[GRAPHIC OMITTED]
FINANCIAL FEDERAL CORPORATION
$100,000,000
4 1/2% Convertible Subordinated Notes due 2005
and Shares of Common Stock Issuable upon Conversion Thereof
This Prospectus relates to $100,000,000 aggregate principal amount of
4 1/2% Convertible Subordinated Notes due 2005 (the "Notes") of Financial
Federal Corporation, a Nevada corporation ("Financial Federal" or the "Company")
and the shares of Common Stock, par value $.50 per share (the "Common Stock"),
of the Company issuable upon the conversion of the Notes (the "Conversion
Shares"). The Notes and the Conversion Shares may be offered from time to time
for the accounts of the holders named herein (the "Selling Securityholders").
The Notes will mature on May 1, 2005. The Notes are convertible at any time
through the close of business on the final maturity date of the Notes, unless
previously redeemed or repurchased, into Common Stock at a conversion price of
$30.15625 per share, subject to adjustment in certain events. See "Description
of Notes -- Conversion." Interest on the Notes is payable semi-annually on May 1
and November 1 of each year, commencing November 1, 1998.
Prior to May 4, 2001, the Notes are not redeemable at the option of the
Company. Thereafter, the Notes are redeemable at the option of the Company, in
whole or in part, at the declining redemption prices set forth herein, together
with accrued and unpaid interest. See "Description of Notes -- Optional
Redemption by the Company." In the event of a Repurchase Event (as defined),
each holder may require the Company to repurchase all or a portion of such
holder's Notes for cash or, at the Company's option, Common Stock (valued at
95% of the average closing prices for the five trading days immediately
preceding and including the third trading day prior to the repurchase date) at
a repurchase price of 100% of the principal amount of the Notes to be
repurchased plus accrued and unpaid interest to the repurchase date. See
"Description of Notes -- Repurchase at Option of Holders Upon a Repurchase
Event."
The Notes are unsecured obligations of the Company and are subordinated to
all existing and future Senior Indebtedness (as defined) of the Company. The
Company is a holding company and the Notes will be effectively subordinated to
all existing and future liabilities, including trade payables, of the Company's
subsidiaries. The Indenture contains no limitations on the incurrence of
additional indebtedness or other liabilities by the Company and its
subsidiaries. At April 30, 1998, the Company had approximately $10.9 million
principal amount of indebtedness outstanding that would have constituted Senior
Indebtedness and the Company's subsidiaries had approximately $464.4 million of
indebtedness and other liabilities outstanding (excluding liabilities of a type
not required to be reflected on a balance sheet in accordance with generally
accepted accounting principles and intercompany liabilities) to which the Notes
would have been effectively subordinated. See "Description of
Notes--Subordination."
The Notes and Conversion Shares may be sold in one or more transactions at
fixed prices, at prevailing market prices at the time of sale, or at negotiated
prices. See "Plan of Distribution." The Selling Securityholders may effect such
transactions by selling the Notes or Conversion Shares directly or to or through
broker-dealers, who may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers of the Notes or Conversion Shares for whom such broker-dealers may
act as agents or to whom they may sell as principals, or both (which
compensation as to a particular broker-dealer might be in excess of customary
commissions). The Company will not receive any of the proceeds from the sale of
the Notes or Conversion Shares by the Selling Securityholders. The Company has
agreed to pay all expenses incident to the offer and sale of the Notes and
Conversion Shares offered by the Selling Securityholders hereby, except that the
Selling Securityholders will pay all underwriting discounts and selling
commissions, if any. See "Plan of Distribution."
<PAGE>
The Notes have been designated for trading on the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") Market. Notes sold
pursuant to this Prospectus will not remain eligible for trading on the PORTAL
Market. The Common Stock is listed on the American Stock Exchange under the
Symbol "FIF." The last reported sale price of the Common Stock on the American
Stock Exchange on May 29, 1998 was $23.4375 per share. The Company has submitted
an application to list the Notes and the Common Stock on the New York Stock
Exchange, Inc.
-------------------
The securities offered hereby involve a high degree of risk. See "Risk Factors"
on page 6.
-------------------
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 July 15, 1998
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and information statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and information statements and other information may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and at the Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Reports,
proxy statements and information statements and other information filed
electronically by the Company with the Commission are available at the
Commission's worldwide web site at http://www.sec.gov. The Company's Common
Stock is listed on the American Stock Exchange. Reports, proxy statements and
information statements and other information concerning the Company may also be
inspected at the offices of the American Stock Exchange, 86 Trinity Place, New
York, New York 10006. The Company has submitted an application to list the
Common Stock and the Notes on the New York Stock Exchange. In the event the
Company is approved to so list the Common Stock and the Notes, reports, proxy
statements and information statements and other information concerning the
Company may also be inspected at the offices of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Notes and Conversion Shares offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company, the Notes and the Conversion Shares,
reference is made to the Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents of any
contract or other document are not necessarily complete and, in each instance,
reference is made to the copy of such contract or document filed as an exhibit
to the Registration Statement, each such statement being qualified in all
respects by such reference. Copies of the Registration Statement, including all
exhibits thereto, may be obtained from the Commission's principal office in
Washington, D.C. upon payment of the fees prescribed by the Commission, or may
be examined without charge at the offices of the Commission described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are hereby
incorporated by reference in this Prospectus and made a part hereof:
1. The Company's Annual Report on Form 10-K for the fiscal year ended July
31, 1997;
2. The Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended October 31, 1997 and January 31, 1998;
3. The Company's Proxy Statement for the Company's Annual Meeting of
Stockholders held on December 9, 1997;
4. The Company's Reports on Form 8-K dated April 16, 1998 and April 27, 1998;
and
5. The description of the Common Stock contained in the Company's
Registration Statement on Form 8-A filed under the Exchange Act on
April 30, 1992.
All reports and other documents filed by the Company pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of this offering shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
of such reports and documents. Any statement incorporated or deemed to be
incorporated herein shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
other subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
The Company hereby undertakes to provide without charge to each person,
including any beneficial owner, to whom a copy of this Prospectus has been
delivered, upon written or oral request of such person, a copy of any or all of
the foregoing documents incorporated herein by reference (other than exhibits to
such documents, unless such exhibits are specifically incorporated by reference
into such documents). Requests for such documents should be made in writing to
the attention of the Company at 400 Park Avenue, 8th Floor, New York, New York
10022, Attn: Investor Relations, Telephone: (212) 888-3344.
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PROSPECTUS SUMMARY
The following information does not purport to be complete and is qualified
in its entirety by, and should be read in conjunction with, the more detailed
information in this Prospectus and in the documents, financial statements and
other information incorporated by reference herein. The securities offered
hereby involve a high degree of risk. See "Risk Factors." This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in this Prospectus under the heading "Risk Factors"
and elsewhere in this Prospectus. The Company will not undertake to update any
forward-looking statement that may be made from time to time, by or on behalf
of, the Company. Unless the context suggests otherwise, references in this
Prospectus to the "Company" or "Financial Federal" mean Financial Federal
Corporation and its subsidiaries.
The Company
The Company is a nationwide independent financial services company engaged
in financing industrial, commercial and professional equipment through
installment sales and leasing programs for manufacturers, dealers and users of
such equipment. The Company also makes capital loans to its customers,
primarily secured by the same types of equipment. The Company provides its
services primarily to middle-market businesses located throughout the nation in
diverse industries, such as general construction, road and infrastructure
construction and repair, manufacturing, trucking, and waste disposal, the
majority of which businesses have annual sales of less than $25 million. The
Company finances a wide range of revenue-producing equipment such as cranes,
earth-movers, machine tools, personnel lifts, trailers and trucks. In
substantially all cases, the Company's finance receivables are secured by a
first lien on such equipment collateral. The Company's revenues have increased
from $22.9 million in fiscal 1993 to $55.3 million in fiscal 1997 and net
earnings have increased from $5.0 million in fiscal 1993 to $12.9 million in
fiscal 1997. The Company's finance receivables have increased from $210.2
million at July 31, 1993 to $660.3 million at January 31, 1998.
The Company leases, finances and lends against (collectively, "finances")
equipment produced and sold by manufacturers that are well recognized in their
industry. Generally, the equipment financed by the Company is movable, has an
economic life which is longer than the term of the financing provided by the
Company, is not subject to rapid technological obsolescence, has applications
in a number of different industries and has a relatively broad resale market. A
majority of the equipment and machinery pledged as collateral to the Company by
its obligors is used late model equipment, which is generally, at the time
financed, less than five years old, except for cranes and certain other items
of equipment which have economic lives in excess of 15 years. Sample types of
heavy equipment that the Company finances include bulldozers, buses, cranes,
earth-movers, excavators, loaders, machine tools, personnel and material lifts,
recycling equipment, sanitation trucks, trucks and trailers. Most of the
equipment the Company finances is used in more than one industry. The Company
primarily finances its receivables through a $350 million commercial paper
program in addition to borrowings obtained through relationships with
approximately 20 banking institutions and other sources.
The Company's business strategy is to increase profitably the size of its
portfolio of finance receivables and its share of the equipment financing and
leasing market in the United States by (i) continuing its commitment to
customer service, (ii) maintaining its underwriting standards, (iii) continuing
to concentrate on specified types of equipment, (iv) expanding its existing
offices and expanding into new geographic markets, (v) attracting and retaining
dedicated and talented personnel and (vi) improving its borrowing spread and
diversifying its funding sources.
The Company is a holding company and primarily operates through its
wholly-owned subsidiary, Financial Federal Credit Inc. ("FFCI"). FFCI conducts
its business through five full service operating centers located in Texas,
Illinois, New Jersey, North Carolina and Arizona. Each operating center is
responsible for business development as well as credit approval within
designated limits and portfolio administration within its assigned geographic
area. Marketing personnel in approximately 20 marketing locations report to the
five full service operating centers. FFCI's operating center managers have, on
average, over 20 years experience in the industry and have had extensive credit
underwriting, collections and operational experience.
The Company was founded in 1989 and is a Nevada corporation with executive
offices located at 400 Park Avenue, New York, New York 10022. The Company's
telephone number is (212) 888-3344.
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The Offering
Securities Offered....... $100,000,000 aggregate principal amount of Notes and
the Conversion Shares.
Interest Payment Dates... May 1 and November 1, beginning November 1, 1998.
Maturity................. May 1, 2005.
Conversion............... Convertible into Common Stock, $.50 par value, of
the Company at any time through the close of
business on the final maturity date of the Notes,
unless previously redeemed or repurchased, at a
conversion price of $30.15625 per share, subject to
adjustment in certain events. See "Description of
Notes--Conversion."
Optional Redemption...... The Notes are not redeemable at the option of the
Company prior to May 4, 2001. Thereafter, the Notes
will be redeemable on at least 20 days' notice at
the option of the Company, in whole or in part at
any time, initially at 102.571% of the principal
amount thereof, and thereafter at prices declining
to 100% at maturity, together with accrued and
unpaid interest. See "Description of Notes --
Optional Redemption by the Company."
Repurchase at Option of
Holders Upon a
Repurchase Event....... In the event that a Repurchase Event (as defined,
and including a Change in Control) occurs, each
holder of a Note may require the Company to
repurchase all or a portion of such holder's Notes
for cash or, at the Company's option, Common Stock
(valued at 95% of the average of the closing prices
for the five trading days immediately preceding and
including the third trading day prior to the
repurchase date) at a repurchase price of 100% of
the principal amount of the Notes to be repurchased,
plus accrued and unpaid interest to the repurchase
date. See "Description of Notes -- Repurchase at
Option of Holders Upon a Repurchase Event."
Ranking.................. The Notes are unsecured obligations of the Company
and are subordinated to all existing and future
Senior Indebtedness (as defined) of the Company. The
Company is a holding company and the Notes will also
be effectively subordinated to all existing and
future liabilities, including trade payables, of the
Company's subsidiaries. As of April 30, 1998, the
Company had approximately $10.9 million principal
amount of indebtedness outstanding that would have
constituted Senior Indebtedness and the Company's
subsidiaries had approximately $464.4 million of
indebtedness and other liabilities outstanding
(excluding liabilities of a type not required to be
reflected on a balance sheet in accordance with
generally accepted accounting principles and
intercompany liabilities) to which the Notes would
have been effectively subordinated. The Indenture
contains no limitations on the incurrence of
additional Senior Indebtedness or other indebtedness
by the Company or any subsidiary. See "Description
of Notes--Subordination."
Use of Proceeds.......... The Company will not receive any proceeds from the
sale by the Selling Securityholders of the Notes or
the Conversion Shares. See "Use of Proceeds."
4
<PAGE>
Registration Rights...... The Company has agreed to use all reasonable
efforts to file with the Commission a shelf
registration statement, of which this Prospectus
forms a part, with respect to the resale of the
Notes and the Conversion Shares and to keep such
shelf registration statement effective until two
years from the latest date of initial issuance of
the Notes. The Company will be required to pay
liquidated damages to the holders of the Notes or
the Common Stock issuable upon conversion of the
Notes, as the case may be, under certain
circumstances if the Company is not in compliance
with its registration obligations. See "Description
of Notes--Registration Rights."
Trading.................. The Notes have been designated for trading on the
Portal Market, however, Notes sold pursuant to this
Prospectus will not remain eligible for trading on
The Portal Market. As of the date of this
Prospectus, the Company's Common Stock is listed on
the American Stock Exchange under the symbol "FIF".
The Company has submitted an application to list the
Common Stock and the Notes on the New York Stock
Exchange. See "Risk Factors -- Absence of Public
Market for the Notes."
5
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The statements contained in this Prospectus that are not purely
historical are forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934, including without limitation statements regarding the Company's
expectations, beliefs, intentions or strategies regarding the future. All
forward-looking statements included in this document are based on information
available to the Company on the date hereof, and the Company assumes no
obligation to update any such forward-looking statements. The Company's actual
results could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth in the
following risk factors and elsewhere in this Prospectus. Potential investors
should consider carefully the following factors, as well as the more detailed
information contained elsewhere in this Prospectus, before making a decision to
invest in the Notes and Conversion Shares offered hereby.
Reliance on Funding; Liquidity Needs
The Company is and will continue to be dependent on funding its business
through commercial paper, bank credit facilities and institutional debt. At
April 30, 1998, the Company had committed unsecured bank credit facilities
aggregating $400 million, under which $13.6 million was outstanding, and had
outstanding commercial paper aggregating $259.8 million. At April 30, 1998 the
Company had unused availability under its committed unsecured bank credit
facilities totaling $131.6 million (excluding $259.8 million which represents
100% coverage for outstanding commercial paper). As of April 30, 1998, the
Company's committed unsecured bank credit facilities expire or mature on various
dates through July 2003. In addition, the Company has established a $100 million
medium term note program, under which $55.0 million was outstanding as of April
30, 1998. There can be no assurance that these funding sources will not be
suspended or reduced at maturity or that these funding sources will be renewed
(as to which there are no obligations to do so) when they expire or mature in
accordance with their respective terms or, if necessary, replaced on terms
acceptable to the Company, if at all. Final scheduled maturities of most of the
Company's finance receivables are longer than the average terms of these funding
sources. If the Company cannot renew or replace these funding sources, its funds
from scheduled payments or dispositions of its finance receivables may not be
sufficient to pay amounts becoming due under these committed unsecured funding
sources. Moreover, there can be no assurance that the Company could obtain
increases in its existing funding sources or obtain additional funding sources
to support the growth of its portfolio of finance receivables. Any inability of
the Company to obtain adequate financing could have a material adverse effect on
the Company's business, financial condition and results of operations.
Credit Loss Risks; Adequacy of Loss Reserves
In addition to general economic and other conditions affecting the
industries and regions of the country in which the Company's obligors operate,
major factors affecting the Company's ability to maintain profitability include
risks associated with: the creditworthiness and integrity of the obligors of
the Company's finance receivables; the adequacy of the documentation relating
to such receivables and collateral; disputes and litigation with such obligors
or with their other creditors or others; the ability to enforce the Company's
lien positions in the event of the bankruptcy of such obligors or otherwise;
and various other factors. Furthermore, a decrease in pledged collateral value
could occur due to changes in equipment resale market conditions, the failure
by users of collateral to properly maintain and protect such collateral or
other events. Although the Company provides a general allowance for losses on
finance receivables, there can be no assurance that such allowance will be
adequate. Any one or more of the foregoing factors could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Effects of Changes In Interest Rates
The Company's profitability depends in large part upon the extent to which
its average yield on finance receivables exceeds its average cost of borrowed
funds. This differential (the Company's net interest
spread) is affected by the extent to which the Company's receivables mature, or
the interest rate on such receivables is reset at different intervals than its
borrowed funds. Because the Company's borrowed funds mature or reprice at a
faster rate than its finance receivables a rapid and sustained rise in market
interest rates, increasing the Company's cost of funds, could materially
adversely affect the Company's net interest spread and, therefore, its
profitability. In addition, increases in market interest rates could materially
adversely affect the volume of originations of new financings and leases
because customers and prospects may refrain from borrowings as a result of
having to pay a higher rate of interest, and so could have a material adverse
effect on the Company's business, financial condition and results of
operations.
6
<PAGE>
Risks of Economic Downturn in the United States
An economic downturn in the United States could result in a decline in the
demand for some of the types of equipment which the Company finances with a
corresponding decline in originations of related finance receivables. In
addition, such a downturn could result in an increase in defaults by obligors
and guarantors of the Company's finance receivables and a decrease in the value
of collateral which the Company could realize upon disposition following such a
default. Any of these results could have a material adverse effect on the
Company's business, financial condition and results of operations. Therefore,
the Company's historical operating results may not be indicative of future
operating results during an economic downturn.
Intense Competition
The Company's business is highly competitive. The Company competes with
banks, manufacturer-owned and independent finance and leasing companies, as
well as other financial institutions. Some of these competitors have sources of
funds available at a lower cost than those available to the Company, thereby
enabling them to provide financing at rates lower than the Company may be
willing to provide. In addition, some of those competitors may be better
positioned than the Company to market their services and financing programs to
vendors and users of equipment because of their ability to offer additional
services and products, and more favorable rates and terms. Many of these
competitors have longer operating histories and possess greater financial and
other resources than the Company. There can be no assurance that the Company
will be able to successfully compete which could have a material adverse effect
on the Company's business, financial condition and results of operations.
Industry Concentrations
The Company's business activities also reflect some industry
concentrations of risk. The Company's finance receivables at April 30, 1998,
were concentrated in the following industries: trucking (18.1%), construction
(15.1%), waste disposal (13.3%) and cranes (12.1%). Historically, the
industries in which the Company's customers operate have been cyclical. Adverse
economic conditions affecting any one or more of the industries in which the
Company is active could have an adverse effect on the financial condition of
the Company's obligors operating in these industries or the value of collateral
used by the Company's obligors in such operations which, in turn, could result
in an increase in defaults by such obligors or a decrease in the value of such
collateral used by the Company's obligors in such industries. Such an increase
in defaults or decrease in collateral value could have a material adverse
effect on the Company's business, financial condition and results of
operations.
Dependence on Key Employees; Ability to Recruit and Retain Qualified Personnel
The success of the Company has been and will be largely dependent on
Clarence Y. Palitz, Jr., its Chief Executive Officer, Paul R. Sinsheimer, its
Chief Operating Officer, Michael C. Palitz, its Chief Financial Officer and
other key personnel. The Company has not entered into employment agreements
with such employees, and the loss of the services of any or all of such
individuals could have a material adverse effect on the Company's business,
financial condition and results of operations. The success of the Company is
dependent upon its ability to hire and retain additional qualified personnel.
Competition for qualified personnel in the financial services industry is
intense and there can be no assurance that the Company will be able to hire or
retain additional qualified personnel.
Ability to Profitably Sustain Growth
In order to sustain the Company's historical rates of growth while
maintaining historical profit levels, the Company will be required to penetrate
further the markets in which it presently operates, as well as successfully
expand into other geographic markets by opening additional regional operating
centers and/or hiring experienced marketing personnel. Accomplishing the
Company's expansion goals will depend upon a number of factors, including
identification of new markets in which the Company can successfully compete,
the continued growth of the United States economy, the integration of new
offices into existing operations, the availability of capital and the hiring of
an adequate number of marketing and other qualified personnel who can be
trained in the Company's operating procedures and philosophy. There can be no
assurance that the Company will be able to expand into new geographic markets,
hire experienced marketing personnel or compete effectively in these markets
and sustain its current growth rate.
7
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Influence by Principal Shareholders
As of the date of this Prospectus, the Company's officers, directors and
their affiliates beneficially own approximately 41% of the outstanding shares of
Common Stock (without giving effect to the purchase by certain principal
officers, directors and their affiliates of approximately 2.5% of the Notes
offered in the initial private placement in April, 1998), and will have voting
control over approximately 34% of the outstanding voting securities of the
Company. Therefore, current management may exercise significant influence in the
election of the directors of the Company and the outcome of most issues
submitted to a vote of stockholders of the Company. Such control could adversely
affect the market price of the Common Stock or delay or prevent a change in
control of the Company. See "Description of Capital Stock"
Geographic Concentrations
The Company has significant concentrations of obligors in various regions
of the country. Of the Company's finance receivables at April 30, 1998, 25.0%
were attributable to obligors located in the Southwest, 24.4% in the Southeast
and 24.1% in the Northeast. Adverse economic conditions affecting any one or
more of these or other regions could have an adverse effect on the financial
condition of the obligors located there or the value of collateral used in such
locations which, in turn, could result in an increase in defaults by such
obligors. Such an increase in defaults or decrease in collateral value could
have a material adverse effect on the Company's business, financial condition
and results of operations.
Year 2000 Issue
The Company utilizes third party vendors' network equipment,
telecommunication products, and other third party software products. The
failure of any critical components in the Company's computer systems to operate
properly in the year 2000 and beyond may require the Company to incur
unanticipated expenses and could have a material adverse effect on the
business, financial condition and results of operations of the Company. The
Company's operations could also be disrupted if the companies with which the
Company does business similarly do not identify and correct year 2000 issues,
and such failure adversely affects their ability to do business with the
Company.
Computer Systems Expansion
The Company has plans to upgrade its information systems for the
management of its receivables portfolio. Any problems in converting to the new
system and any inability of the new system to correctly manage the portfolio
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Possible Liability Claims
Use of some of the equipment which the Company leases to its customers
involves inherent risks from accidents or misuse which could result in property
damage, personal injury or other losses. Although the Company typically
requires lessees to maintain insurance against such claims and no such claims
have been filed to date, in the event of an accident or the misuse of such
equipment, the aggrieved party could attempt to hold the Company liable for
damages. If a court were to hold the Company as well as the user liable in such
a case, the Company's damages could be substantial and could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Subordination
The Notes are unsecured obligations of the Company and subordinated in
right of payment in full to all existing and future Senior Indebtedness (as
defined) of the Company. As a result of such subordination, in the event of any
insolvency, liquidation or reorganization of the Company, payment default on
Senior Indebtedness and certain other events, the assets of the Company will be
available to pay obligations on the Notes only after all Senior Indebtedness has
been paid in full, and there may not be sufficient assets remaining to pay
amounts due on any or all of the Notes then outstanding. The Indenture (as
defined herein) does not prohibit or limit the incurrence of Senior Indebtedness
or the incurrence of other indebtedness and other liabilities by the Company or
any subsidiary, and the incurrence of additional indebtedness and other
liabilities by the Company or any subsidiary could adversely affect the
Company's ability to pay its obligations on the Notes. At April 30, 1998, the
Company had approximately $10.9 million principal amount of indebtedness
outstanding that would have constituted Senior Indebtedness, and the Company's
subsidiaries had approximately $464.4 million of indebtedness and other
liabilities outstanding (other than liabilities of a type not required to be
reflected in a balance sheet in accordance with generally accepted accounting
8
<PAGE>
principles and intercompany indebtedness) to which the Notes would have been
effectively subordinated. The Company anticipates that from time to time it will
incur indebtedness, including Senior Indebtedness. See "Description of Notes --
Subordination."
Holding Company Structure
The issuer of the Notes is a holding company with no significant operating
assets. The Company's ability to redeem, repurchase or make interest and
principal payments on the Notes is dependent upon the earnings of its
subsidiaries and the distribution of those earnings (through dividends or
otherwise) to, or upon royalties, license fees, loans or other payment of funds
by those subsidiaries to, the Company. The subsidiaries are separate and
distinct legal entities and have no obligation, contingent or otherwise, to pay
any amounts due pursuant to the Notes or to make any funds available therefor,
whether by dividends, loans or other payments. In addition, the payment of
dividends and the making of loans and advances to the Company by its
subsidiaries may be subject to statutory, contractual or other restrictions and
are dependent upon the earnings or financial condition of those subsidiaries and
subject to various business considerations. As a result, the Company may be
unable to gain access to the cash flow or assets of its subsidiaries in amounts
sufficient to pay the principal of or interest on the Notes when due or to
redeem Notes at the option of the holders thereof after the occurrence of a
Repurchase Event.
The Notes are effectively subordinated to the liabilities, including trade
payables and lease obligations, if any, of the subsidiaries of the Company. Any
right of the Company to receive the assets of any of its subsidiaries upon the
liquidation or reorganization thereof (and the consequent right of the holders
of the Notes to participate in those assets) will be effectively subordinated to
the claims of that subsidiary's creditors (including trade creditors), except to
the extent that the Company is itself recognized as a creditor of such
subsidiary, in which case the claims of the Company would still be subordinate
to any security interests in the assets of such subsidiary and any indebtedness
of such subsidiary and any indebtedness of such subsidiary senior to that held
by the Company. The Indenture does not prohibit or limit the incurrence of
indebtedness and other liabilities by any subsidiary of the Company, and the
incurrence of additional indebtedness and other liabilities by any subsidiary of
the Company could materially adversely affect the Company's ability to pay its
obligations on the Notes. As of April 30, 1998, the Company's subsidiaries had
approximately $464.4 million of indebtedness and other liabilities outstanding
(excluding liabilities of a type not required to be reflected on a balance sheet
in accordance with generally accepted accounting principles and intercompany
liabilities) to which the Notes would have been effectively subordinated. The
Company anticipates that from time to time its subsidiaries will incur
significant amounts of additional indebtedness and other liabilities. See
"Description of Notes -- Subordination."
Limitations on Repurchase of Notes
If a Repurchase Event (as defined) were to occur, there can be no
assurance that the Company would have sufficient financial resources, or would
be able to arrange financing to pay the repurchase price in cash for all Notes
tendered by holders thereof. The Company's ability to repurchase Notes with
cash may also be limited or prohibited by the terms of its then-existing
borrowing arrangements. Moreover, although under the Indenture the
Company may elect, subject to satisfaction of certain conditions, to pay the
repurchase price for the Notes using shares of Common Stock, any future credit
agreements or other agreements relating to other indebtedness (including other
Senior Indebtedness) to which the Company becomes a party may contain
restrictions on or prohibitions of the repurchase of the Notes by the Company
that apply even if the purchase price is paid with shares of capital stock. In
the event a Repurchase Event occurs at a time when the Company is prohibited
from repurchasing Notes, the Company could seek the consent of its lenders to
the repurchase of the 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 would remain prohibited from repurchasing
Notes. In such case, the Company's failure to repurchase the Notes would
constitute an Event of Default under the Indenture whether or not payment of
the repurchase price is permitted by the subordination provisions of the
Indenture. Any such default may, in turn, cause a default under Senior
Indebtedness of the Company. Moreover, the occurrence of a Repurchase Event in
and of itself may constitute an event of default under Senior Indebtedness of
the Company. As a result, in either case, payment of the repurchase price of
the Notes with cash would, absent a waiver, be prohibited under the
subordination provisions of the Indenture until the Senior Indebtedness is paid
in full. See "Description of Notes -- Subordination."
No Notes may be repurchased at the option of holders upon a Repurchase
Event if there has occurred and is continuing an Event of Default described
under "Description of Notes -- Events of Default and Remedies" below (other
than a default in the payment of the repurchase price with respect to such
Notes on the repurchase date).
9
<PAGE>
Absence of Public Market for the Notes
The Notes were issued in a private placement to a limited number of
institutional investors and certain affiliates of the Company who are accredited
investors. The Notes have been designated for trading on The Portal Market;
however, Notes sold pursuant to this Prospectus will not remain eligible for
trading on The Portal Market. The Company has submitted an application to list
the Common Stock and the Notes on the New York Stock Exchange. However,
there can be no assurance that any market for the Notes will develop or, if one
does develop, that it will be maintained. The failure of an active market for
the Notes to develop or to be sustained could have a material adverse effect on
the trading price of such Notes. If a public trading market develops for the
Notes, future trading prices of the Notes will depend on many factors,
including, among other things, prevailing interest rates and the market price of
the shares of Common Stock.
Potential Price Volatility of Notes and Common Stock; Effect of Sales of Common
Stock Underlying the Notes
The securities markets have from time to time experienced significant
price and volume fluctuations that may be unrelated to the operating
performance of particular companies. The market prices of the common stock of
many publicly traded finance companies have in the past been, and can in the
future be expected to be, especially volatile. Economic and other external
factors, as well as period-to-period fluctuations in the Company's financial
results, may have a significant impact on the market price of the Notes and the
Common Stock. Factors affecting the trading prices of the Notes and Common
Stock include, without limitation, fluctuations in finance revenue and net
earnings of the Company or its competitors, shortfalls in the Company's
operating results from levels forecast by securities analysts, announcements
concerning the Company, its competitors or customers, the introduction of new
products or changes in product pricing policies by the Company, its competitors
or its customers, market conditions in the industry and the general state of
the securities market. In addition, the trading prices of the Notes and the
Common Stock could be adversely impacted by sales of the Common Stock issuable
upon conversion of the Notes.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale by the Selling
Securityholders of the Notes or the Conversion Shares.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's consolidated ratio of earnings
to fixed charges for the period shown.
Nine Months
Ended
Year Ended July 31, April 30,
------------------------------------- ---------------
1993 1994 1995 1996 1997 1997 1998
---- ---- ---- ---- ---- ---- ----
Ratio of
earnings to
fixed
charges....... 1.97 1.95 1.70 1.79 1.89 1.90 1.85
For purposes of calculating the ratio of earnings to fixed charges, (i)
earnings consist of consolidated income before income taxes plus fixed charges
and (ii) fixed charges consist of interest expense and the portion of rental
expense (one third) under operating leases deemed by the Company to be
representative of the interest factor.
DIVIDEND POLICY
The Company presently has no intention of paying cash dividends on the
Common Stock in the foreseeable future. The payment of cash dividends, if any,
will depend upon the Company's earnings, financial condition, capital
requirements, cash flow and long range plans and such other factors as the
Board of Directors of the Company may deem relevant.
10
<PAGE>
SELLING SECURITYHOLDERS
The Notes were originally acquired from the Company by the Initial
Purchasers on April 29, 1998. The Initial Purchasers have advised the Company
that the Initial Purchasers resold the Notes in transactions exempt from the
registration requirements of the Securities Act to "qualified institutional
buyers" (as defined in Rule 144A of the Securities Act) and to a limited number
of affiliates of the Company who are accredited investors (as defined in Rule
501(a) of the Securities Act). These subsequent purchasers, or their
transferees, pledgees, donees or successors, may from time to time offer and
sell any or all of the Notes and/or Conversion Shares pursuant to this
Prospectus. The following table sets forth certain information as of May 30,
1998 concerning the principal amount of Notes beneficially owned by each
Selling Securityholder and the number of Conversion Shares that may be offered
from time to time pursuant to this Prospectus.
Except as indicated below, no Selling Securityholders have had any
position, office or other material relationship with the Company or its
affiliates within the past three years.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
OF NOTES NUMBER OF
BENEFICIALLY PERCENTAGE OF CONVERSION SHARES PERCENTAGE OF
OWNED NOTES THAT COMMON STOCK
NAME THAT MAY BE SOLD OUTSTANDING MAY BE SOLD (1) OUTSTANDING (2)
---- ---------------- ------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Arkansas PERS 800,000 * 26,528 *
Associated Electric & Gas Insurance Services Limited 150,000 * 4,974 *
BancAmerica Robertson Stephens (3)(4) 6,155,000 6.2 204,104 1.4
BNP Arbitrage SNC 4,350,000 4.4 144,248 *
CALAMOS Growth and Income Fund 170,000 * 5,637 *
California Public Employees' Retirement System 2,500,000 2.5 82,901 *
Canadian Imperial Holdings, Inc. 5,000,000 5.0 165,803 1.1
Champion International Corporation Master
Retirement Trust 890,000 * 29,512 *
CIBC Oppenheimer Corp. (4) 2,000,000 2.0 66,321 *
C.M.S. Family Associates Limited Partnership (5) 1,000,000 1.0 33,160 *
CYP, Inc. (6) 500,000 * 16,580 *
Delaware PERS 550,000 * 18,238 *
Delta Airlines Master Trust 1,525,000 1.5 50,569 *
Donaldson, Lufkin & Jenrette Securities Corporation 4,000,000 4.0 132,642 *
Dorinco Reinsurance Company 1,200,000 1.2 39,792 *
The Dow Chemical Company Employee's Retirement Plan 1,555,000 1.6 51,564 *
Flemington Investments Ltd. 1,000,000 1.0 33,160 *
The Fondren Foundation 135,000 * 4,476 *
Genesee County Employee's Retirement System 500,000 * 16,580 *
HSBC Securities, Inc. 1,500,000 1.5 49,740 *
ICI American Holdings Trust 240,000 * 7,958 *
J.P. Morgan & Co. Inc. 3,000,000 3.0 99,481 *
Kettering Medical Center Funded Depreciation Account 80,000 * 2,652 *
Laterman & Co. 300,000 * 9,948 *
Laterman Strategies 90s LLC 600,000 * 19,896 *
Michael C. Palitz 1998 Grantor Retained
Annuity Trust (7) 500,000 * 16,580 *
Nalco Chemical Retirement 120,000 * 3,979 *
Offshore Strategies Ltd. 600,000 * 19,896 *
Pacific Life Insurance Company 2,000,000 2.0 66,321 *
Paloma Securities L.L.C 2,500,000 2.5 82,901 *
Port Authority of Allegheny County Retirement
and Disability Allowance Plan for
the Employees Represented by Local 85
of the Amalgamated Transit Union 1,075,000 1.1 35,647 *
PRIM Board 1,050,000 1.1 34,818 *
RJR Nabisco, Inc. Defined Benefit Master Trust 670,000 * 22,217 *
Silverton International Fund Limited 2,500,000 * 82,901 *
Southern Farm Bureau Life Insurance - FRIC 570,000 * 18,901 *
Southern Farm Bureau Life Insurance Company 1,200,000 1.2 39,792 *
Starvest Diversified Fund - Managed 200,000 * 6,632 *
State of Oregon/SAIF Corporation 3,600,000 3.6 119,378 *
Suzanne L. Palitz 1998 Grantor Retained
Annuity Trust (8) 500,000 * 16,580 *
The Travelers Indemnity Company 2,916,000 2.9 96,696 *
The Travelers Insurance Company 1,865,000 1.9 61,844 *
The Travelers Life & Annuity Company 219,000 * 7,262 *
The Travelors Series Trust Convertible
Bond Portfolio 100,000 * 3,316 *
Unifi, Inc. Profit Sharing Plan and Trust 160,000 * 5,305 *
United Food and Commercial Workers Local 1262 and 425,000 * 14,093 *
Employers Pension Fund
Univar Corporation 290,000 * 9,616 *
Van Kampen American Capital Harbor Fund 3,414,000 3.4 113,210 *
Van Kampen American Capital Convertible
Securities Fund 586,000 * 19,432 *
Zeneca Holdings Pension Trust 240,000 * 7,958 *
Other Selling Securityholders 33,000,000 33.0 1,094,301 6.9
</TABLE>
<PAGE>
* Less than 1%
(1) Assumes conversion of the full amount of Notes held by such holder at the
initial conversion price of $30.15625 per share; such conversion price is
subject to adjustment as described under "Description of the Notes -
Conversion." Accordingly, the number of shares of Common Stock issuable
upon conversion of the Notes may increase or decrease from time to time.
Under the terms of the Indenture, fractional shares will not be issued upon
conversion of the Notes; cash will be paid in lieu of fractional shares, if
any.
(2) Computed in accordance with Rule 13d-3(d)(1) promulgated under the Exchange
Act and based upon 14,825,428 shares of Common Stock outstanding as of May
27, 1998, treating as outstanding the number of Conversion Shares shown as
being issuable upon the assumed conversion by the named holder of the full
amount of such holder's Notes but not assuming the conversion of the Notes
of any other holder.
(3) An affiliate of BancAmerica Robertson Stephens has made available to FFCI
revolving credit facilities of up to an aggregate amount of $40 million
of which $10 million expires on July 29, 1998 or such earlier date as FFCI
or such affiliate shall terminate the facilities, and of which $30 million
expires on August 1, 2001 or such earlier date as FFCI or such affiliate
shall terminate the facilities. As of April 30, 1998, no amount was
outstanding under these facilities.
(4) Participated in the initial issuance of the Notes in a private placement in
April, 1998 as an Initial Purchaser (as defined herein) of the Notes.
Certain of the Initial Purchasers and their affiliates have engaged in
transactions with and performed various investment banking, commercial
banking and other services for the Company in the past, and may do so from
time to time in the future.
(5) Clarence Y. Palitz, Jr., a Director, Chairman, President and Chief
Executive Officer of the Company, is the controlling shareholder of CYP,
Inc. which is the managing general partner of C.M.S. Family Associates
Limited Partnership.
(6) Clarence Y. Palitz, Jr., a Director, Chairman, President and Chief
Executive Officer of the Company, is the controlling shareholder of CYP,
Inc.
(7) Michael C. Palitz, a Director, Treasurer, Chief Financial Officer and
Executive Vice President of the Company and Clarence Y. Palitz, Jr., a
Director, Chairman, President and Chief Executive Officer of the Company,
are both Trustees of the Trust, and can each direct the disposition of the
Notes.
(8) Clarence Y. Palitz, Jr., a Director, Chairman, President and Chief
Executive Officer of the Company, is a Trustee and can direct the
disposition of the Notes.
The preceding table has been prepared based upon the information furnished
to the Company by The First National Bank of Chicago, as trustee (the "Trustee")
for the Notes, by The Depository Trust Company ("DTC"), and by the Selling
Securityholders, listed above.
The Selling Securityholders identified above may have sold, transferred or
otherwise disposed of, in transactions exempt from the registration requirements
of the Securities Act, all or a portion of their Notes since the date on which
the information in the preceding table is presented. Information concerning the
Selling Securityholders may change from time to time and any such changed
information will be set forth in supplements to this Prospectus if and when
necessary. Because the Selling Securityholders may offer all or some of the
Notes that they hold and/or Conversion Shares pursuant to the offering
contemplated by this Prospectus, no estimate can be given as to the amount of
the Notes or Conversion Shares that will be held by the Selling Securityholders
upon the termination of this offering. See "Plan of Distribution."
12
<PAGE>
DESCRIPTION OF NOTES
The Notes have been issued under an indenture dated as of April 15, 1998
(the "Indenture"), between the Company and The First National Bank of Chicago,
as trustee (the "Trustee"). The terms of the Notes include those stated in the
Indenture and the Registration Rights Agreement (as defined herein). The
following summaries of certain provisions of the Notes, the Indenture and the
Registration Rights Agreement do not purport to be complete and are subject to,
and are qualified in their entirety by reference to, all the provisions of the
Notes, the Indenture and the Registration Rights Agreement, including the
definitions therein of certain terms which are not otherwise defined in this
Prospectus. Wherever particular provisions or defined terms of the Indenture (or
of the form of Note which is a part thereof) or the Registration Rights
Agreement are referred to, such provisions or defined terms are incorporated
herein by reference. Copies of the Indenture, form of Note and the Registration
Rights Agreement have been filed as exhibits to the Registration Statement of
which this Prospectus forms a part. As used in this Description of Notes, the
"Company" refers only to Financial Federal Corporation and does not, unless the
context otherwise indicates, include any of its subsidiaries.
General
The Notes are unsecured general obligations of the Company subordinate in
right of payment to certain other obligations of the Company as described under
"--Subordination," and convertible into Common Stock as described under
"--Conversion." The Notes are limited to $100,000,000 aggregate principal amount
and will mature on May 1, 2005 unless earlier redeemed at the option of the
Company or repurchased by the Company at the option of the holder upon a
Repurchase Event (as defined).
The Notes bear interest from April 29, 1998 at the annual rate set forth on
the cover page hereof, payable semi-annually on May 1 and November 1, commencing
on November 1, 1998, to holders of record at the close of business on the
preceding April 15 and October 15, respectively (subject to certain exceptions
in the case of conversion, redemption or repurchase of such Notes prior to the
applicable interest payment date). Interest is computed on the basis of a
360-day year comprised of twelve 30-day months.
Principal and premium, if any, is payable, and the Notes may be
presented for conversion, registration of transfer and exchange, without
service charge, at the office of the Company maintained by the Company for such
purposes in the Borough of Manhattan, The City of New York, which shall
initially be an office or agency of the Trustee. In addition, interest may, at
the Company's option, be paid by check mailed to such holders, provided that a
holder of Notes with an aggregate principal amount equal to or in excess of
$5,000,000 will be paid by wire transfer in immediately available funds at the
election of such holder.
The Indenture does not contain any financial covenants or any restrictions
on the payment of dividends, the repurchase of securities of the Company or the
incurrence of Senior Indebtedness or other indebtedness. The Indenture contains
no covenants or other provisions to afford protection to holders of Notes in
the event of a highly leveraged transaction or a change in control of the
Company except to the limited extent described under "--Repurchase at Option of
Holders Upon a Repurchase Event" below.
No service charge will be made for any registration or transfer or
exchange of Notes, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith. The
Company is not required to exchange or register the transfer of (i) any Note
for a period of 15 days next preceding any selection of Notes to be redeemed,
(ii) any Note or portion thereof selected for redemption, (iii) any Note or
portion thereof surrendered for conversion, or (iv) any Note or portion thereof
surrendered for repurchase (and not withdrawn) in connection with a Repurchase
Event.
Conversion
The holders of Notes are entitled at any time through the close of business
on the final maturity date of the Notes, subject to prior redemption or
repurchase, to convert any Notes or portions thereof (in denominations of $1,000
or multiples thereof) into Common Stock of the Company, at the conversion price
set forth on the cover page of this Prospectus, subject to adjustment as
described below. Except as described below, no adjustment will be made on
conversion of any Notes for interest accrued thereon or for dividends on any
Common Stock issued. If Notes are converted after a record date for the payment
of interest and prior to the next succeeding interest payment date, such Notes,
other than Notes called for redemption pursuant to a redemption notice mailed to
the holders by the Company in accordance with the Indenture, must be accompanied
by funds equal to the interest payable on such succeeding interest payment date
on the principal amount so converted. The Company is not required to issue
13
<PAGE>
fractional shares of Common Stock upon conversion of Notes and, in lieu thereof,
will pay a cash adjustment based upon the market price of the Common Stock on
the last business day prior to the date of conversion. In the case of Notes
called for redemption, conversion rights will expire at the close of business on
the business day preceding the date fixed for redemption, unless the Company
defaults in payment of the redemption price. A Note for which a holder has
delivered a Repurchase Event purchase notice exercising the option of such
holder to require the Company to repurchase such Note may be converted only if
such notice is withdrawn by a written notice of withdrawal delivered by the
holder to the Company prior to the close of business on the business day
immediately preceding the date fixed for repurchase.
The right of conversion attaching to any Note may be exercised by the
holder by delivering the Note at the specified office of a conversion agent,
accompanied by a duly signed and completed notice of conversion, together with
any funds that may be required as described in the preceding paragraph. The
conversion date shall be the date on which the Note, the duly signed and
completed notice of conversion, and any funds that may be required as described
in the preceding paragraph shall have been so delivered. A holder delivering a
Note for conversion will not be required to pay any taxes or duties payable in
respect of the issuance or delivery of Common Stock on conversion, but will be
required to pay any tax or duty which may be payable in respect of any transfer
involved in the issuance or delivery of the Common Stock in a name other than
that of the holder of the Note. Certificates representing shares of Common
Stock will not be issued or delivered unless all taxes and duties, if any,
payable by the holder have been paid.
The initial conversion price of $30.15625 per share of Common Stock is
subject to adjustment (under formulae set forth in the Indenture) in certain
events, including: (i) the issuance of Common Stock as a dividend or
distribution on Common Stock; (ii) certain subdivisions and combinations of the
Common Stock; (iii) the issuance to all holders of Common Stock of certain
rights or warrants to purchase Common Stock at less than the current market
price of the Common Stock; (iv) the dividend or other distribution to all
holders of Common Stock of shares of capital stock of the Company (other than
Common Stock) or evidences of indebtedness of the Company or assets (including
securities, but excluding those rights, warrants, dividends and distributions
referred to above or paid exclusively in cash); (v) dividends or other
distributions consisting exclusively of cash (excluding any cash portion of
distributions referred to in clause (iv)) to all holders of Common Stock to the
extent that such distributions, combined together with (A) all other such
all-cash distributions made within the preceding 12 months in respect of which
no adjustment has been made plus (B) any cash and the fair market value of
other consideration payable in respect of any tender offers by the Company or
any of its subsidiaries for Common Stock concluded within the preceding 12
months in respect of which no adjustment has been made, exceed 10% of the
Company's market capitalization (being the product of the then current market
price of the Common Stock times the number of shares of Common Stock then
outstanding) on the record date for such distribution; (vi) the purchase of
Common Stock pursuant to a tender offer made by the Company or any of its
subsidiaries to the extent that the same involves an aggregate consideration
that, together with (X) any cash and the fair market value of any other
consideration payable in any other tender offer by the Company or any of its
subsidiaries for Common Stock expiring within the 12 months preceding such
tender offer in respect of which no adjustment has been made plus (Y) the
aggregate amount of any such all-cash distributions referred to in clause (v)
above to all holders of Common Stock within the 12 months preceding the
expiration of such tender offer in respect of which no adjustments have been
made, exceeds 10% of the Company's market capitalization on the expiration of
such tender offer; and (vii) payment in respect of a tender offer or exchange
offer by a person other than the Company or any subsidiary of the Company in
which, as the closing of the offer, the Board of Directors is not recommending
rejection of the offer. The adjustment referred to in clause (vii) above will
only be made if the tender offer or exchange offer is for an amount which
increases that person's ownership of Common Stock to more than 25% of the total
shares of Common Stock outstanding, and only if the cash and value of any other
consideration included in such payment per share of Common Stock exceeds the
current market price per share of Common Stock on the business day next
succeeding the last date on which tenders or exchanges may be made pursuant to
such tender or exchange. The adjustment referred to in clause (vii) above will
not be made, however, if, as of the closing of the offer, the offering
documents with respect to such offer disclose a plan or an intention to cause
the Company to engage in any transaction described below in "--Consolidation,
Merger or Assumption."
The Indenture provides that if the Company implements a stockholders'
rights plan, such rights plan must provide that upon conversion of the Notes the
holders will receive, in addition to the Common Stock issuable upon such
conversion, such rights whether or not such rights have separated from the
Common Stock at the time of such conversion.
In the case of (i) any reclassification or change of the Common Stock
(other than changes in par value or resulting from a subdivision or
combination) or (ii) a consolidation, merger, or combination involving the
14
<PAGE>
Company or a sale or conveyance to another corporation of the property and
assets of the Company as an entirety or substantially as an entirety, in each
case as a result of which holders of Common Stock shall be entitled to receive
stock, other securities, other property or assets (including cash) with respect
to or in exchange for such Common Stock, the holders of the Notes then
outstanding will be entitled thereafter to convert such Notes into the kind and
amount of shares of stock, other securities or other property or assets
(including cash) which they would have owned or been entitled to receive upon
such reclassification, change, consolidation, merger, combination, sale or
conveyance had such Notes been converted into Common Stock immediately prior to
such reclassification, change, consolidation, merger, combination, sale or
conveyance (assuming, in a case in which the Company's stockholders may
exercise rights of election, that a holder of Notes would not have exercised
any rights of election as to the stock, other securities or other property or
assets (including cash) receivable in connection therewith and received per
share the kind and amount received per share by a plurality of non-electing
shares).
In the event of a taxable distribution to holders of Common Stock (or
other transaction) which results in any adjustment of the conversion price, the
holders of Notes may, in certain circumstances, be deemed to have received a
distribution subject to United States income tax as a dividend; in certain
other circumstances, the absence of such an adjustment may result in a taxable
dividend to the holders of Common Stock. See "Certain Federal Income Tax
Considerations".
The Company from time to time may, to the extent permitted by law, reduce
the conversion price of the Notes by any amount for any period of at least 20
days, in which case the Company shall give at least 15 days' notice of such
decrease, if the Board of Directors has made a determination that such decrease
would be in the best interests of the Company, which determination shall be
conclusive. The Company may, at its option, make such reductions in the
conversion price, in addition to those set forth above, as the Board of
Directors deems advisable to avoid or diminish any income tax to holders of
Common Stock resulting from any dividend or distribution of stock (or rights to
acquire stock) or from any event treated as such for income tax purposes. See
"Certain Federal Income Tax Considerations".
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least l% in the conversion price then
in effect; provided that any adjustment that would otherwise be required to be
made shall be carried forward and taken into account in any subsequent
adjustment. Except as stated above, the conversion price will not be adjusted
for the issuance of Common Stock or any securities convertible into or
exchangeable for Common Stock or carrying the right to purchase any of the
foregoing.
Optional Redemption by the Company
The Notes are not redeemable at the option of the Company prior to May 4,
2001. At any time on or after that date, the Notes may be redeemed at the
Company's option on at least 20 but not more than 60 days' notice, as a whole
or, from time to time in part, at the following prices (expressed in
percentages of the principal amount), together with accrued interest to, but
excluding, the date fixed for redemption; provided that if a redemption date is
an interest payment date, the semi-annual payment of interest becoming due on
such date shall be payable to the holder of record as of the relevant record
date.
If redeemed during the 12-month period beginning May 1 (May 4, 2001
through April 30, 2002 in the case of the first such period):
Year Redemption Price
---- ----------------
2001 ...................................... 102.571%
2002 ...................................... 101.929
2003 ...................................... 101.286
2004 ...................................... 100.643
and 100% at May 1, 2005.
If fewer than all the Notes are to be redeemed, the Trustee will select
the Notes to be redeemed in principal amounts of $1,000 or multiples thereof by
lot or, in its discretion, on a pro rata basis or by a method the Trustee
considers fair and appropriate (as long as such method is not prohibited by the
rules of any United States national securities exchange or of an established
automated over-the-counter trading market in the United States on which the
Notes are then listed). If any Note is to be redeemed in part only, a new Note
or Notes in principal amount equal to the unredeemed principal portion thereof
will be issued. If a portion of a holder's Notes is selected for partial
15
<PAGE>
redemption and such holder converts a portion of such Notes, such converted
portion shall be deemed to be taken from the portion selected for redemption.
No sinking fund is provided for the Notes.
Repurchase at Option of Holders Upon a Repurchase Event
The Indenture provides that if a Repurchase Event (as defined) occurs,
each holder of Notes shall have the right, at the holder's option, to require
the Company to repurchase all of such holder's Notes, or any portion
thereof that is an integral multiple of $1,000, on the date (the "repurchase
date") that is 40 calendar days after the date of the Company Notice (as
defined), for cash at a price equal to 100% of the principal amount of the
Notes, together with accrued interest, if any, to the repurchase date (the
"repurchase price"), provided, however, that if a repurchase date is an
interest payment date, the semi-annual payment of interest becoming due on such
date shall be payable to the holder of record as of the relevant record date.
The Company may, at its option, in lieu of paying the repurchase price in
cash, pay the repurchase price in Common Stock valued at 95% of the average of
the closing prices of the Common Stock for the five consecutive trading days
ending on and including the third trading day preceding the repurchase date.
Payment may not be made in Common Stock unless the Company satisfies certain
conditions with respect to such payment as provided in the Indenture.
Within 15 calendar days after the occurrence of a Repurchase Event, the
Company is obligated to mail to all holders of record of the Notes a notice
(the "Company Notice") of the occurrence of such Repurchase Event and of the
repurchase right arising as a result thereof. The Company must deliver a copy
of the Company Notice to the Trustee and cause a copy or a summary of such
notice to be published in a newspaper of general circulation in the City of New
York. To exercise the repurchase right, a holder of such Notes must deliver, on
or before the 35th calendar day after the date of the Company Notice, written
notice to the Company (or an agent designated by the Company for such purpose)
and the Trustee of the holder's exercise of such right, together with the Notes
with respect to which the right is being exercised, duly endorsed for transfer
to the Company.
"Repurchase Event" means a Change in Control (as defined) or a Termination
of Trading (as defined).
"Change in Control" will be deemed to have occurred when (i) any "person"
or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange
Act) is or becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5
under the Exchange Act) of shares representing more than 50% of the combined
voting power of the then outstanding securities entitled to vote generally in
elections of directors of the Company ("Voting Stock"); (ii) approval by
stockholders of the Company of any plan or proposal for the liquidation,
dissolution or winding up of the Company; (iii) the Company (A) consolidates
with or merges into any other corporation or any other corporation merges into
the Company, and in the case of any such transaction, the outstanding Common
Stock of the Company is changed or exchanged into or for other assets or
securities as a result, unless the stockholders of the Company immediately
before such transaction own, directly or indirectly immediately following such
transaction, at least 51% of the combined voting power of the outstanding
voting securities of the corporation resulting from such transaction in
substantially the same proportion as their ownership of the Voting Stock
immediately before such transaction or (B) conveys, transfers or leases all or
substantially all of its assets to any person; or (iv) any time Continuing
Directors (as defined) do not constitute a majority of the Board of Directors
of the Company (or, if applicable, a successor corporation to the Company);
provided that a Change in Control shall not be deemed to have occurred if
either (x) the last sale price of the Common Stock for any five trading days
during the ten trading days immediately preceding the Change in Control is at
least equal to 105% of the conversion price in effect on such day or (y) in the
case of a merger or consolidation otherwise constituting a Change in Control,
at least 90% of the consideration (excluding cash payments for fractional
shares) in such merger or consolidation constituting the Change in Control
consists of common stock traded on a United States national securities exchange
or quoted on the Nasdaq National Market (or which will be so traded or quoted
when issued or exchanged in connection with such Change in Control) and as a
result of such transaction or transactions such Notes become convertible solely
into such common stock.
"Continuing Director" means at any date a member of the Company's Board of
Directors (i) who was a member of such board on April 24, 1998, or (ii) who was
nominated or elected by at least a majority of the directors who were Continuing
Directors at the time of such nomination or election or whose election to the
Company's Board of Directors was recommended or endorsed by at least a majority
of the directors who were Continuing Directors at the time of such nomination or
election or such lesser number comprising a majority of a nominating committee
if authority for such nominations or elections has been delegated to a
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nominating committee whose authority and composition has been approved by at
least a majority of the directors who were Continuing Directors at the time such
committee was formed. (Under this definition, if the current Board of Directors
of the Company were to approve a new director or directors and then resign, no
Change in Control would occur even though the current Board of Directors would
thereafter cease to be in office.)
The phrase "all or substantially all" of the assets of the Company, as
included in the definition of Change in Control, is likely to be interpreted by
reference to applicable state law at the relevant time, and will be dependent
on the facts and circumstances existing at such time. As a result, there may be
a degree of uncertainty in ascertaining whether a sale or transfer of "all or
substantially all" of the assets of the Company has occurred.
A "Termination of Trading" shall have occurred if the Common Stock (or
other common stock into which the Notes are then convertible) is neither listed
for trading on a United States national securities exchange nor approved for
trading on any established automated over-the-counter trading market in the
United States, provided that if such occurrence is the result of the primary
exchange or market on which such Common Stock was so listed or traded generally
not being available for listing or trading of securities, such occurrence shall
not be a "Termination of Trading" unless the Common Stock continues to be
neither so listed for trading nor so approved for trading for more than 30
days.
If a Repurchase Event were to occur, there can be no assurance that the
Company would have sufficient financial resources, or would be able to arrange
financing, to pay the repurchase price in cash for all Notes tendered by
holders thereof. The Company's ability to repurchase Notes with cash may also
be limited or prohibited by the terms of its then-existing borrowing
arrangements. Moreover, although under the Indenture the Company may elect,
subject to satisfaction of certain conditions, to pay the repurchase price for
the Notes using shares of Common Stock, any future credit agreements or other
agreements relating to other indebtedness (including other Senior Indebtedness)
to which the Company becomes a party may contain restrictions on or
prohibitions of the repurchase of the Notes by the Company that apply even if
the repurchase price is paid with shares of capital stock. In the event a
Repurchase Event occurs at a time when the Company is prohibited from
repurchasing Notes, the Company could seek the consent of its lenders to the
repurchase of the 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 would remain prohibited from repurchasing
Notes. In such case, the Company's failure to repurchase the Notes would
constitute an Event of Default under the Indenture whether or not payment of
the repurchase price is permitted by the subordination provisions of the
Indenture. Any such default may, in turn, cause a default under Senior
Indebtedness of the Company. Moreover, the occurrence of a Repurchase Event
may, in turn, cause a default under Senior Indebtedness of the Company. As a
result, in either case, payment of the repurchase price of the Notes with cash
would, absent a waiver, be prohibited under the subordination provisions of the
Indenture until the Senior Indebtedness is paid in full. See "--Subordination"
below and "Risk Factors--Subordination."
No Notes may be repurchased at the option of holders upon a Repurchase
Event if there has occurred and is continuing an Event of Default described
under "--Events of Default and Remedies" below (other than a default in the
payment of the repurchase price with respect to such Notes on the repurchase
date).
The foregoing provisions would not necessarily afford holders of the Notes
protection in the event of a highly leveraged transaction, a change in control
of the Company or other transactions involving the Company that may adversely
affect holders. The Company could, in the future, enter into certain
transactions, including certain recapitalizations of the Company, that would
not constitute a Change in Control but that would increase the amount of Senior
Indebtedness (or other indebtedness) outstanding at such time. There are no
restrictions in the Indenture or the Notes on the creation of additional Senior
Indebtedness (or any other indebtedness of the Company or any of its
subsidiaries) and the incurrence of significant amounts of additional
indebtedness could have an adverse impact on the Company's ability to service
its debt, including the Notes. The Notes are subordinate in right of payment to
all existing and future Senior Indebtedness as described under
"--Subordination" below.
Certain leveraged transactions sponsored by the Company's management or an
affiliate of the Company could constitute a Change in Control that would give
rise to the repurchase right. The Indenture does not provide the Company's
Board of Directors with the right to limit or waive the repurchase right in the
event of any such leveraged transaction. The right to require the Company to
repurchase Notes as a result of a Repurchase Event could have the effect of
delaying, deferring or preventing a Change in Control or other attempts to
acquire control of the Company unless arrangements have been made to enable the
Company to repurchase all of the Notes at the repurchase date. Consequently,
the right may render more difficult or discourage a merger, consolidation or
tender offer (even if such transaction is supported by the Company's Board of
Directors or is favorable to the stockholders), the assumption of control by a
holder of a large block of the Company's shares and
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the removal of incumbent management. The Repurchase Event repurchase right,
however, is not the result of management's knowledge of any specific effort to
accumulate shares of Common Stock or to obtain control of the Company by means
of a merger, tender offer, solicitation or otherwise. Instead, the Repurchase
Event repurchase right is a standard term contained in other similar debt
offerings.
Rule 13e-4 under the Exchange Act requires, among other things, the
dissemination of certain information to security holders in the event of an
issuer tender offer and may apply in the event that the repurchase option
becomes available to holders of the Notes. The Company will comply with this
rule to the extent applicable at that time.
Subordination
The indebtedness evidenced by the Notes is, to the extent provided in the
Indenture, subordinate to the prior payment in full in cash or other payment
satisfactory to the holders of Senior Indebtedness of all Senior Indebtedness
(as defined) whether presently outstanding or hereafter incurred or created.
Upon any distribution of assets of the Company upon any dissolution, winding
up, liquidation or reorganization of the Company, the payment of the principal
of, or premium, if any, and interest on the Notes is to be subordinated to the
extent provided in the Indenture in right of payment to the prior payment in
full in cash or other payment satisfactory to the holders of Senior
Indebtedness, of all Senior Indebtedness. Moreover, in the event of any
acceleration of the Notes because of an Event of Default, the holders of any
Senior Indebtedness then outstanding would be entitled to payment in full in
cash or other payment satisfactory to the holders of Senior Indebtedness of all
obligations in respect of such Senior Indebtedness before the holders of the
Notes are entitled to receive any payment or distribution in respect thereof.
The Company may also not make any payment upon or in respect of the Notes
if (i) a default in the payment of principal of, premium, if any, interest, or
other payment due on Designated Senior Indebtedness (as defined) occurs and is
continuing beyond any applicable period of grace or (ii) any other default
occurs and is continuing with respect to Designated Senior Indebtedness that
permits holders of the Designated Senior Indebtedness as to which such default
related to accelerate its maturity and the Trustee and the Company receive a
notice of such default (a "Payment Blockage Notice") from a holder of Designated
Senior Indebtedness, a representative of such holder or the Company. Payments on
the Notes may and shall be resumed (a) in case of payment default, on the date
on which such default is cured or waived or ceases to exist and (b) in case of a
nonpayment default with respect to Designated Senior Indebtedness, on the
earlier of the date on which such nonpayment default is cured or waived or
ceases to exist or 179 days after the date on which the applicable Payment
Blockage Notice is received. No new period of payment blockage may be commenced
pursuant to a Payment Blockage Notice unless (i) 365 days have elapsed since the
first day of the effectiveness of the immediately prior Payment Blockage Notice,
and (ii) all scheduled payments of principal, premium, if any, and interest on
the Notes that have become due have been paid in full in cash. No default
(whether or not such event of default is on the same issue of Designated Senior
Indebtedness) that existed or was continuing on the date of delivery of any
Payment Blockage Notice shall be, or be made, the basis for a subsequent Payment
Blockage Notice.
The term "Senior Indebtedness" means the principal of, premium, if any,
interest on (including any interest accruing after the filing of a petition by
or against the Company under any bankruptcy law, whether or not allowed as a
claim after such filing in any proceeding under such bankruptcy law), and any
other payment due pursuant to, any of the following, whether outstanding on the
date of the Indenture or thereafter incurred or created: (a) all indebtedness
of the Company for money borrowed or evidenced by notes, debentures, bonds or
other securities (including, but not limited to, those which are convertible or
exchangeable for securities of the Company) and all other obligations of the
Company constituting the deferred purchase price of property or assets; (b) all
indebtedness of the Company due and owing with respect to letters of credit
(including, but not limited to, reimbursement obligations with respect thereto
and funding obligations with respect to letters of credit issued by the
Company); (c) all indebtedness or other obligations of the Company due and
owing with respect to interest rate and currency swap agreements, cap, floor
and collar agreements, currency spot and forward contracts and other similar
agreements and arrangements; (d) all indebtedness consisting of commitment or
standby fees due and payable to lending institutions with respect to credit
facilities or letters of credit available to the Company; (e) all obligations
of the Company under leases required or permitted to be capitalized under
generally accepted accounting principles or under any lease or related
document (including a purchase agreement) that provides that the Company is
contractually obligated to purchase or cause a third party to purchase and
thereby guarantee a minimum residual value of the lease property to the lessor
and the obligations of the Company under such lease or related document to
purchase or to cause a third party to purchase such leased property; (f) all
indebtedness or obligations of others of the kinds described in any of the
preceding clauses (a), (b), (c), (d) or (e) assumed by or guaranteed in any
manner by the Company or in effect guaranteed (directly or indirectly) by the
Company through an agreement to purchase, contingent or otherwise, and all
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obligations of the Company under any such guarantee or other arrangements; and
(g) all renewals, extensions, refundings, deferrals, amendments or
modifications of indebtedness or obligations of the kinds described in any of
the preceding clauses (a), (b), (c), (d), (e) or (f); unless in the case of any
particular indebtedness, obligation, renewal, extension, refunding, amendment,
modification or supplement, the instrument or other document creating or
evidencing the same or the assumption or guarantee of the same expressly
provides that such indebtedness, obligation, renewal, extension, refunding,
amendment, modification or supplement is subordinate to, or is not superior to,
or is pari passu with, the Notes; provided that Senior Indebtedness shall not
include (i) any indebtedness of any kind of the Company to any subsidiary of
the Company, a majority of the voting stock of which is owned, directly or
indirectly, by the Company, (ii) indebtedness for trade payables or
constituting the deferred purchase price of assets or services incurred in the
ordinary course of business, or (iii) the Notes.
The term "Designated Senior Indebtedness" means the Company's obligations
under any particular Senior Indebtedness in which the instrument creating or
evidencing the same or the assumption or guarantee thereof (or related
agreements or documents to which the Company is a party) expressly provides
that such Senior Indebtedness shall be "Designated Senior Indebtedness" for
purposes of the Indenture (provided that such instrument, agreement or other
document may place limitations and conditions on the right of holders of such
Senior Indebtedness to exercise the rights of Designated Senior Indebtedness).
The Notes will also be effectively subordinated to all liabilities,
including trade payables and lease obligations, if any, of the Company's
subsidiaries. Any right of the Company to receive the assets of any of its
subsidiaries upon the liquidation or reorganization thereof (and the consequent
right of holders of the Notes to participate in those assets) will be
effectively subordinated to the claims of that subsidiary's creditors
(including trade creditors), except to the extent that the Company is itself
recognized as a creditor of such subsidiary, in which case the claims of the
Company would still be subordinated to any security interests in the assets of
such subsidiary and any indebtedness of such subsidiary senior to that held by
the Company.
The Company is a holding company with no significant operating assets. The
Company's ability to redeem, repurchase or make interest and principal payments
on the Notes is dependent upon the earnings of its subsidiaries and the
distribution of those earnings (through dividends or otherwise) to, or upon
royalties, license fees, loans or other payment of funds by those subsidiaries
to, the Company. The subsidiaries are separate and distinct legal entities and
have no obligation, contingent or otherwise, to pay any amounts due pursuant to
the Notes or to make any funds available therefor, whether by dividends, loans
or other payments. In addition, the payment of dividends and the making of
loans and advances to the Company by its subsidiaries may be subject to
statutory, contractual or other restrictions and are dependent upon the
earnings or financial condition of those subsidiaries and subject to various
business considerations. As a result, the Company may be unable to gain access
to the cash flow or assets of its subsidiaries in amounts sufficient to pay the
principal of or interest on the Notes when due or to redeem Notes at the option
of the holders thereof after the occurrence of a Repurchase Event.
As of April 30, 1998 the Company had approximately $10.9 million principal
amount of indebtedness outstanding that would have constituted Senior
Indebtedness, and the Company's subsidiaries had approximately $464.4 million of
indebtedness and other liabilities outstanding (other than liabilities of a type
not required to be reflected in a balance sheet in accordance with generally
accepted accounting principles and intercompany indebtedness) to which the Notes
would have been effectively subordinated. The Indenture does not limit the
amount of additional indebtedness, including Senior Indebtedness, which the
Company can create, incur, assume or guarantee, nor does the Indenture limit the
amount of indebtedness or other liabilities that any subsidiary can create,
incur, assume or guarantee.
Notwithstanding the foregoing, in the event that the Trustee or any holder
of Notes receives any payment or distribution of assets of the Company of any
kind in contravention of any of the terms of the Indenture,
whether in cash, property or securities, including, without limitation, by way
of set-off or otherwise, in respect of the Notes before all Senior Indebtedness
is paid in full in cash or other payment satisfactory to the holders of Senior
Indebtedness, then such payment or distribution will be held by the recipient
in trust for the benefit of the holders of Senior Indebtedness of the Company,
and will be immediately paid over or delivered to the holders of Senior
Indebtedness of the Company or their representative or representatives, or to
the trustee or trustees under any indenture pursuant to which any instruments
evidencing any Senior Indebtedness may have been issued, as their respective
interests may appear, as calculated by the Company, for application to the
payment of all Senior Indebtedness remaining unpaid to the extent necessary to
make payment in full in cash or other payment satisfactory to the holders of
Senior Indebtedness of all Senior Indebtedness of the Company remaining unpaid,
after giving effect to any concurrent payment or distribution, or provision
therefor, to or for the holders of Senior Indebtedness of the Company.
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No provision contained in the Indenture or the Notes affects the
obligation of the Company, which is absolute and unconditional, to pay, when
due, principal of, premium, if any, and interest on, the Notes. The
subordination provisions of the Indenture and the Notes do not prevent the
occurrence of any default or Event of Default or limit the rights of any holder
of Notes to pursue any other rights or remedies with respect to the Notes.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceedings or an assignment for the benefit of the creditors of the Company or
a marshaling of assets or liabilities of the Company and its subsidiaries,
holders of the Notes may receive ratably less than other creditors.
Events of Default and Remedies
An Event of Default is defined in the Indenture as being: (i) a default in
payment of the principal of, or premium, if any, on the Notes (whether or not
such payment is prohibited by the subordination provisions of the Indenture);
(ii) default for 30 days in payment of any installment of interest on the Notes
(whether or not such payment is prohibited by the subordination provisions of
the Indenture); (iii) default by the Company for 60 days after notice given in
accordance with the Indenture in the observance or performance of any other
covenants in the Indenture; (iv) default in the payment of the repurchase price
in respect of the Note on the repurchase date therefor (whether or not such
payment in cash of the repurchase price is prohibited by the subordination
provisions of the Indenture); (v) failure to provide timely notice of a
Repurchase Event; (vi) failure of the Company or any Significant Subsidiary (as
defined) to make any payment at maturity, including any applicable grace
period, in respect of Indebtedness (which term as used in the Indenture means
obligations of, or guaranteed or assumed by, the Company or any Significant
Subsidiary for borrowed money), in an amount in excess of $10,000,000 and
continuance of such failure for 30 days after notice given in accordance with
the Indenture; (vii) default by the Company or any Significant Subsidiary with
respect to any Indebtedness, which default results in the acceleration of
Indebtedness in an amount in excess of $10,000,000 without such Indebtedness
having been discharged or such acceleration having been rescinded or annulled
for 30 days after notice given in accordance with the Indenture; or (viii)
certain events involving bankruptcy, insolvency or reorganization of the
Company or any Significant Subsidiary.
The Indenture provides that the Trustee shall, within 90 days after the
occurrence of a default, give to the registered holders of the Notes notice of
all uncured defaults known to it, but the Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the best interest of such registered holders, except in the
case of a default in the payment of the principal of, or premium, if any, or
interest on, any of the Notes when due or in the payment of any redemption or
repurchase obligation.
The Indenture provides that if any Event of Default shall have occurred
and be continuing, the Trustee or the holders of not less than 25% in principal
amount of the Notes then outstanding (excluding for this purpose any Notes then
held by the Company or any Affiliate) may declare the principal of and premium,
if any, on the Notes to be due and payable immediately, but if the Company
shall cure all defaults (except the nonpayment of interest on, premium, if any,
and principal of any Notes which shall have become due by acceleration) and
certain other conditions are met, such declaration may be canceled and past
defaults may be waived by the holders of a majority in principal amount of
Notes then outstanding. If an Event of Default resulting from certain events of
bankruptcy, insolvency or reorganization with respect to the Company were to
occur, all unpaid principal of and accrued interest on the outstanding Notes
will become due and payable immediately without any declaration or other act on
the part of the Trustee or any holders of Notes, subject to certain
limitations.
The Indenture provides that the holders of a majority in principal amount
of the outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee, subject to certain limitations specified in the
Indenture. Before proceeding to exercise any right or power under the Indenture
at the direction of such holders, the Trustee shall be entitled to receive from
such holders reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in complying with any such direction.
The right of a holder to institute a proceeding with respect to the Indenture is
subject to certain conditions precedent, including the written notice by such
holder of an Event of Default and an offer to indemnify to the Trustee, along
with the written request by the holders of not less than 25% in principal amount
of the outstanding Notes that such a proceeding be instituted, but the holder
has an absolute right to institute suit for the enforcement of payment of the
principal of, and premium, if any, and interest on, such holder's Notes when due
and to convert such Notes.
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The holders of not less than a majority in principal amount of the
outstanding Notes may on behalf of the holders of all Notes waive any past
defaults, except (i) a default in payment of the principal of, or premium, if
any, or interest on, any Note when due, (ii) a failure by the Company to
convert any Notes into Common Stock or (iii) in respect of certain provisions
of the Indenture which cannot be modified or amended without the consent of the
holder of each outstanding Note affected thereby.
The Company is required to furnish to the Trustee annually within 120 days
of the end of the fiscal year a statement of certain officers of the Company
stating whether or not to the best of their knowledge the Company is in default
in the performance and observation of certain terms of the Indenture and, if
they have knowledge that the Company is in default, specifying such default. The
Company is also 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 and the action the Company has taken, is taking or proposes to take
with respect thereto.
Consolidation, Merger or Assumption
The Indenture provides that the Company may not, directly or indirectly,
consolidate with or merge with or into another person or sell, lease, convey or
transfer all or substantially all of its assets, whether in a single
transaction or a series of related transactions, to another person or group of
affiliated persons, unless (i) either (a) in the case of a merger or
consolidation that does not involve a transfer of all or substantially all of
the Company's assets, the Company is the surviving entity or (b) the resulting,
surviving or transferee entity is a corporation organized under the laws of the
United States, any state thereof or the District of Columbia and expressly
assumes by written agreement all of the obligations of the Company in
connection with the Notes and the Indenture; (ii) no default or Event of
Default shall exist or shall occur immediately after giving effect on a pro
forma basis to such transaction; and (iii) certain other conditions are
satisfied.
Modifications of the Indenture
The Indenture contains provisions permitting the Company and the Trustee,
with the consent of the holders of not less than a majority in principal amount
of the Notes at the time outstanding, to modify the Indenture or any
supplemental indenture or the rights of the holders of the Notes, except that
no such modification shall (i) extend the fixed maturity of any Note, reduce
the rate or extend the time or payment of interest thereon, reduce the
principal amount thereof or premium, if any, thereon, reduce any amount payable
upon redemption or repurchase thereof, impair, or change in any respect adverse
to the holders of Notes, the obligation of the Company to repurchase any Note
upon the happening of a Repurchase Event, impair or adversely affect the right
of a holder to institute suit for the payment thereof, change the currency in
which the Notes are payable, or impair, or change in any respect adverse to the
holder of the Notes, the right to convert the Notes into Common Stock subject
to the terms set forth in the Indenture or modify the provisions of the
Indenture with respect to the subordination of the Notes in a manner adverse to
the holders of the Notes, without the consent of the holder of each Note so
affected, or (ii) reduce the aforesaid percentage of Notes, without the consent
of the holders of all of the Notes then outstanding.
Registration Rights
The Company and the Initial Purchasers have entered into a Registration
Rights Agreement dated as of April 24, 1998 (the "Registration Rights
Agreement") between the Company and the initial purchasers (the "Initial
Purchasers") named therein in connection with the initial issuance of the Notes.
Pursuant to the Registration Rights Agreement, the Company agreed to file,
at its expense, with the Commission as promptly as practicable after the
earliest date of initial issuance of any of the Notes, a shelf registration
statement (the "Shelf Registration Statement"), of which this Prospectus forms a
part, on such form as the Company deems appropriate covering resales of Transfer
Restricted Securities by the holders thereof and to use reasonable efforts to
cause such registration statement to become effective as promptly as is
practicable and to keep the registration statement effective until the earlier
of such date that is two years after the latest date of initial issuance of any
of the Notes or until the Shelf Registration Statement is no longer required for
transfer of any Transfer Restricted Securities. For purposes of the foregoing,
"Transfer Restricted Securities" means each Note and share of Common Stock
issued upon conversion thereof until the date on which such Note or share of
Common Stock has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement or the date on
which such Note or share of Common Stock is distributed to the public pursuant
to Rule 144 under the Securities Act or is sellable pursuant to Rule 144(k)
under the Securities Act (or any similar provisions then in force) or the date
on which such Note or share of Common Stock ceases to be outstanding, whichever
date is earliest.
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The Registration Rights Agreement provides that (i) the Company will use
all reasonable efforts to file the Shelf Registration Statement with the
Commission on or prior to 60 days after the earliest date of initial issuance of
any Notes (the "Closing Date") and (ii) the Company will use all reasonable
efforts to cause the Shelf Registration Statement to be declared effective by
the Commission as promptly as practicable but in no event later than 150 days
after the Closing Date. If (i) the Shelf Registration Statement is not filed
with the Commission on or prior to 60 days after the Closing Date, (ii) the
Shelf Registration Statement has not been declared effective by the Commission
within 150 days after the Closing Date or (iii) the Shelf Registration Statement
is filed and declared effective but shall thereafter cease to be effective or
usable (without being succeeded immediately by an additional Shelf Registration
Statement filed and declared effective which is then available for effecting
resales of Transfer Restricted Securities) for a period of time which shall
exceed 90 days in the aggregate in any period of 365 consecutive days (each such
event referred to in clauses (i) through (iii), a "Registration Default"), the
Company will pay liquidated damages to each holder of Notes or Common Stock
issuable upon conversion thereof that are Transfer Restricted Securities, during
the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $0.05 per week per $1,000 principal
amount of Notes and, if applicable, on an equivalent basis per share (subject to
adjustment in the event of stock splits, stock recombinations, stock dividends
and the like) of Common Stock constituting Transfer Restricted Securities held
by such holder. The rate of accrual of the liquidated damages will increase by
an additional $0.05 per week per $1,000 principal amount of Notes and, if
applicable, by an equivalent amount per week per share (subject to adjustment as
set forth above) of Common Stock constituting Transfer Restricted Securities for
each subsequent 90-day period until the applicable Registration Statement is
filed, the applicable Registration Statement is declared effective and becomes
available for effecting sales of securities, or the Shelf Registration Statement
again becomes effective and becomes available for effecting sales of securities,
as the case may be, up to a maximum amount of liquidated damages of $0.25 per
week per $1,000 principal amount of Notes or if applicable, an equivalent amount
per week per share (subject to adjustment as set forth above) of Common Stock
constituting Transfer Restricted Securities. Following the cure of a
Registration Default, liquidated damages will cease to accrue with respect to
such Registration Default (without in any way limiting the effect of any
subsequent Registration Default). All accrued liquidated damages shall be paid
to the holders of Notes or shares of Common Stock (as applicable) in the same
manner as interest payments on the Notes on semiannual payment dates which
correspond to interest payment dates for the Notes. The use of the Shelf
Registration Statement for effecting resales of Transfer Restricted Securities
may be suspended in certain circumstances described in the Registration Rights
Agreement upon notice by the Company to the holders of the Transfer Restricted
Securities, subject to the rights of the holders of Transfer Restricted
Securities to receive liquidated damages if the aggregate number of days of such
suspensions in any year exceeds the periods described above.
The Company will provide to each registered holder copies of such
prospectus, notify each registered holder when the Shelf Registration Statement
has become effective and take certain other actions as are required to permit
unrestricted resales of the Transfer Restricted Securities. The Company agreed
in the Registration Rights Agreement to give notice to all holders of the filing
and effectiveness of the Shelf Registration Statement. Attached to the Offering
Circular distributed in connection with the initial issuance of the Notes as
Annex B was a form of notice and questionnaire (the "Questionnaire") to be
completed and delivered by a holder to the Company prior to any intended
distribution of Transfer Restricted Securities pursuant to the Shelf
Registration Statement. Holders are required to complete and deliver the
Questionnaire prior to the effectiveness of the Shelf Registration Statement so
that such holders may be named as selling stockholders in the related prospectus
at the time of effectiveness. Upon receipt of such a completed Questionnaire,
together with such other information as may be reasonably requested by the
Company, from a holder following the effectiveness of the Shelf Registration
Statement, the Company will, as promptly as practicable but in any event within
five business days of such receipt, file such amendments to the Shelf
Registration Statements or supplements to the related prospectus as are
necessary to permit such holder to deliver such prospectus to purchasers of
Transfer Restricted Securities (subject to the Company's right to suspend the
use of the prospectus as described above). The Company has agreed to pay
liquidated damages to such holder if the Company fails to make such filing in
the time required or, if such filing is a post-effective
amendment of the Shelf Registration Statement required to be declared effective
under the Securities Act, if such amendment is not declared effective within 45
days of the filing thereof. Any holder that does not complete and deliver a
Questionnaire or provide such other information will not be named as a selling
stockholder in the prospectus and therefore will not be permitted to sell any
Transfer Restricted Securities pursuant to the Shelf Registration Statement. A
holder who sells the Transfer Restricted Securities pursuant to the Shelf
Registration Statement will be required to deliver a prospectus to purchasers
and will be bound by the provisions of the Registration Rights Agreement which
are applicable to such holder (including certain indemnification provisions).
The specific provisions relating to the registrations described above will be
contained in the Registration Rights Agreement to be entered into prior to the
closing of this offering.
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Taxation of Notes
See "Certain Federal Income Tax Considerations" for a discussion of certain
federal tax aspects which will apply to holders of Notes.
Satisfaction and Discharge
The Company may discharge its obligations under the Indenture while Notes
remain outstanding if (i) all outstanding Notes will become due and payable at
their scheduled maturity within one year or (ii) all outstanding Notes are
scheduled for redemption within one year, and, in either case, the Company has
deposited with the Trustee an amount sufficient to pay and discharge all
outstanding Notes on the date of their scheduled maturity or the scheduled date
of redemption.
Governing Law
The Indenture, the Registration Rights Agreement and the Notes are
governed by and construed in accordance with the laws of the State of New York.
Concerning the Trustee
The First National Bank of Chicago, the Trustee under the Indenture, has
been appointed by the Company as the initial paying agent, conversion agent,
registrar and custodian with regard to the Notes. The Company may maintain
deposit accounts and conduct other banking transactions with the Trustee or its
affiliates in the ordinary course of business, and the Trustee and its
affiliates may from time to time in the future provide banking and other
services to the Company in the ordinary course of their business.
During the existence of an Event of Default, the Trustee will exercise
such rights and powers vested in it under the Indenture and use the same degree
of care and skill in its exercise as a prudent person would exercise under the
circumstances in the conduct of such person's own affairs.
The Indenture and the Trust Indenture Act of 1939, as amended (the "TIA"),
contain 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. Subject to the TIA, the Trustee will be permitted to engage in
other transactions, provided, however, that if it acquires any conflicting
interest (as described in the TIA), it must eliminate such conflict or resign.
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DESCRIPTION OF CAPITAL STOCK
General
The authorized capital stock of the Company consists of 25,000,000 shares
of Common Stock, par value $0.50 per share, and 500,000 shares of Preferred
Stock, par value $1.00 per share. As of May 27, 1998, 14,825,428 shares of
Common Stock are outstanding.
Common Stock
The holders of shares of Common Stock are entitled to one vote per share
on all matters submitted to a vote at a meeting of stockholders. Each
stockholder may exercise such vote either in person or by proxy. Stockholders
are not entitled to cumulative voting with regards to the election of directors,
which means that the holders of more than 50% of the Common Stock voting for the
election of directors can elect all of the directors to be elected by holders of
Common Stock, in which event the holders of the remaining Common Stock voting
will not be able to elect any director. Subject to preferences to which holders
of Preferred Stock issued after the sale of the Common Stock offered hereby may
be entitled, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board out of
funds legally available therefor. The Company does not presently anticipate
paying cash dividends in the foreseeable future. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets of the Company which
are legally available for distribution to stockholders, subject to the prior
rights on liquidation of creditors' and to preferences to which holders of
Preferred Stock issued after the sale of the Common Stock offered hereby may be
entitled. The holders of Common Stock have no preemptive, subscription,
redemption or sinking fund rights. The Common Stock currently outstanding, and
the Conversion Shares are and will be validly issued, fully paid and
nonassessable.
Preferred Stock
The Board has the authority to issue the Preferred Stock in one or more
series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption (including sinking fund provisions), redemption
prices and liquidation preferences, and the number of shares constituting and
the designation of any such series, without further vote or action by the
stockholders. At present, the Company has no plans to issue any of the Preferred
Stock and is not aware of any pending or proposed transaction that would be
affected by such an issuance.
Certain Effects of Authorized and Unissued Stock
The authorized, unissued and unreserved shares of Common Stock and
Preferred Stock may be issued for a variety of proper corporate purposes,
including future public or private offerings to raise additional capital or
facilitate acquisitions. The Company does not presently intend to issue
additional shares of Common Stock or Preferred Stock (other than in connection
with the Company's Stock Option Plan, upon the exercise of outstanding warrants
or upon conversion of the Notes offered hereby).
One of the effects of the existence of unissued and unreserved shares of
Common Stock and Preferred Stock may be to enable the Board to discourage an
attempt to change control of the Company (by means of a tender offer, proxy
contest or otherwise) and thereby to protect the continuity of the Company's
management. If, in the due exercise of its fiduciary duties, the Board
determined that an attempt to change control of the Company was not in the
Company's best interest, the Board could authorize, without having to obtain
approval of the stockholders, the issuance of such shares in one or more
transactions that might prevent or render more difficult the completion of such
attempt. In this regard, the Board has the authority to establish the rights and
preferences of the authorized and unissued shares of Preferred Stock, one or
more series of which could be issued entitling the holders thereof to vote
separately as a class or to cast a proportionately larger vote than the holders
of shares of Common Stock on any proposed action, to elect directors having
terms of office or voting rights greater than the terms of office or voting
rights of other directors, to convert shares of Preferred Stock into a
proportionately
24
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larger number of shares of Common Stock or other securities of the Company, to
demand redemption at a specified price under prescribed circumstances related
to such a change or to exercise other rights designed to impede such a change.
The issuance of shares of Preferred Stock, whether or not related to any attempt
to effect such a change, may adversely affect the rights of the holders of
shares of Common Stock.
Certain Charter Provisions
Under Nevada law, directors of a Nevada corporation can generally be held
liable for certain types of negligence and other acts and omissions in
connection with the performance of their duties to the corporation and its
stockholders. As permitted by Nevada law, however, the Company's Articles of
Incorporation contain a provision eliminating the liability of the Company's
directors for monetary damages for breaches of their duty of care to the Company
and the stockholders, except as described below.
Such provision is limited by Nevada law to persons who act in good faith
and in a manner which they reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.
Although the issue has not been determined by any court, such provision would
probably have no effect on claims arising under federal securities laws.
Transfer Agent and Registrar
The transfer agent and registrar for the Common Stock is The Bank of New
York.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
considerations relating to the purchase, ownership and disposition of the Notes
and Conversion Shares, but does not propose to be a complete analysis of all the
potential tax considerations relating thereto. This summary is based on laws,
regulations, rulings and decisions now in effect, all of which are subject to
change (possibly with retroactive effect). This summary deals only with holders
that will hold Notes and Conversion Shares as "capital assets" (within the
meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (the
"Code")) and does not address tax considerations applicable to investors that
may be subject to special tax rules, such as foreign persons, banks, tax-exempt
organizations, insurance companies, dealers in securities or currencies, persons
subject to the alternative minimum tax, or persons that will hold Notes as a
position in a hedging transaction, "straddle" or "conversion transaction" for
tax purposes or persons deemed to sell Notes or Common Stock under the
constructive sale provisions of the Code. This summary discusses the tax
considerations applicable to the initial purchases of the Notes who purchase the
Notes at their "issue price" as defined in Section 1273 of the Code and does not
discuss the tax considerations applicable to subsequent purchasers of the Notes.
The Company has not sought any ruling from the Internal Revenue Service (the
"IRS") or an opinion of counsel with respect to the statements made and the
conclusions reached in the following summary, and there can be no assurance that
the IRS will agree with such statements and conclusions. In addition, the IRS is
not precluded from successfully adopting a contrary position. This summary does
not consider the effect of any applicable foreign, state, local or other tax
laws.
INVESTORS CONSIDERING THE PURCHASE OF NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THE APPLICATION OF THE UNITED STATES FEDERAL INCOME AND
ESTATE TAX LAWS TO THEIR PARTICULAR SITUATIONS AS WELL AS ANY TAX CONSEQUENCES
ARISING UNDER THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION OR
UNDER ANY APPLICABLE TAX TREATY.
Interest
Interest on a Note generally will be taxable to a holder as ordinary
interest income at the time it accrues or is received, in accordance with the
holder's usual method of accounting for U.S. federal income tax purposes. The
Company intends to report the likelihood of the payment of liquidated damages to
a holder of Notes or Common Stock as remote for U.S. federal income tax
purposes. Payment of liquidated damages most likely will be taxable to a holder
as ordinary income.
Sale, Exchange or Redemption of the Notes
Upon the sale, exchange or redemption of a Note, a holder generally will
recognize capital gain or loss equal to the difference between (i) the amount of
cash proceeds and the fair market value of any property received on the sale,
exchange or redemption (except to the extent such amount is attributable to
accrued interest income not previously included in income which is taxable as
ordinary income) and (ii) such holder's adjusted tax basis in the Note. A
holder's adjusted tax basis in a Note generally will equal the cost of the Note
to such holder. Such capital gain or loss will be long-term capital gain or loss
if the holder's holding period in the Note is more than one year at the time of
sale, exchange or redemption. The maximum rate of tax on long-term capital gains
on capital assets held by an individual for more than 18 months is 20%, and gain
on capital assets held by an individual more than one year and up to 18 months
is subject to tax at a maximum rate of 28%.
Conversion of the Notes
A holder generally will not recognize any income, gain or loss upon
conversion of a Note into Common Stock except with respect to cash received in
lieu of a fractional Share of Common Stock. A holder's tax basis in the Common
Stock received on conversion of a Note will be the same as such holder's
adjusted tax basis in the Note at the time of conversion (reduced by any basis
allocable to a fractional share interest), and the holding period for the Common
Stock received on conversion will generally include the holding period of the
Note converted. Special federal income tax rules for the treatment of the
conversion of a Note into Common Stock may apply if a holder converts after a
record date for the payment of interest but prior to the next succeeding
interest payment date.
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Cash received in lieu of a fractional share of Common Stock upon conversion
will be treated as a payment in exchange for a fractional share of Common Stock.
Accordingly, the receipt of cash in lieu of a fractional share of Common Stock
generally will result in capital gain or loss (measured by the difference
between the cash received for the fractional share and the holder's adjusted
tax basis in the fractional share),
Dividends; Adjustment to Conversion Price
Dividends paid on the Common Stock generally will be includable in the
income of a holder as ordinary income to the extent of the Company's current or
accumulated earnings and profits.
Holders of convertible debt instruments such as the Notes may, in certain
circumstances, be deemed to have received constructive distributions where the
conversion ratio of such instruments is adjusted. Adjustments to the conversion
price made pursuant to a bona fide reasonable adjustment formula which has the
effect of preventing the dilution of the interest of the holders of the debt
instruments, however, will generally not be considered to result in a
constructive distribution of stock. Certain of the possible adjustments provided
in the Notes (including, without limitation, adjustments in respect of taxable
dividends to stockholders of the Company) will not qualify as being pursuant to
a bona fide reasonable adjustment formula. If such adjustments are made, the
holders of Notes might be deemed to have received constructive distributions
taxable as dividends.
Sale of Common Stock
Upon the sale or exchange of Common Stock, a holder generally will
recognize capital gain or loss equal to the difference between (i) the amount of
cash proceeds and the fair market value of any property received upon the sale
or exchange and (ii) such holder's adjusted tax basis in the Common Stock. Such
capital gain or loss will be long-term capital gain or loss if the holder's
holding period in Common Stock is more than one year at the time of the sale or
exchange. Gain on capital assets held by an individual for more than one year is
subject to certain maximum rates of tax, as discussed above under "-Sale,
Exchange or Redemption of the Notes." A holder's basis and holding period in
Common Stock received upon conversion of a Note are determined as discussed
above under "-Conversion of the Notes."
Information Reporting and Backup Withholding Tax
In general, information reporting requirements will apply to payments of
principal, premium, if any, and interest on a Note, payments of dividends on
Common Stock, payments of the proceeds of the sale of a Note and payments of the
proceeds of the sale of Common Stock, and a 31% backup withholding tax may apply
to such payments if the holder either (i) fails to demonstrate that the holder
comes within certain exempt categories of holders or (ii) fails to furnish or
certify his correct taxpayer identification number to the payor in the manner
required, is notified by the IRS that he has failed to report payments of
interest and dividends properly, or under certain circumstances, fails to
certify that he has not been notified by the IRS that he is subject to backup
withholding for failure to report interest and dividend payments. Any amounts
withheld under the backup withholding rules from a payment to a holder will be
allowed as a credit against such holder's United States federal income tax and
may entitle the holder to a refund, provided that the required information is
furnished to the IRS.
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PLAN OF DISTRIBUTION
Pursuant to the Registration Rights Agreement, the Registration Statement
of which this Prospectus forms a part was filed with the Commission covering the
resale of the Notes and the Conversion Shares (the "Securities"). The Company
has agreed to use all reasonable efforts to keep the Registration Statement
effective until the earlier of such date that is two years after the latest date
of initial issuance of any of the Notes or until the Registration Statement of
which this Prospectus forms a part is no longer required for transfer of any
Notes. The specific provisions relating to the registration rights described
above are contained in the Registration Rights Agreement, and the foregoing
summary is qualified in its entirety by reference to the provisions of such
agreement.
The Notes and the Conversion Shares may be sold in one or more transactions
at fixed prices at prevailing market prices at the time of sale, at varying
prices determined at the time of sale, or at negotiated prices. Sales of Notes
and Conversion Shares may be effected in transactions (which may involve crosses
or block transactions) (i) on any national securities exchange or quotation
service on which the Notes or Conversion Shares may be listed or quoted at the
time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or services or in the over-the-counter market
or (iv) through the writing of options. The Selling Securityholders may effect
such transactions by selling the Notes or Conversion Shares directly to
purchasers, through broker-dealers acting as agents for the Selling
Securityholders, or to broker-dealers who may purchase Notes or Conversion
Shares as principals and thereafter sell the Notes or Conversion Shares from
time to time in transactions. In effecting sales, broker-dealers engaged by
Selling Securityholders may arrange for other broker-dealers to participate.
Such broker-dealers, if any, may receive compensation in the form of discounts,
concessions or commissions from the Selling Securityholders and/or the
purchasers of the Notes or Conversion Shares for whom such broker-dealer may act
as agents or to whom they may sell as principals, or both (which compensation as
to a particular broker-dealer might be in excess of customary commissions).
The Selling Securityholdes and any broker-dealers, agents or underwriters
that participate with the Selling Securityholders in the distribution of the
Notes or Conversion Shares may be deemed to be "underwriters" within the meaning
of the Securities Act. Any commissions paid or any discounts or concessions
allowed to any such persons, and any profits received on the resale of the Notes
or Conversion Shares offered hereby and purchased by them may be deemed to be
underwriting comissions or discounts under the Securities Act.
At the time a particular offering of the Notes and/or the Conversion Shares
is made and to the extent required, the aggregate principal amount of Notes and
number of Conversion Shares being offered, the name or names of the Selling
Securityholders, and the terms of the offering, including the name or names of
any underwriters, broker-dealers or agents, any discounts, concessions or
commissions and other terms constituting compensation from the Selling
Securityholders, and any discounts, concessions or commissions allowed or
reallowed or paid to broker-dealers, will be set forth in an accompanying
Prospectus Supplement.
Pursuant to the Registration Rights Agreement, the Company has agreed to
pay all expenses incident to the offer and sale of the Notes and Conversion
Shares offered by the Selling Securityholders hereby, except that the Selling
Securityholders will pay all underwriting discounts and selling commissions, if
any. The Company has agreed to indemnify the Selling Securityholders against
certain liabilities, including liabilities under the Securities Act, and to
contribute to payments the Selling Securityholders may be requried to make in
respect thereof.
To comply with the securities laws of certain jurisdictions, if applicable,
the Notes and Conversion Shares offered hereby will be offered or sold in such
jurisdictions only through registered or licensed brokers or dealers.
Under applicable rules and regulations under the Exchange Act, any person
engaged in a distribution of the Notes or the Conversion Shares may be limited
in its ability to engage in market activities with respect to such Notes or
Conversion Shares. In addition and without limiting the foregoing, each Selling
Securityholder will be subject to applicable provisions of the Exchange Act and
the rules and regulations thereunder, including, without limitation, Regulation
M, which provisions may limit the timing of purchase and sales of any of the
Notes and Conversion Shares by the Selling Securityholders. Furthermore,
Regulation M of the Exchange Act may restrict the ability of any person engaged
in the distribution of the Notes and Conversion Shares to engage in
market-making activities with respect to the particular Notes and Conversion
Shares being distributed for a period of five business days prior to the
commencement of the distribution. The foregoing may affect the marketability of
the Notes and the Conversion Shares.
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LEGAL MATTERS
Certain legal matters with respect to the validity of the Notes and the
Conversion Shares will be passed upon for the Company by Erwin Thompson &
Hascheff, and certain legal matters with respect to the statements made in
"Certain Federal Income Tax Consequences" will be passed upon for the Company by
Orrick, Herrington & Sutcliffe LLP, New York, New York. Lawrence B. Fisher,
Esq., a partner of Orrick, Herrington & Sutcliffe LLP, is a director of the
Company and holds 5,000 shares of Common Stock.
EXPERTS
The consolidated financial statements of the Company at July 31, 1997 and
1996, and for each of the three years in the period ended July 31, 1997,
incorporated by reference in this Prospectus have been audited by Eisner
& Lubin LLP, Certified Public Accountants, independent auditors, as set forth
in their reports thereon and are included in reliance upon such reports given
upon the authority of such firm as experts in accounting and auditing.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR A SOLICITATION OF ANY OFFER TO BUY THE SECURITIES DESCRIBED HEREIN BY
ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED, OR IN WHICH THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. UNDER NO CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS OR
ANY SALE MADE PURSUANT TO THIS PROSPECTUS CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS CURRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE OF THIS PROSPECTUS.
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TABLE OF CONTENTS
PAGE
----
Available Information .......................................... 2
Incorporation of Certain Documents by Reference ................ 2
Prospectus Summary ............................................. 3
Risk Factors ................................................... 6
Use of Proceeds ................................................ 10
Ratio of Earnings to Fixed Charges ............................. 10
Dividend Poliity ............................................... 10
Selling Securityholders ........................................ 11
Description of the Notes ....................................... 13
Description of Capital Stock ................................... 24
Certain Federal Income Tax Considerations ...................... 26
Plan of Distribution ........................................... 28
Legal Matters .................................................. 29
Experts ........................................................ 29
================================================================================
FINANCIAL FEDERAL CORPORATION
$100,000,000
4 1/2% CONVERTIBLE SUBORDINATED NOTES DUE 2005
AND
SHARES OF COMMON STOCK
ISSUABLE UPON CONVERSION THEREOF
-------------------
PROSPECTUS
-------------------
July 15, 1998
================================================================================
<PAGE>
