the Issue Date; and (i) other Investments by the Company
or any of its Restricted Subsidiaries in any Person having an aggregate fair
market value, when taken together with all other Investments made pursuant to
this clause (i) that are at the time outstanding, not to exceed $30.0 million at
the time of such Investment (with the fair market value being measured at the
time made and without giving effect to subsequent changes in value).
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to a
greater extent than, the Notes are subordinated to Senior Debt pursuant to the
Indenture.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries or any Disqualified Stock of the Company
issued in exchange for, or the net proceeds of which are used to extend,
refinance, renew, replace, defease or refund other Indebtedness of the Company
or any of its Restricted Subsidiaries; provided that: (i) the principal amount
(or accreted value, if applicable) of such Permitted Refinancing Indebtedness
does not exceed the principal amount of (or accreted value, if applicable), plus
accrued interest on, the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has 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,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is pari passu with the Notes, such
Permitted Refinancing Indebtedness is pari passu with or subordinated in right
of payment to the Notes or is Disqualified Stock;
49
<PAGE> 54
(iv) if the Indebtedness being extended, refinanced, renewed, replaced, defeased
or refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness is subordinated in right of payment to the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded or is Disqualified Stock; and (v) such
Indebtedness is incurred either by the Company or by the Restricted Subsidiary
that is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded, or such Disqualified Stock is issued by the
Company, as applicable.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such person over the holder of the
other Capital Stock issued by such Person.
"Public Equity Offering" means any underwritten primary public offering of
the Voting Stock of the Company pursuant to an effective registration statement
(other than a registration statement on Form S-4, Form S-8, or any successor or
similar form) under the Securities Act.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referenced
Person that is not an Unrestricted Subsidiary; provided that, on the date of the
Indenture, all Subsidiaries of the Company shall be Restricted Subsidiaries.
"SEC" means the Securities and Exchange Commission.
"Senior Debt" means (i) all Indebtedness outstanding under Credit
Facilities and all Hedging Obligations with respect thereto, (ii) any other
Indebtedness permitted to be incurred by the Company under the terms of the
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes and (iii) all Obligations of the Company with respect to
the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior
Debt will not include (w) any liability for federal, state local or other taxes
owed or owing by the Company, (x) any Indebtedness of the Company to any of its
Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness
that is incurred in violation of the Indenture, provided that Indebtedness under
the Credit Facility will not cease to be Senior Debt if borrowed based upon a
written certification (which can be included in a borrowing request) from a
purported officer of the Company or the Director, Treasury to the effect that
such Indebtedness was permitted by the Indenture to be incurred.
"Significant Subsidiary" means any Subsidiary of the Company that is a
"significant subsidiary" as defined in Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act (as such regulation is in effect on the date
hereof).
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations to
repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Obligations" means any Indebtedness of the Company which is
expressly subordinated or junior in right of payment to the Notes.
"Subsidiary" means, with respect to any Person, (i) 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, (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or an entity described in clause (i) and
related to such
50
<PAGE> 55
Person or (b) the only general partners of which are such Person or of one or
more entities described in clause (i) and related to such Person (or any
combination thereof) and (iii) any limited liability company, the sole managing
member or the majority of the managing members of which are Persons described in
clause (i) or (ii).
"Tangible Net Assets" means, for any period, the amount which would be set
forth under the caption "Total Assets" (or any like caption) on a consolidated
balance sheet of the Company and its Restricted Subsidiaries, less all
Intangible Assets, all determined on a consolidated basis and (except as
otherwise specifically provided below) in accordance with GAAP. For purposes of
this definition, "Intangible Assets" means the amount (to the extent reflected
in determining such consolidated equity of the common shareholders) of (i) all
write-ups (other than write-ups resulting from foreign currency translations and
write-ups of tangible assets of a going concern business made within twelve
months after the acquisition of such business) subsequent to November 1, 1997 in
the book value of any asset owned by the Company and its Restricted
Subsidiaries, (ii) all investments in unconsolidated Subsidiaries of the Company
and in Persons which are not Restricted Subsidiaries of the Company, and (iii)
all unamortized debt discount and expense, unamortized deferred charges,
goodwill, patents, trademarks, service marks, trade names, copyrights,
organization and developmental expenses and other intangible items of the
Company and its Restricted Subsidiaries, all of the foregoing as determined in
accordance with GAAP.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt and Preferred Stock; (b) is not party to any
agreement, contract, arrangement or understanding with the Company or any
Restricted Subsidiary of the Company unless the terms of any such agreement,
contract, arrangement or understanding are no less favorable to the Company or
such Restricted Subsidiary than those that might be obtained at the time from
Persons who are not Affiliates of the Company; (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any direct
or indirect obligation (x) to subscribe for additional Equity Interests;
provided, that an obligation to purchase an Equity Interest of an Unrestricted
Subsidiary shall not be deemed to be such an obligation to subscribe to
additional Equity Interests if the Company's obligation provides that it is
subject, at the time the obligation is to be enforced, to the Company's ability
to make such purchase and, after such purchase, no Default or Event of Default
would be in existence or (y) to maintain or preserve such Person's financial
condition or to cause such Person to achieve any specified levels of operating
results; and (d) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of the Company or any of its Restricted
Subsidiaries. Any such designation by the Board of Directors shall be evidenced
to the Trustee by filing with the Trustee a certified copy of the Board
Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock," the Company shall be in default of such
covenant).
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) 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 (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
51
<PAGE> 56
"Wholly Owned Restricted Subsidiary" means (i) a Restricted Subsidiary of
the Company, 100% of the outstanding Capital Stock and other Equity Interests of
which (other than Capital Stock constituting directors' qualifying shares or
interests held by directors or shares or interests required to be held by
foreign nationals, in each case to the extent mandated by applicable law) is
directly or indirectly owned by the Company or by one or more Wholly Owned
Restricted Subsidiaries of the Company.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New 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 New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with the resale of New Notes received in exchange for Initial Notes
where such Initial Notes were acquired as a result of market-making activities
or other trading activities. The Company has agreed that for a period not less
than one year after the Expiration Date, it will make this Prospectus, as
amended or supplemented, available to any broker-dealer that requests such
document in the Letter of Transmittal for use in connection with any such
resale. In addition, until September 15, 1998 all dealers effecting transactions
in New Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers or any other persons. New 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 New 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 New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New 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 one year 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 the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Company's performance of, or compliance with, the Registration
Rights Agreement (including the expenses of one counsel for the holders of the
Initial Notes) and will indemnify the holders of Initial Notes (including any
broker-dealers), and certain parties related to such holders, against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by O'Melveny & Myers LLP, Newport Beach, California.
EXPERTS
The consolidated financial statements of Furon Company appearing in Furon
Company's Annual Report (Form 10-K) for the year ended January 31, 1998, have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon included therein and incorporated herein by reference. Such
consolidated financial statements are incorporated herein by reference in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
52
<PAGE> 57
======================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE NOTES OFFERED HEREBY
NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY,
ANY OF THE NOTES TO ANY PERSON IN ANY JURISDICTION IN WHICH IT WOULD BE UNLAWFUL
TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH
IN THIS PROSPECTUS OR INCORPORATED BY REFERENCE HEREIN OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE COMPANY........................... 1
THE NEW NOTES......................... 4
RISK FACTORS.......................... 7
THE EXCHANGE OFFER.................... 14
USE OF PROCEEDS....................... 23
CAPITALIZATION........................ 23
SELECTED CONSOLIDATED FINANCIAL
DATA................................ 24
DESCRIPTION OF CERTAIN INDEBTEDNESS... 25
DESCRIPTION OF THE NOTES.............. 26
PLAN OF DISTRIBUTION.................. 52
LEGAL MATTERS......................... 52
EXPERTS............................... 52
</TABLE>
======================================================
======================================================
OFFER TO EXCHANGE ALL OUTSTANDING
8 1/8% SENIOR SUBORDINATED NOTES
DUE 2008 FOR 8 1/8% SENIOR
SUBORDINATED NOTES DUE 2008
$125,000,000
FURON LOGO
8 1/8% SENIOR SUBORDINATED
NOTES DUE 2008
-----------------
PROSPECTUS
-----------------
JUNE 17, 1998
======================================================
