AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON
SEPTEMBER 3, 1997
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-----------------------
WRIGHT MEDICAL TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3842 62-1532765
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
ORGANIZATION)
5677 AIRLINE ROAD
ARLINGTON, TENNESSEE 38002
(901) 867-9971
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-----------------------
THOMAS M. PATTON, ESQ.
VICE PRESIDENT and GENERAL COUNSEL
WRIGHT MEDICAL TECHNOLOGY, INC.
5677 AIRLINE ROAD
ARLINGTON, TENNESSEE 38002
(901) 867-9971
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
-----------------------
COPIES TO:
STEPHEN I. GLOVER, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
1001 PENNSYLVANIA AVENUE, N.W.
SUITE 800
WASHINGTON, D.C. 20004
(202) 639-7000
-----------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement is declared
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is no
compliance with General Instruction G, check the following box.
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH PROPOSED PROPOSED
CLASS OF MAXIMUM MAXIMUM
SECURITIES TO AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
REGISTERED REGISTERED PRICE PER OFFERING REGISTRATION
UNIT (1) PRICE (1) FEE
11 3/4% Series D $85,000,000 $1,000 $85,000,000 $25,758
Secured Step-Up
Notes due 2000
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(1) under the Securities Act of 1933, as amended.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 1
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION BUT HAS NOT YET BECOME EFFECTIVE. THESE
SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME
THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL
THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER,
SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION
UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION DATED SEPTEMBER 3, 1997
PROSPECTUS
WRIGHT MEDICAL TECHNOLOGY, INC.
OFFER TO EXCHANGE
11 3/4% Series D Senior Secured Step-Up Notes Due 2000
($85,000,000 principal amount)
for all of its outstanding
11 3/4% Series C Senior Secured Step-Up Notes Due 2000
($85,000,000 principal amount)
---------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
____________, 1997, UNLESS EXTENDED (SUCH TIME AND DATE OF EXPIRATION FOR THE
EXCHANGE OFFER, AS THE SAME MAY BE EXTENDED, THE "EXPIRATION DATE" WITH RESPECT
THERETO).
---------------
Wright Medical Technology, Inc., a Delaware corporation (collectively, with its
subsidiaries, the "Company"), hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal (the "Letter of Transmittal"), to exchange $1,000 principal amount
of its 11 3/4% Series D Senior Secured Step-Up Notes due 2000 (the "Registered
Notes") for each $1,000 principal amount of its outstanding 11 3/4% Series C
Senior Secured Step-Up Notes due 2000 (the "Old Notes") properly tendered for
exchange and accepted (the "Exchange Offer"). The Registered Notes, which will
be registered under the Securities Act of 1933, as amended (the "Securities
Act") pursuant to a Registration Statement on Form S-4, filed with the
Securities and Exchange Commission (the "Commission"), and of which this
Prospectus is a part (the "Registration Statement"), will be issued under an
indenture between the Company and State Street Bank and Trust Company, as
Trustee, dated August 7, 1997 (the "Indenture"). The Exchange Offer is being
made pursuant to the terms of the registration rights agreement, dated August 7,
1997 (the "Registration Rights Agreement"), entered into between the Company and
the holders of the Old Notes (the "Holders").
----------------
SEE "RISK FACTORS" COMMENCING ON PAGE 13 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND IN EVALUATING AN INVESTMENT
DECISION REGARDING THE SECURITIES OFFERED HEREBY.
----------------
THESE SECURITIES HAVE NOT BEEN RECOMMENDED, APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
----------------
The date of this Prospectus is September 3, 1997.
<PAGE> 2
This Exchange Offer is being made pursuant to the Registration Rights Agreement.
The obligation of the Company to consummate the Exchange Offer is conditional
upon certain customary conditions which may be waived by the Company. See "The
Exchange Offer - Conditions to the Exchange Offer."
The Registered Notes will bear interest from and including their date of
issuance (the "Exchange Date"). Holders whose Old Notes are accepted for
exchange will have the right to receive interest accrued and unpaid thereon to,
but not including, the date of issuance of the Registered Notes, such interest
to be payable with the first interest payment on the Registered Notes, and will
be deemed to have waived the right to receive interest on the Old Notes accrued
on and after the date of issuance of the Registered Notes. The financial terms
of the Registered Notes and the Old Notes will be identical in all other
respects.
The Registered Notes will bear interest at the same rate and on the same terms
as the Old Notes. This rate is 11 3/4% per annum, increasing to a rate of 12
1/4% per annum on August 7, 1998 in the event that a Sale of the Company (as
defined in the Indenture) has not occurred. Interest on the Registered Notes is
payable semi-annually on July 1 and January 1 (each, an "Interest Payment
Date"), commencing January 1, 1998. See "Description of the Registered Notes -
Principal, Maturity and Interest." The Registered Notes and the Old Notes are
redeemable at the option of the Company, in whole or in part, at the redemption
prices set forth in the Indenture plus accrued and unpaid interest thereon to
the date of redemption. Upon a Change of Control (as hereinafter defined), the
Company is required to offer to repurchase all outstanding Registered Notes and
Old Notes at 101% of the principal amount thereof plus accrued and unpaid
interest thereon to the date of repurchase. See "Description of the Registered
Notes - Repurchase Upon Change of Control."
The Registered Notes will be secured obligations of the Company, and will rank
pari passu in right of payment with all existing and future senior indebtedness,
including any remaining Old Notes, and senior to all senior subordinated and
subordinated indebtedness of the Company. The Registered Notes, and any
remaining Old Notes, will be secured by a first priority security interest in
certain of the fixed assets, intellectual property rights and other intangible
assets of the Company, now in existence or hereafter acquired, other than cash,
cash equivalents, accounts receivable and inventory, by a first priority pledge
of all the Capital Stock (as hereinafter defined) of all current and future
United States subsidiaries of the Company and by the Company's ownership of the
shares of capital stock of all current and future foreign subsidiaries of the
Company that issue share certificates (such security, collectively, the
"Collateral"). See "Description of the Registered Notes - Security."
Based on interpretations by the staff of the Commission set forth in no-action
letters issued to third parties, the Company believes the Registered Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by any holder thereof (other than
broker-dealers, as set forth below, and any such holder that is an "affiliate"
of the Company within the meaning of Rule 405 under the Securities Act) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Registered Notes are acquired in the ordinary
course of such holder's business and that such holder is not participating, does
not intend to participate and has no arrangement or understanding with any
person to participate, in the distribution of such Registered Notes. Any holder
who tenders in the Exchange Offer with the intention to participate, or for the
purpose of participating, in a distribution of the Registered Notes or who is an
affiliate of the Company may not rely upon such interpretations by the staff of
the Commission and, in the absence of an exemption therefrom, must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transaction, and any such secondary resale
transaction must be covered by an effective registration statement containing
the selling securityholder information required by Item 507 of Regulation S-K
under the Securities Act. Failure to comply with such requirements in such
instance may result in such holder incurring liabilities under the Securities
Act for which the holder is not indemnified by the Company.
Each broker-dealer (other than an affiliate of the Company) that receives
Registered Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Registered Notes. The Letter of Transmittal states that by so acknowledging
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of Registered Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The Company
has agreed that, for a period of 90 days after the Expiration Date, it will make
this Prospectus (as it may be amended or supplemented) available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
The Company believes that, as of the date of this Prospectus, none of the
registered Holders is an affiliate (as such term is defined in Rule 405 under
the Securities Act) of the Company. Prior to this Exchange Offer, there has been
no public market for the Old Notes.
Holders to whom this Exchange Offer is made have special registration rights
under the Registration Rights Agreement which rights are intended for holders of
unregistered securities. The registration rights of Holders who tender their Old
Notes in the
<PAGE> 3
Exchange Offer will terminate upon the exchange of such Old Notes for Registered
Notes. Holders who do not exchange their Old Notes for Registered Notes will not
have any further registration rights under the Registration Rights Agreement
unless such Holder is not permitted by law or policy of the Commission to
participate in the Exchange Offer or is a broker-dealer. See "The Exchange Offer
- - Termination of Certain Rights."
The Company will not receive any proceeds from this offering, but, pursuant to
the Registration Rights Agreement, the Company will bear certain offering
expenses. No underwriter is being utilized in connection with the Exchange
Offer.
The Company does not intend to list the Registered Notes on any national
securities exchange. While there are plans to make a market in the Registered
Notes, there can be no assurance that such a market will commence or continue or
that any active market in the Registered Notes will develop or be maintained. To
the extent that Old Notes are tendered and accepted in the Exchange Offer, a
Holder's ability to sell untendered Old Notes could be adversely affected.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT SURRENDERS
FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH THE
EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
This Prospectus contains and incorporates by reference certain statements that
are "forward-looking statements" within the meaning of Section 27A of the
Securities Act and Section 21E of the Exchange Act. All statements other than
statements of historical facts included in this Prospectus regarding the
Company's financial position are forward-looking statements. Those statements
include, among other things, the discussions of the Company's business strategy
and expectations concerning the Company's market position, future operations,
margins, profitability, liquidity and capital resources. Investors in the
Registered Notes offered hereby are cautioned that reliance on any
forward-looking statement involves risks and uncertainties, and that although
the Company believes that the assumptions on which the forward-looking
statements contained herein are based are reasonable, any of those assumptions
could prove to be inaccurate, and as a result, the forward-looking statements
based on those assumptions could prove to be incorrect. The uncertainties in
this regard include, but are not limited to, those identified in the risk
factors discussed below. In light of these and other uncertainties, the
inclusion of a forward-looking statement herein should not be regarded as a
representation by the Company that the Company's plans and objectives will be
achieved. All subsequent written and oral forward-looking statements
attributable to the Company, or persons acting on its behalf are expressly
qualified in their entirety by cautionary statements disclosed.
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained or
incorporated by reference in this prospectus and, if given or made, such
information or representations must not be relied upon as having been authorized
by the Company or the Exchange Agent. The delivery of this Prospectus does not
under any circumstances imply that there has been no change in the affairs of
the Company or its subsidiaries or that the information set forth herein is
correct as of any date subsequent to the date hereof.
The Registered Notes will be available in book-entry and certificated
form. The Company will issue Registered Notes to a Holder in the same form as
the Old Notes tendered by such Holder unless instructed otherwise in writing.
Upon acceptance for exchange of a Holder's Old Notes in global form, Registered
Notes will be issued in the form of one or more global notes which will be
deposited with, or on behalf of, the Depository (as defined herein) and
registered in the name of Cede & Co., its nominee. Beneficial interests in the
global note representing the Registered Notes will be shown on, and transfers
thereof will be effected through, records maintained by the Depository and its
participants. See "Description of the Registered Notes - Book Entry; Delivery
and Form." Upon acceptance for exchange of a Holder's Old Notes in definitive
form, Registered Notes will be issued in definitive form in the principal amount
of such Old Notes and registered in the name of the registered Holder of such
Old Notes (or in accordance with the "Special Exchange Instructions" in the
Letter of Transmittal) unless the Holder expressly requests in writing that
such newly issued Registered Notes be held in book-entry form at the
Depository. See "Description of the Registered Notes - Certificated
Securities."
<PAGE> 4
AVAILABLE INFORMATION
The Company has filed with the Commission the Registration Statement on
Form S-4 under the Securities Act, with respect to the Registered Notes. For
further information with respect to the Company and the Registered Notes,
reference is made to the Registration Statement and the exhibits and schedules
thereto. Statements contained in this Prospectus as to the contents of any
document filed with, or incorporated by reference in, the Registration Statement
are not necessarily complete, and in each instance reference is made to the copy
of such document filed with, or incorporated by reference in, the Registration
Statement, and each such statement is qualified in all respects by such
reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports and other information with the Commission.
Such information, the Registration Statement, and exhibits thereto, and reports
of the Company can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's Regional Offices located at the
Northeast Regional Office, Seven World Trade Center, Suite 1300, New York, New
York 10048 and the Midwest Regional Office, Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials can also
be obtained from the Public Reference Section of the Commission, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Commission maintains a Web site that contains reports, proxy and information
statements and other materials that are filed through the Commission's
Electronic Data Gathering, Analysis and Retrieval (EDGAR) system. This Web site
can be accessed at http://www.sec.gov. The reports and other information filed
by the Company also can be inspected at the offices of the National Association
of Securities Dealers, Inc. (the "NASD"), at 1735 K Street, N.W., Washington,
D.C. 20006.
As long as the Company is subject to such reporting and informational
requirements, it will furnish all reports and other information required thereby
to the Commission and, pursuant to the Indenture, will furnish copies of such
reports and other information to the Trustee. If the Company is not subject to
the reporting and informational requirements of the Exchange Act, the Indenture
requires it to provide the Trustee and the holders of Registered Notes and any
remaining Old Notes all quarterly and annual financial information that would be
required to be contained in a filing with the Commission on Form 10-Q and 10-K
if the Company were required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by the Company's
certified independent accountants.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents hereto filed or to be filed by the Company with the
Commission pursuant to the Exchange Act are incorporated herein by reference and
shall be deemed a part hereof:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996 (the "1996 Form 10-K");
(b) The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997;
(c) The Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997 (these latter two forms, the "1997 Forms 10-Q"); and
(d) All other reports filed by the Company pursuant to Section 13(a), 14
or 15(d) of the Exchange Act after this Prospectus and prior to the
termination of the offering of the securities offered hereby.
The 1996 Form 10-K and the 1997 Forms 10-Q have also been delivered to Holders
with this Prospectus and are attached to the Registration Statement as Exhibits
13.1, 13.2 and 13.3. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document that also is
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus. Subject to the foregoing, all information appearing in this
Prospectus is qualified in its entirety by the information appearing in the
documents incorporated herein by reference.
<PAGE> 5
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WITH RESPECT TO THE COMPANY
THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE
AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROSPECTUS IS DELIVERED,
UPON WRITTEN OR ORAL REQUEST TO THOMAS M. PATTON, ESQ., VICE PRESIDENT AND
GENERAL COUNSEL, WRIGHT MEDICAL TECHNOLOGY, INC., 5677 AIRLINE ROAD, ARLINGTON,
TENNESSEE 38002 OR BY TELEPHONE AT (901) 867- 9971. TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE MADE BY [DATE FIVE DAYS BEFORE
EXPIRATION DATE].
<PAGE> 6
PROSPECTUS SUMMARY
The following is a summary only and is qualified in its entirety by, and
should be read in conjunction with, the more detailed financial information and
the consolidated financial statements of the Company and the related notes
thereto appearing elsewhere or incorporated by reference in this Prospectus.
Prospective tenderors should carefully consider the information set forth under
"Cautionary Statement Regarding Forward-Looking Statements" and "Risk Factors."
THE COMPANY
Wright Medical Technology, Inc. is a leading designer, manufacturer and
distributor of orthopaedic implant devices and instrumentation for
reconstruction and fixation. The Company manufactures reconstructive devices
which replace impaired skeletal joints such as knees, hips, shoulders, and the
small joints of the elbow, hands and feet with mechanical substitutes. In
addition, the Company also offers correctional aids for spinal deformities,
trauma-induced fractures and sports-related injuries to the knee, shoulder and
extremities. The Company's strategy is to design and develop unique and
innovative products to solve clinical orthopaedic problems while diversifying
its product line beyond the traditional orthopaedic device market. Consistent
with this strategy, the Company recently launched its first biologic product,
OSTEOSET(TM) Bone Graft Substitute, a fully resorbable synthetic material used
in the aid of repairing bone defects, and also received approval in certain
countries for OSTEOSET-T(TM), an antibiotic laced version of the OSTEOSET(TM)
product.
The proportion of Americans over the age of 65 continues to grow. The aging
of the population is significant in that approximately 70% of all joint implants
are for patients over 65 years of age. Osteoarthritis (degenerative joint
disease) affects over 15 million people in the United States and is the primary
indication for orthopaedic implants. Management believes that as the population
ages, the incidence of osteoarthritis and other ailments will increase and, as a
consequence, the demand for orthopaedic implants and new solutions for medical
problems requiring orthopaedic applications should rise. The incidence of
rheumatoid arthritis, another major disease leading to the need for implants,
that currently affects over two million people, may also increase with the aging
of the population. Management believes that another factor affecting growth of
implant use is the increasingly active lifestyle of many older Americans. A more
active lifestyle not only accelerates the joint degeneration process, which
leads to pain and decreased mobility, but also increases the expectations that
people have of their bodies. As a result, the Company believes that the need for
new and innovative orthopaedic solutions will continue to grow.
Approximately 75% of the Company's revenue has been derived in the United
States over the past three years. The Company's principal domestic customers are
clinics and hospitals. The Company markets its products in the United States
through a network of approximately 188 sales personnel, including 47
distributors and 141 commissioned sales representatives, serving every state in
the country. The distributors, who are mostly independent contractors, and the
sales representatives sell the Company's orthopaedic implants at commission
rates that the Company believes are competitive with those paid by other
orthopaedic manufacturers.
The Company's principal foreign markets include France, Japan, Australia,
Belgium and Spain. The Company currently does not conduct any business directly
with foreign governments; such sales are made through the Company's established
distribution network of independent contractors. Management intends to continue
to expand its international distribution and marketing capabilities. The
Company's international marketing and distribution is accomplished primarily
through independent distributors in Japan, South and Central America, Australia,
Europe and Asia and through wholly-owned subsidiaries in France and Canada.
RECENT DEVELOPMENTS
The following events concerning the Company's operations have occurred
since June 30, 1997. On July 11, 1997, Mr. Gregory K. Butler was promoted to the
position of Vice President and Chief Financial Officer of the Company. Mr.
Butler previously served as Vice President and Controller of the Company from
1988 up until his appointment as Vice President and Chief Financial Officer. At
the most recent Board of Directors meeting held on August 11, 1997, the
resignation of two Directors was announced, Mr. Herbert W. Korthoff (formerly
Chairman) and Mr. Eric R. Hamburg. Mr. Kurt L. Kamm was elected Chairman. On
August 11, 1997 the Board of Directors authorized a 1997 contribution of 360,000
shares of Class A Common Stock to the Wright Medical Technology, Inc. Employee
Retirement Stock Plan. This will be a third quarter contribution resulting in
expense of $1,800,000. On August 19, 1997, the Company effected a reduction in
its work force of approximately 58 full-time employees and 18 temporary
employees. These reductions were part of an overall plan to increase
profitability and improve cash flow.
<PAGE> 7
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer........................................
The Old Notes were issued by the Company on August 7, 1997 (the
"Closing Date") and exchanged for the Company's 10 3/4% Series B
Senior Secured Notes (the "Series B Notes") pursuant to an exchange
offer and exit consent solicitation (together, the "First Exchange
Offer") by and among the Company and the Holders, all of whom
qualified as "accredited investors," as such term is defined in
Regulation D under the Securities Act, except for one Holder who was a
"qualified institutional buyer," as such term is defined in Rule 144A
under the Securities Act. Pursuant to the First Exchange Offer, the
Company and the Holders entered into the Registration Rights Agreement
which grants the Holders certain registration rights. This Exchange
Offer is intended to satisfy such registration rights. Any Holder who
does not elect to tender in the Exchange Offer will not be entitled to
any further registration rights under the Registration Rights
Agreement with respect to such notes, unless such Holder is not
permitted by law or policy of the SEC to participate in the Exchange
Offer or is a broker-dealer, in which case the Company may be required
to file a shelf registration statement with respect to such Holder's
Old Notes, subject to the satisfaction of certain conditions. As of
the date of this Prospectus, $85,000,000 in aggregate principal amount
of the Old Notes are outstanding, which is the maximum amount
authorized by the Indenture for both Old Notes and Registered Notes
combined and there were approximately 10 Holders of record of Old
Notes. See "The Exchange Offer - Purpose of the Exchange Offer."
The Exchange Offer..............................................................
An exchange of $1,000 principal amount of Registered Notes for each
$1,000 principal amount of outstanding Old Notes properly tendered for
exchange and accepted.
Expiration Date.................................................................
The Exchange Offer will expire at 5:00 p.m., New York City time, on
_________, 1997, the initial Expiration Date, unless the Exchange
Offer is extended by the Company in its sole discretion, but not
beyond ______________, 1997. See "The Exchange Offer - Procedures for
Tendering Old Notes" and "- Expiration Date; Extensions; Amendments."
Resale..........................................................................
Based on interpretations by the staff of the Commission set forth
in no-action letters issued to third parties, the Company believes the
Registered Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for resale, resold and otherwise transferred
by any holder thereof (other than broker-dealers, as set forth below,
and any such holder that is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities
Act, provided that such Registered Notes are acquired in the ordinary
course of such holder's business and that such holder is not
participating, does not intend to participate and has no arrangement
or understanding with any person to participate, in the distribution
of such Registered Notes. Any holder who tenders in the Exchange Offer
with the intention to participate, or for the purpose of
participating, in a distribution of the Registered Notes or who is an
affiliate of the Company may not rely upon such interpretations by the
staff of the Commission and, in the absence of an exemption therefrom,
must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any secondary resale
transaction, and any such secondary resale transaction must be covered
by an effective registration statement containing the selling
securityholder information required by Item 507 of Regulation S-K
under the Securities Act. Failure to comply with such requirements in
such instance may result in such holder incurring liabilities under
the Securities Act for which the holder is not indemnified by the
Company. Each broker-dealer (other than an affiliate of the Company)
that receives Registered Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Registered Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. The Company
has agreed that, for a period of 90 days after the Expiration Date, it
will make this Prospectus (as it may be amended or supplemented)
available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
<PAGE> 8
Conditions To The Exchange Offer................................................
The obligation of the Company to consummate the Exchange Offer is
conditional upon certain customary conditions which may be waived by
the Company. The Exchange Offer is not conditioned upon any minimum
principal amount of Old Notes being tendered for exchange. "The
Exchange Offer - Conditions to the Exchange Offer."
Procedures For Tendering Old Notes..............................................
Each Holder of Old Notes wishing to accept the Exchange Offer must
complete, sign and date the Letter of Transmittal, in accordance
with the instructions contained therein, and mail or otherwise deliver
such Letter of Transmittal, or such facsimile, together with such Old
Notes and any other required documentation to State Street Bank and
Trust Company as Exchange Agent, at the address set forth in the
Letter of Transmittal. By executing the Letter of Transmittal, each
Holder will represent to the Company that, among other things: (i) any
Old Notes tendered are held by such Holder free and clear of all
security interests, liens, restrictions, charges, encumbrances,
conditional sale agreements or other obligations relating to their
sale or transfer, and are not subject to any adverse claim when the
same are accepted by the Company; (ii) the Registered Notes acquired
pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Registered Notes,
whether or not such person is the holder; (iii) neither the holder of
Old Notes nor any such other person is participating, intends to
participate or has an arrangement or understanding with any person to
participate, in the distribution of such Registered Notes; (iv) if the
Holder is a broker-dealer, or is participating in the Exchange Offer
for the purposes of distributing the Registered Notes, he, she or it
must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale
transaction of the Registered Notes acquired by such person and cannot
rely on the position of the staff of the SEC set forth in no-action
letters, (v) neither the Holder nor any such other person is an
"affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or, if such holder is an "affiliate," that such Holder
will comply with the registration and prospectus delivery requirements
of the Securities Act to the extent applicable; and (vi) such person
acknowledges that the Company is relying on the representations,
warranties and covenants made by such person in acceptance of such Old
Notes tendered. See "The Exchange Offer - Procedures for Tendering Old
Notes."
Special Procedures for Beneficial Owners........................................
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender such Old Notes in the Exchange Offer should
contact such registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. If such beneficial
owner wishes to tender on his or her own behalf, such owner must,
prior to completing and executing the applicable Letter of Transmittal
and delivering his or her Old Notes, either make appropriate
arrangements to register ownership of the Old Notes in such owner's
name or obtain a properly completed bond power from the registered
holder. The transfer of registered ownership may take considerable
time and may not be able to be completed prior to the Expiration Date.
See "The Exchange Offer - Procedures for Tendering Old Notes."
Guaranteed Delivery Procedures..................................................
Holders of Old Notes who wish to tender their Old Notes and whose Old
Notes are not immediately available or who cannot deliver their Old
Notes, the Letter of Transmittal, or any other documentation required
by the Letter of Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Old Notes according to the
guaranteed delivery procedures set forth under "The Exchange Offer -
Guaranteed Delivery Procedures."
Acceptance Of The Old Notes And Delivery Of The Registered Notes..............
Subject to the satisfaction or waiver of the conditions to the
Exchange Offer, the Company will accept for exchange any and all Old
Notes that are properly tendered in the Exchange Offer prior to the
Expiration Date. The Registered Notes issued pursuant to the Exchange
Offer will be delivered promptly following the Expiration Date. See
"The Exchange Offer - Terms of the Exchange Offer." Any Old Notes not
accepted for exchange for any reason will be returned to the tendering
Holder as promptly as practicable after the expiration or termination
of the Exchange Offer. See "The Exchange Offer - Acceptance of Old
Notes for Exchange; Delivery of Registered Notes."
<PAGE> 9
Withdrawal And Revocation Rights................................................
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date. Tenders may not be
withdrawn at any time after 5:00 p.m., New York City time, on the
Expiration Date, unless the extended Exchange Offer contains new terms
materially adverse to the tendering Holders. See "The Exchange Offer -
Withdrawal of Tenders."
Certain Consequences To Holders Who Do Not Tender In The Exchange Offer.........
Subsequent transfers of the Old Notes will be limited to transactions
which qualify for a valid exemption from the registration requirements
of the Securities Act and the Old Notes will continue to carry a
restrictive legend. In addition, the trading market for unexchanged
Old Notes could become more limited due to the reduction in the
amount of the Old Notes outstanding after the Exchange Offer,
which may adversely affect the market price of such Old Notes.
Appraisal and Dissenters' Rights................................................
Holders of Old Notes do not have any appraisal or dissenters'
rights under the Delaware General Corporation Law or the Indenture in
connection with the Exchange Offer.
Certain Federal Income Tax Consequences.........................................
The exchange of Old Notes for Registered Notes pursuant to the
Exchange Offer will not be a taxable event for United States federal
income tax purposes, and the tax characteristics of the Registered
Notes (e.g., tax basis, holding period, issue price and issue date)
will be the same as those of the Old Notes Exchanged therefor. See
"Certain Federal Income Tax Consequences."
Exchange Agent..................................................................
State Street Bank and Trust Company is serving as the Exchange
Agent. The address and telephone number of the Exchange Agent are set
forth on the back cover page of the Prospectus.
<PAGE> 10
SUMMARY TERMS OF THE REGISTERED NOTES
The form and financial terms of the Registered Notes will be identical in
all respects to the form and financial terms of the Old Notes except that the
Registered Notes, unlike the Old Notes, will have been registered under the
Securities Act and, therefore, will not bear the legends restricting the
transfer thereof and (ii) holders of the Registered Notes will not be entitled
to certain rights that Holders of the Old Notes had under the Registration
Rights Agreement prior to the Exchange Offer. Registered Notes will evidence the
same indebtedness as to the Old Notes (which they replace) and will be issued
under, and be entitled to the benefits of, the Indenture governing the Old
Notes. See "Description of the Registered Notes."
Securities Offered..............................................................
$85 million aggregate principal amount of 11 3/4% Series D Senior
Secured Step-Up Notes due 2000. The total amount of Registered Notes
authorized under the Indenture is $85 million.
Maturity........................................................................
July 1, 2000.
Interest Rate...................................................................
11 3/4%, provided that the interest rate will increase to 12 1/4%
on August 7, 1998 if a Sale (as defined in the Indenture), including
a sale of all or substantially all of the assets of the Company or a
transaction whereby an unrelated person acquires a direct or an
indirect majority interest in the voting power of the Company by way
of merger, consolidation or similar transaction, has not occurred. See
"Description of the Registered Notes - Principal, Maturity and
Interest."
Accrued Interest................................................................
The Registered Notes will bear interest from their date of
issuance. Holders of Old Notes that are accepted for exchange will
receive, in cash, interest accrued and unpaid thereon to, but not
including, the date of issuance of the Registered Notes. Such interest
will be paid with the first interest payment of the Registered Notes.
Interest on the Old Notes accepted for exchange will cease to accrue
on the day prior to the issuance of the Registered Notes.
Interest Payment Dates..........................................................
July 1 and January 1, commencing January 1, 1998.
Optional Redemption.............................................................
The Registered Notes will be redeemable at the option of the
Company, in whole or in part, at the redemption prices set forth in
the Indenture plus accrued and unpaid interest thereon to the date of
redemption. See "Description of the Registered Notes - Optional
Redemption."
Change Of Control...............................................................
Upon a Change of Control, the Company is required to offer to
repurchase all outstanding Registered Notes at 101% of the principal
amount thereof plus accrued and unpaid interest thereon to the date of
repurchase. See "Description of the Registered Notes - Repurchase Upon
Change of Control."
Ranking And Security............................................................
The Registered Notes will be senior, secured obligations of the
Company, and will rank pari passu in right of payment with all
existing and future senior indebtedness, including any remaining Old
Notes and borrowings under the revolving credit facility permitted
under the Indenture (currently provided by Sanwa Business Credit
Corporation) (the "Revolving Credit Facility), and senior to all
subordinated indebtedness of the Company. The Registered Notes, and
any remaining Old Notes, will share a first priority security interest
in the Collateral. See "Description of the Registered Notes -
Security." The Registered Notes will be structurally subordinated to
all obligations of the Company's subsidiaries, including any trade
payables. As of June 30, 1997, the aggregate amount of outstanding
obligations of the Company to which the holders of Registered Notes
would be structurally subordinated, including trade payables, was
approximately $21.2 million (excludes the Old Notes payable under the
Indenture of $84.8 million, accrued preferred stock dividends on the
Company's Series A, Series B and Series C Preferred Stock of $20.1
million, borrowings against the Revolving Credit Facility of $15.8
million and accrued interest under the First Indenture of $4.6
million).
Certain Covenants...............................................................
The Indenture limits, among other things: (i) the issuance of
additional debt by the Company or any of its Subsidiaries; (ii) the
issuance of Disqualified Stock by the Company or any preferred stock
by any of its Subsidiaries; (iii) the payment of dividends on, and
redemption of, capital stock of the Company and certain other
restricted payments; (iv) asset sales; (v) consolidations, mergers or
transfers of all or substantially all of the Company's assets; (vi)
transactions with affiliates; and (vii) liens. The Indenture also
requires the Company to maintain a minimum consolidated net worth, as
defined therein, of $17.5 million in 1997 and $20 million in 1998 and
any fiscal year thereafter.
<PAGE> 11
Registration Rights.............................................................
The Registered Notes will be registered under the Securities Act
and unlike the Old Notes, will not be subject to certain restrictions
on transfer. See "Description of the Registered Notes." Pursuant to
the Registration Rights Agreement, the Company is obligated to use its
best efforts to have the Registration Statement of which this
Prospectus forms a part declared effective within 120 days after the
issue date of the Old Notes and, under certain circumstances, to file
a shelf registration statement with respect to certain of the Old
Notes. The Company will be obligated to pay liquidated damages to
holders of the Old Notes under certain circumstances if the Company is
not in compliance with its obligations under the Registration Rights
Agreement. See "The Exchange Offer - Purpose of the Exchange Offer"
and "Description of the Registered Notes - Registration Rights;
Liquidated Damages."
Market..........................................................................
There is no public market for the Registered Notes. The Company
does not intend to list the Registered Notes on any securities
exchange or to seek approval for quotation through any automated
quotation system. The Company has been advised by the Dealer Manager
of the First Exchange Offer that it intends to make a market in each
issue of the Registered Notes; however, it is not obligated to do so
and such market-making activities could be terminated at any time.
There can be no assurance that an active trading market for the
Registered Notes will develop. It is not expected that an active
trading market for the Old Notes will develop while they are subject
to restrictions on transfer.
SUMMARY COMBINED FINANCIAL AND OPERATING DATA
The following table sets forth selected consolidated financial data of the
Company for the six months ended June 30, 1996 and 1997, each of the fiscal
years ended December 31, 1994 through 1996 and for the six month period ended
December 31, 1993 as well as selected financial data of the Company's
predecessor for the year ended December 31, 1992 and the six month period ended
June 30, 1993. The selected consolidated financial data for the six month period
ended December 31, 1993 and for each of the years ended December 31, 1994
through 1996 have been derived from the Company's audited consolidated financial
statements. The selected financial data for the six month periods ended June 30,
1997 and 1996 have been derived from unaudited condensed, consolidated financial
statements and, in the opinion of the Company's management, includes all
adjustments (of a normal and recurring nature) which are necessary to present
fairly the data for such periods. The selected financial data for the year ended
December 31, 1992 and the six months ended June 30, 1993 have been derived from
unaudited condensed, consolidated financial statements related to the large
joint and small joint orthopaedic implant business of Dow Corning Corporation
("Dow Corning") and its subsidiary business Dow Corning Wright, the Company's
predecessor (the "Predecessor"). This data should be read in conjunction with,
and is qualified in its entirety by, the consolidated financial statements of
the Company and the related notes thereto, included elsewhere or incorporated by
reference herein. All dollar amounts shown are in thousands.
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------------------- -----------------------------------------------------------------
Year Ended Jan. 1 to July 1 to Years Ended Six Months Ended
Dec. 31, June 30, Dec. 31, December 31, June 30,
1992 1993 1993 1994 1995 1996 1996 1997
------------------------- -----------------------------------------------------------------
Operating Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 71,598 $ 35,033 $ 43,027 $ 95,763 $ 123,196 $ 121,868 $ 62,137 $ 64,383
Gross profit....................... 45,334 20,141 30,324 52,153 89,474 77,435 42,003 40,859
Operating income (loss)............ 10,414 1,849 1,863 (47,131) 6,303 (3,055) 2,647 (751)
Operating income (loss) per common
share.............................. NA NA (0.41) (6.10) (2.24) (3.90) (1.49) (1.94)
Parent Company Charges............. 2,187 1,133 -- -- -- -- -- --
Net interest expense............... NA NA 4,518 9,209 11,322 11,947 5,913 6,227
Net income (loss).................. 5,101 437 (2,572) (49,380) (6,492) (14,589) (2,998) (7,103)
Ratio of earnings to fixed
charges 1.......................... NA NA NA NA NA NA NA NA
<FN>
(1) Earnings were inadequate to cover fixed charges alone , and fixed charges,
preferred dividends and accretion of preferred stock, in aggregate, during the
presented periods. Certain of the preferred dividends are, at the option of the
Company, payable in kind.
</FN>
</TABLE>
<PAGE> 12
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------------------- --------------------------------------------------------------------
Year Ended Jan. 1 to July 1 to Years Ended Six Months Ended
Dec. 31, June 30, Dec. 31, December 31, June 30,
1992 1993 1993 1994 1995 1996 1996 1997
------------------------ ---------------------------------------------------------------------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total assets.................... $ 71,747 $ 72,691 $ 113,497 $ 154,551 $ 174,371 $ 166,326 $ 175,081 $ 163,686
Long-term debt.................. 243 108 84,605 84,983 84,462 84,668 84,634 84,707
Mandatorily Redeemable Series B
Preferred Stock................. NA NA -- 47,658 46,757 59,959 47,762 66,314
Redeemable Convertible Series C
Preferred Stock................. NA NA -- -- 20,548 24,995 22,772 27,218
Stockholders'investment......... -- -- 11,602 (25,502) (25,177) (58,506) (37,111) (76,358)
Parent company investment....... 64,543 68,029 NA NA NA NA NA NA
</TABLE>
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the
Registered Notes offered pursuant to the Exchange Offer and has agreed to pay
the expenses of the Exchange Offer. In consideration for issuing the Registered
Notes as contemplated in this Prospectus, the Company will receive, in exchange,
Old Notes equal to the principal amount of such Registered Notes. The Old Notes
surrendered in exchange for the Registered Notes will be retired and canceled.
Accordingly, issuance of the Registered Notes pursuant to the Exchange Offer
will not result in any increase in the outstanding debt of the Company, on a
consolidated basis.
RISK FACTORS
Prospective investors should carefully consider certain factors
relating to an investment in the Registered Notes. See "Cautionary Statement
Regarding Forward-Looking Statements" and "Risk Factors" beginning on page 13.
<PAGE> 13
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS
This document contains forecasts and projections that are or may
be forward-looking statements within the meaning of Section 4 of the Securities
Act and Section 21E of the Exchange Act, and are based on management's current
expectations of the Company's near-term results, derived from current
information available pertaining to the Company. In addition, certain documents
filed with the Commission by the Company, attached hereto as exhibits, and
incorporated herein by reference, are or may constitute forward-looking
statements. The words "believe," "expect," "anticipate," "may," and similar
expressions identify forward-looking statements. Readers are cautioned not to
place undue reliance on these forward-looking statements which speak only as of
their dates. Such statements may include, but are not limited to, those
regarding the development of the Company's businesses and products, the markets
for the Company's products, anticipated capital expenditures, regulatory reform
and the effects of the Exchange Offer, and other statements contained or
incorporated by reference herein regarding matters that are not historical
facts. Because such statements are subject to risks and uncertainties, actual
results may differ materially from those expressed or implied by such
forward-looking statements. Factors that could cause actual results to differ
materially include, but are not limited to, those discussed under "Risk
Factors."
RISK FACTORS
Investment in the Registered Notes involves a high degree of risk.
In considering the Exchange Offer, eligible Holders should give careful
consideration to the specific factors set forth below, as well as the other
information set forth in this document and in the Company's 1996 Form 10-K and
1997 Forms 10-Q which are incorporated by reference herein. The considerations
listed below are not intended to represent a complete list of the general or
specific risks that may affect Holders who tender or fail to tender in the
Exchange Offer or that relate to the Company. It should be recognized that other
risks may be significant, now or in the future, and the risks set forth below
may affect tendering or non-tendering Holders to a greater extent than
indicated.
Certain Considerations Related to The Company's Business and Operations
Significant Leverage
The Company is, and will continue to be, highly leveraged. The Company's
leverage poses significant risks to the holders of the Registered Notes. The
Company has incurred substantial indebtedness as a result of its acquisitions
and new product research and development, and upon the issuance of the
Registered Notes will continue to have substantial indebtedness. At June 30,
1997, the Company had total outstanding indebtedness of $100.8 million, and
total redeemable preferred stock of $93.5 million. Earnings were inadequate to
cover fixed charges, preferred dividends and accretion of preferred stock by
approximately $61.7 million, $26.3 million, $35.3 million and $17.8 million, for
the years ended December 31, 1994, December 31, 1995 and December 31, 1996 and
for the six month period ended June 30, 1997, respectively. The Company's high
level of debt will have several important effects on its future operations,
including the following: (i) a substantial portion of the Company's cash flow
from operations must be dedicated to the payment of interest on its
indebtedness; (ii) the financial covenants contained in the Revolving Credit
Facility and in the Indenture will require the Company to meet certain financial
tests and other restrictions which substantially limit its ability to borrow
additional funds or to dispose of assets; and (iii) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired. In addition, the Company's ability to meet its debt service
obligations and to reduce its total debt will be dependent upon the Company's
future performance, which will be subject to general economic conditions and to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control. There can be no assurance that the
Company's future performance will not be adversely affected by such economic
conditions and financial, business and other factors.
Uncertainty of Ability to Develop, Manufacture and Market New Products
Some of the Company's products are currently under development or have not
yet been approved by the FDA (or other applicable foreign regulatory bodies).
The Company can give no assurance that any of these products will in fact be
successfully developed, that the necessary FDA or foreign approvals will be
received or that, if developed and approved, a market for these products will
exist. In order for the Company to remain competitive and to retain market
share, it must continually develop new products as well as improve its existing
ones. Accordingly, the Company must devote substantial resources to research and
development. Although the Company intends to devote such resources, there can be
no assurance that the Company will be able to enhance its existing products so
that such products remain competitive or avoid obsolescence, introduce or
acquire new products and maintain or expand its market share, gain market
acceptance of its products or be able to develop or acquire additional products.
Limited market growth or failure of the Company's products to achieve market
acceptance would have a material adverse effect on the business, financial
condition and results of operations of the Company.
<PAGE> 14
Expense and Uncertainty of Compliance with Governmental Regulation
The Company's products and manufacturing operations are subject to
regulation by the FDA (or other applicable foreign regulatory bodies), the
Occupational Safety and Health Administration ("OSHA") and the Environmental
Protection Agency ("EPA") and, in some jurisdictions, by similar state and
foreign governmental authorities. The process of obtaining regulatory approval
for the sale and marketing of new products is time-consuming and expensive, and
there can be no assurance that such approvals will be granted or that regulatory
review will not involve delays adversely affecting the marketing and sale of
products. In addition, regulatory approval of products can subsequently be
withdrawn due to failure to comply with regulatory standards or the occurrence
of unforeseen problems following initial marketing. The FDA (and other
applicable foreign regulatory bodies) have the power to ban products
manufactured or distributed by the Company as well as to request the recall,
repair, or replacement of or refund for such products. Failure to obtain the
necessary regulatory approvals for new products and/or revisions of existing
products on a timely basis would likely have a material adverse effect on the
Company.
The Company believes that it is in substantial compliance with FDA, OSHA,
EPA and related state regulatory requirements; however, there can be no
assurance that the Company's belief is correct or that it will remain in such
compliance in the future.
Limitations on Third Party Reimbursement; Price Controls
The cost of medical care is funded, in substantial part, by government
insurance programs, such as Medicare and Medicaid in the United States, and
private and corporate health insurance plans. The Company's success is dependent
upon the ability of the Company's customers, principally hospitals and clinics,
to obtain adequate reimbursement from such third-party payers for purchasing the
Company's products. Third-party payers may deny reimbursement if they determine
that the prescribed device has not received appropriate FDA or other
governmental regulatory clearances, is not used in accordance with
cost-effective treatment methods as determined by the payer, or is experimental,
unnecessary or inappropriate. Third-party payers are increasingly challenging
the prices charged for medical products and services. Also, the trend towards
managed health care in the United States and the concurrent growth of HMOs,
which could control or significantly influence the purchase of health care
services and products, as well as legislative proposals to reform health care,
may all result in lower prices for the Company's products. The cost containment
measures that health care providers are instituting in the face of the
uncertainty about health care reform could have material adverse effects on the
Company's business, financial condition and results of operations.
The advent of managed care, in particular, has resulted in greater
attention to the tradeoff between patient need and product cost, so-called
demand matching, where patients are evaluated as to age, need for mobility and
other parameters and are then matched with an orthopaedic product that is cost
effective in light of such evaluation. One result of demand matching may be a
shift toward less expensive products (such as cemented implants), and any such
shift in product mix could have an impact on the Company's operating results
with respect to knee and, to a lesser extent, hip replacement systems. A further
result of managed care and the related pressure on costs has been the advent of
hospital buying groups, national purchasing contracts and various bidding
procedures imposed by hospitals or buying groups. Such buying groups often enter
into extensive preferred supplier arrangements with one or more manufacturers of
orthopaedic or other medical products in return for price discounts. The extent
to which buying groups are able to obtain compliance by their constituent
organizations with such preferred supplier agreements varies considerably
depending on the particular buying groups and could affect the Company's
operations.
Outside the United States, the success of the Company's products is
dependent, in part, upon the availability of reimbursement and health care
payment systems. These reimbursement and health care payment systems vary
significantly by country, and include both government sponsored health care and
private insurance plans. Several governments (most notably Germany, France and
Japan) have recently attempted to dramatically reshape reimbursement policies
affecting medical devices.
The ability of physicians, hospitals and other users of medical device
products to obtain appropriate reimbursement from governmental and private
third-party payers for procedures in which the Company's products are used is
critical to the success of all medical device manufacturers around the world,
including the Company. Failure by such users of the Company's products to obtain
sufficient reimbursement from third-party payers for procedures in which the
Company's products are used or adverse changes in governmental and private
payers' policies toward reimbursement for such procedures could have a material
adverse effect on the Company's business, financial condition and results of
operations.
Adverse Effect of Proposed Health Care Reform Legislation
Reforms to the Medicare program were recently enacted by Congress and
signed into law by the President and are due to take affect in October 1997.
Material reforms to the Medicare program could have an adverse impact on the
Company. At present, it is uncertain how the changes to the Medicare program
will effect the Company in detail. However, the budgetary resolution agreed upon
by Congress and the President, and enacted by the former, calls for cutting the
growth of the Medicare program by approximately $115 billion over five years.
Further, the new law also expands managed care options, a change which the
Congressional Budget Office estimates will lead a quarter of Medicare
beneficiaries to opt for managed
<PAGE> 15
care over their current fee-for-service plans by the year 2002. Although the
Company believes it is in a better position than many others to respond to the
challenges which it will face, there can be no assurance that Medicare, Medicaid
and other health care reform and cost cutting measures taken by the federal and
state governments will not have a material adverse impact on the business of the
Company.
Certain Assumptions about the Market
Management of the Company believes that certain demographic trends,
including the aging of the general population and the increasingly active
lifestyles of older Americans, will continue and that these trends will increase
the need for new and innovative orthopaedic solutions to address joint
degeneration, osteoporosis and other ailments associated with aging. Should
these assumptions prove incorrect, or should non-surgical treatments for these
ailments gain acceptance, or should the trends fail to stimulate demand for the
Company's implant products, results could materially differ from management's
projections.
Significant Competition in the Implant Industry
The markets for the Company's products are highly competitive. The failure
of the Company to meet the prices offered by its competitors, or offer products
which either contain features similar to or more desirable than those products
offered by its competitors or which are perceived as reliable by consumers could
have a material adverse effect on the business, financial condition and results
of operations of the Company. The orthopaedic implant industry is highly
competitive. Several large companies have substantially more resources than the
Company. Competitive factors include service, product design, physician
recognition and price. The Company believes its future operations will depend
upon its ability to be responsive to the needs of its customers and its
continued improvement and development of products. The Company believes the
majority of the market share for the Company's products is held by Biomet, Inc.,
Zimmer Inc. (a subsidiary of the Bristol-Myers Squibb Company), Johnson &
Johnson Professional, Inc. (a subsidiary of Johnson & Johnson), Howmedica, Inc.
(a subsidiary of Pfizer, Inc.), DePuy (a subsidiary of Corange), Smith & Nephew
Orthopedics, Inc. (a subsidiary of Smith & Nephew Ltd.), Osteonics, Inc. (a
subsidiary of Stryker Corporation), Sofamer Danek Group, Inc. and Sulzer
Orthopedics, Inc. (a subsidiary of Sulzermedica).
International Sales and Compliance with Foreign Government Regulation
The Company's international sales revenue represented approximately 25% of
the Company's overall sales for 1996. Management intends to continue to expand
its international distribution and marketing capabilities. A number of risks are
inherent in international transactions. International sales and operations may
be limited or disrupted by the imposition of government controls, export license
requirements, political instability, trade restrictions, changes in tariffs or
difficulties in staffing and managing international operations. Additionally,
the Company's international business, financial condition and results of
operations may be adversely affected by fluctuations in currency exchange rates
as well as increases in duty rates. Further, the Company is required to obtain
various licenses and permits from foreign governments in order to market its
products in foreign markets and, at times, comply with product standards that
differ from those applied in the United States. For instance, the European Union
annually conducts an on-site inspection of the Company's facilities in order to
renew ISO 9001 certification. No assurance can be given that the Company or its
distributors will be granted foreign-required licenses and permits in new
markets or maintain those already obtained in current markets. Foreign
government regulatory and certification authorities may delay or prevent product
introductions, require additional studies or tests prior to product
introduction, require product modifications or recalls, or mandate cessation of
production and marketing of existing products.
Patent Protection
The Company considers certain of its patents to be significant to its
business. There can be no assurance, however, that any patent will provide
adequate protection for the technology or product its covers. In addition, the
process of obtaining and protecting patents, and defending allegations of patent
infringement, can be extremely costly and time-consuming.
Existence of Significant Patent Litigation
Substantial patent litigation among competitors occurs regularly in the
medical device industry. The Company is the subject of two patent infringement
suits brought by affiliates of Johnson & Johnson, Inc., one Mitek Surgical
Products, Inc. and the other Joint Medical Products, Inc., alleging that the
Company infringed their patents. The Company also recently received a complaint
from Osteonics, Inc., a division of Stryker Corporation, alleging infringement
of one of that Company's hip device patenets. While the Company and its counsel
believe that it has meritorious defenses to these actions, there is no assurance
that the Company will be successful, and in the event of adverse decisions, the
Company could be materially adversely affected.
<PAGE> 16
Product Liability
Although the Company currently maintains product liability insurance
coverage which it believes to be adequate for the continued operation of its
business, such insurance may become difficult to obtain or unobtainable in the
future on terms acceptable to the Company. In addition, the amount and scope of
current or future coverage may be inadequate to protect the Company in the event
of successful product liability, environmental, or other actions brought against
the Company. Currently, there is substantial product liability litigation
involving silicone gel when used in breast implants. The Company does not
manufacture or sell silicone gel products and the Company is not a party to any
such litigation; however, there can be no assurance that litigation will not
occur in the future involving the Company's silicone elastomer products. Most of
the Company products used to replace the small joints of the hands and the feet
and one of the Company's knee implants utilizes solid silicone elastomers. Due
to the solid form characteristics of these implants and their placement in the
body, as well as their successful use in patients for many years, management
believes that these products should not be subject to the litigation affecting
silicone gel, although there is no assurance that management is correct.
In addition, Dow Corning agreed to indemnify the Company against all
liability for all large joint products manufactured before, and all small joint
products sold before, June 30, 1993, when the Company acquired substantially all
the assets of the large joint orthopaedic implant business of Dow Corning. Dow
Corning has since filed for bankruptcy, notified the Company that it cannot
defend the Company in such matters until it receives direction from the
Bankruptcy Court and filed a plan which did not indicate whether Dow Corning
would affirm or reject the indemnification agreements. Accordingly, there
CONFIDENTIAL can be no assurance that Dow Corning will indemnify the Company on
any claims in the future. Although the Company does not maintain insurance for
claims arising on products sold by Dow Corning, management does not believe the
outcome of any of these matters will have a material adverse effect on the
Company's financial position or results of operations.
Control by Certain Stockholders
As of June 30, 1997, Kidd Kamm Equity Partners, L.P. ("KKEP") beneficially
owned approximately 58.2% of the outstanding Common Stock of the Company, and
approximately 64.6% of the outstanding Series A Preferred Stock of the Company.
Pursuant to the Stockholders' Agreement among the Company, KKEP and the
principal stockholders of the Company, dated June 30, 1993 (the "Principal
Stockholders' Agreement"), at any time, KKEP has the ability to approve certain
fundamental corporate transactions, including the sale of the Company.
Herbert W. Korthoff, the Company's former Chairman and Chief Executive
Officer, beneficially owned, as of June 30, 1997 (including shares owned by his
wife, with respect to which he disclaims beneficial ownership) approximately
19.5% of the outstanding Common Stock (assuming the exercise of the Warrants,
but excluding presently outstanding stock options which are not currently
exercisable) and approximately 21.7% of the outstanding Series A Preferred Stock
of the Company. Pursuant to the Principal Stockholders' Agreement, KKEP and Mr.
Korthoff together have the ability to approve certain fundamental corporate
transactions, including the sale of the Company.
In addition, KKEP and Mr. Korthoff each have the right to nominate three of
the seven members of the Company's Board of Directors pursuant to a letter
agreement between KKEP and Mr. Korthoff.
Limited Operating History; History of Losses
Since its inception in July 1993, the Company's strategy has been to attain
growth aggressively through new product development and acquisition of new
technologies through license agreements, joint ventures and purchases of other
companies in the orthopaedic field. The Company's prospects must be considered
in light of the numerous risks, especially problems and difficulties frequently
encountered in connection with the acquisition of businesses, senior management
integration, government regulation and the competitive environment in which the
Company operates. From its commencement of operations through fiscal 1996, the
Company has incurred operating losses each fiscal year. At June 30, 1997, the
Company had a retained deficit of $129.7 million. In addition, the Company
expects to incur continued product development expenditures for the foreseeable
future. There can be no assurance that the Company will generate profits or that
the Company's existing capital resources and any funds provided by future
operations will be sufficient to fund the Company's needs. Various factors,
including delays in new product development and introductions, new product
introductions by competitors, price competition, delays in regulatory approvals,
delays in the expansion and addition of sales and distribution channels, as well
as the Company's ability to accurately forecast and manage its working capital
requirements could adversely affect the Company's operations and profitability.
Raw Materials
The Company has not experienced a shortage of raw materials and does not
anticipate a shortage in the future. In light of certain business' increasing
reluctance to offer raw materials intended for medical devices because of
product liability concerns, there can be no assurance of continued supply or
that finding an alternative source would not cause a delay in the Company's
manufacturing process.
<PAGE> 17
Certain Considerations Related to the Registered Notes or the Exchange Offer
Less Than Full Security for the Registered Notes
After the Exchange Offer, the Registered Notes and any remaining Old Notes
will share a first priority security interest in the Collateral. In the event of
a default on the Registered Notes, or the Old Notes, it is possible that the
proceeds from the sale of the Collateral securing such notes would not be
sufficient to satisfy the Company's obligations under such notes in full. The
amount to be received upon such a sale would be dependent upon numerous factors
including the condition, age and useful life of the Collateral at the time of
such sale, the timing and the manner of the sale, as well as possible
technological obsolescence of certain types of equipment constituting the
Collateral at the time of sale. In addition, except upon and during the
continuance of a Default or Event of Default, as defined in, and under the
Indenture, the Trustee is required to release its lien(s) on any property or
assets proposed to be sold by the Company, further reducing the sufficiency of
the Collateral securing the Registered Notes. See "Description of the Registered
Notes - Security."
Absence of Public Market and Possible Price Volatility
Depending on the amount of Registered Notes outstanding after the Exchange
Offer, the trading market for the Registered Notes may be more limited than the
trading market for the Old Notes prior to the Exchange Offer, which might
adversely affect the liquidity and market price of such Registered Notes. The
Company does not plan to list the Registered Notes on any national securities
exchange or interdealer quotation system sponsored by a national securities
association. Although the Old Notes are not so listed, there is currently a
limited trading market for the Old Notes. The Registered Notes are new
securities for which there is currently no market; however, they, unlike the Old
Notes, will be registered pursuant to the Securities Act. There can be no
assurance that an active trading market for the Registered Notes will develop
or, if such market develops, as to the liquidity or sustainability of any such
market. The market price of the Registered Notes could be subject to significant
fluctuations in response to various factors such as quarterly or cyclical
variations in the Company's financial results, future announcements concerning
the Company or its competitors, and government regulation and developments
affecting the orthopaedic implant industry generally. In addition, the capital
markets in recent years have experienced extreme price and volume fluctuations
that often have been unrelated or disproportionate to the operating performance
of companies. Such fluctuations may adversely affect the market price of the
Registered Notes. See "Description of the Registered Notes.
Repurchase of Registered Notes Upon Change of Control
Upon a Change of Control, the Company is required to offer to repurchase
all outstanding Registered Notes and any remaining Old Notes at 101% of the
principal amount thereof plus accrued and unpaid interest thereon to the date of
repurchase. The source of funds for any such repurchase will be the Company's
available cash or cash generated from operating or other sources, including
borrowings, sales of assets, sales of equity or funds provided by a new
controlling person. However, there can be no assurance that sufficient funds
will be available at the time of any Change of Control to make any required
repurchases. See "Description of the Registered Notes - Repurchase Upon Change
of Control."
Failure to Properly Tender Old Notes
The Registered Notes will be issued in exchange for Old Notes only after
timely receipt by the Exchange Agent of such Old Notes, a properly completed and
duly executed Letter of Transmittal and all other required documentation.
Therefore, Holders of Old Notes desiring to tender such Old Notes in exchange
for Registered Notes should allow sufficient time to ensure timely delivery.
Neither the Exchange Agent nor the Company is under any duty to give
notification of any defects or irregularities with respect to tenders of Old
Notes for exchange. See "The Exchange Offer - Procedures for Tendering Old
Notes."
Certain Considerations Related to Holders Who Do Not Tender in the Exchange
Offer
Liquidity of the Market for Old Notes
The untendered Old Notes will not be registered under the Securities Act.
As a consequence, the Company will prohibit any transfer of such securities, and
has placed a stop transfer order with the Transfer Agent to prohibit any
transfer of such securities unless the transaction qualifies for a valid
exemption from the registration requirements of the Securities Act. The
liquidity of the market for the Old Notes will be adversely affected upon
consummation of the Exchange Offer, which will make the market for untendered
Old Notes even more limited. See "The Exchange Offer - Certain Consequences to
Holders Not Tendering in the Exchange Offer."
<PAGE> 18
THE EXCHANGE OFFER
Purpose of the Exchange Offer
The Old Notes were issued pursuant to the First Exchange Offer by the
Company on August 7, 1997 to holders of the Company's Series B Notes who
qualified as "accredited investors" as such term is defined in Regulation D
under the Securities Act as well as one "qualified institutional buyer" as such
term is defined in Rule 144A under the Securities Act pursuant to an Offering
Circular, dated July 9, 1997 (the "Offering Circular"). As described in the
Offering Circular, the Company and the Holders entered into the Registration
Rights Agreement as of August 7, 1997. Pursuant to the Registration Rights
Agreement, the Company agreed to (i) file with the Commission the Registration
Statement under the Securities Act with respect to the Registered Notes on or
prior to 30 days after the Closing Date, (ii) use its reasonable best efforts to
cause such Registration Statement to become effective under the Securities Act
on or prior to 90 days after the Closing Date, (iii) use its reasonable best
efforts to keep the Registration Statement effective until consummation of the
Exchange Offer pursuant to its terms, and (iv) use its reasonable best efforts
to consummate the Exchange Offer not later than 120 days following the Closing
Date unless the Exchange Offer would not be permitted by a policy of the SEC. A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The Registration
Statement is intended to satisfy the Company's obligations under the
Registration Rights Agreement. However, if any Holder of Transfer Restricted
Securities (as defined below) shall notify the Company that it is either not
permitted by law or any policy of the Commission to participate in the Exchange
Offer or is a broker-dealer as defined under the Exchange Act, the Company is
required to file with the Commission a shelf registration statement (the "Shelf
Registration Statement") to cover resales of Transfer Restricted Securities by
such holders thereof who satisfy certain conditions relating to the provision of
information in connection with the Shelf Registration Statement. "Transfer
Restricted Securities" means each Old Note until (i) the date on which such Old
Note has been exchanged for a Registered Note in the Exchange Offer, (ii) the
date on which such Old Note has been effectively registered under the Securities
Act and disposed of in accordance with the Shelf Registration Statement or (iii)
the date on which such Old Note is distributed to the public pursuant to Rule
144 under the Securities Act.
Upon the consummation of the Exchange Offer, Holders of Old Notes who
exchange such Old Notes for Registered Notes will not have any further
registration rights. Any Holder of Old Notes who does not exchange such Old
Notes for Registered Notes will not have any further registration rights unless
such holder is not permitted by law or any policy of the Commission to
participate in the Exchange Offer. The Old Notes will continue to be subject to
certain restrictions on transfer. Accordingly, the liquidity of the market for
the Old Notes could be adversely affected. In the event that the Company fails
to comply with the registration requirements set forth in the Registration
Rights Agreement, the Company will be required to pay certain liquidated damages
to Holders of the Old Notes. See "Termination of Certain Rights" and
"Description of the Registered Notes - Registration Rights; Liquidated Damages."
Resales of the Registered Notes
With respect to resales of Registered Notes, based on an interpretation by
the staff of the Commission set forth in no- action letters issued to third
parties, the Company believes that a Holder (other than (i) a broker-dealer who
purchases such Registered Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act) who exchanges Old Notes for Registered Notes in the ordinary
course of business and who is not participating, does not intend to participate
and has no arrangement or understanding with any person to participate, in the
distribution of the Registered Notes, will be allowed to resell the Registered
Notes to the public without further registration under the Securities Act and
without delivering to the purchasers of the Registered Notes a prospectus that
satisfies the requirements of Section 10 thereof. However, if any Holder
acquires Registered Notes in the Exchange Offer for the purpose of distributing
or participating in a distribution of the Registered Notes, such Holder cannot
rely on the position of the staff of the Commission enunciated in Exxon Capital
Holdings Corporation (available April 13, 1989) or similar no-action letters or
any similar interpretive letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction, unless an exemption from registration is otherwise
available.
As contemplated by the above no-action letters and the Registration Rights
Agreement, each Holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the Registered Notes are to be
acquired by the Holder and each beneficial owner in the ordinary course of
business, (ii) the Holder and each beneficial owner are not participating, do
not intend to participate and have no arrangement or understanding with any
person to participate, in the distribution of the Registered Notes, (iii)
neither the Holder nor any such other person is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act, and (iii) that if any
person is participating in the Exchange Offer for the purpose of distributing
the Registered Notes or is a broker-dealer acquiring the Registered Notes for
its own account, or is an "affiliate" of the Company, he, she or it cannot rely
on the above no-action letters and must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale of the Registered Notes. See "Representations, Warranties and
Covenants of Holders."
<PAGE> 19
Terms of the Exchange Offer
The Company hereby offers, upon the terms and subject to the conditions set
forth herein and in the accompanying Letter of Transmittal, to exchange $1,000
in principal amount of Registered Notes for each $1,000 in principal amount of
its outstanding Old Notes, validly tendered and not withdrawn prior to 5:00
p.m., New York City time, on the Expiration Date. Registered Notes will be
issued only in integral multiples of $1,000 to each tendering Holder whose Old
Notes are accepted in the Exchange Offer. The Company will accept any Old Notes
validly tendered and not withdrawn prior to 5:00 p.m., New York City time, on
the Expiration Date. Old Notes that are not accepted for exchange will be
returned as promptly as practicable after the Expiration Date. Holders may
tender all or a portion of their Old Notes pursuant to the Exchange Offer.
Accrued and unpaid interest on the Old Notes accepted for exchange for the
period to, but not including, the Exchange Date will be paid to the holders of
Registered Notes on the first Interest Payment Date (as defined in "Description
of the Notes -- Principal, Maturity and Interest"). Holders whose Old Notes are
accepted for exchange will be deemed to have waived the right to receive any
payment in respect of interest on the Old Notes accrued on and after the
Exchange Date.
There will be no fixed record date for determining the registered holders
who are eligible to participate in this Exchange Offer and to whom this
Prospectus and the Letter of Transmittal will be mailed initially. As of the
date of this Prospectus, $85 million aggregate principal amount of the Old Notes
were outstanding and there were approximately 10 Holders of record. Only a
Holder of Old Notes (or such holder's legal representative or attorney-in-fact)
as reflected in the records of the Trustee may participate in the Exchange
Offer. The Company believes that, as of the date of this Prospectus, none of
such Holders is an affiliate (as defined in Rule 405 under the Securities Act)
of the Company.
Holders of Old Notes do not have any appraisal or dissenters' rights under
the General Corporation Law of the State of Delaware or the Indenture in
connection with the Exchange Offer.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. If any tendered Old Notes are not accepted for exchange because
of an invalid tender, or the occurrence of certain other events set forth herein
or otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering Holder thereof as promptly as practicable
after the Expiration Date.
Tendering Holders will not be required to pay brokerage commissions or fees
or, subject to the instructions of the Letter of Transmittal, transfer taxes
with respect to the Exchange Offer. The Company will pay all charges and
expenses, other than certain taxes which may be levied in the event of any
transfer of ownership, in connection with the Exchange Offer. See "- Fees and
Expenses" below.
Expiration Date; Extensions; Amendments
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
____________, 1997, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended, but not beyond
____________________, 1997.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and give notice thereof to the
Trustee, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date.
The Company expressly reserves the rights in its sole discretion, subject
to applicable law, (i) to delay accepting any Old Notes, (ii) to extend the
Exchange Offer, and if any of the conditions set forth below under "Conditions
of the Exchange Offer" shall not have been satisfied or waived, (iii) to
terminate the Exchange Offer by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, and (iv) to waive any condition
to the Exchange Offer. In addition, the Company reserves the right, in its sole
discretion, to amend the terms of the Exchange Offer in any manner. Any such
delay in acceptance, extension, termination or amendment will be followed as
promptly as practicable by oral or written notice thereof to the Trustee and
notification of the Exchange Agent and Dealer Manager thereof. In the case of
any extension, notification will be issued prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date of
the Exchange Offer in a manner reasonably calculated to inform the Holders.
Without limiting the manner in which the Company may choose to make any public
notification or announcement, the Company shall have no obligations to publish,
advertise or otherwise communicate any such notification or announcement other
than as required by law. In the event of any extension of the Exchange Offer,
all Old Notes tendered pursuant to the Exchange Offer and not subsequently
withdrawn, will remain subject to, and Holders will continue to have withdrawal
rights until the expiration of, the Exchange Offer.
If the Exchange Offer is amended in a manner determined by the Company to
constitute a material change, the Company will promptly disclose such amendments
by means of an Prospectus supplement that will be distributed to the registered
Holders of Old Notes, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
amendment and the manner of disclosure to the registered Holders, if the
Exchange Offer would otherwise expire during such five to ten business day
period.
<PAGE> 20
If, prior to the Expiration Date, the Exchange Offer is amended in a manner
determined by the Company to constitute a change that would be materially
adverse to the Holders, the Exchange Offer will remain open at least ten
business days from the date that the Company first gives notice of such
amendment. The Company does not presently intend to amend the Exchange Offer.
Without limiting the manner in which the Company may choose to inform the
Holders of any delay, extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such action, other than to timely notify the Holders in a manner
consistent with the applicable requirements of the Securities Act.
Interest on the Old Notes
Interest on the Old Notes accepted for exchange will cease to accrue on the
day prior to the Exchange Date. Holders of Old Notes that are accepted for
exchange will receive, in cash, interest accrued and unpaid thereon to, but not
including, the date of issuance of the Registered Notes. Such interest will be
paid with the first interest payment of the Registered Notes. See "Description
of the Registered Notes - Principal, Maturity and Interest."
Procedures for Tendering Old Notes
IN ORDER FOR A TENDERING HOLDER TO BE ASSURED OF PARTICIPATING IN THE
EXCHANGE OFFER, SUCH HOLDER MUST TENDER OLD NOTES IN ACCORDANCE WITH THE
PROCEDURES SET FORTH HEREIN AND IN THE LETTER OF TRANSMITTAL PRIOR TO THE
EXPIRATION DATE. THE LETTER OF TRANSMITTAL AND OLD NOTES MUST BE SENT ONLY TO
THE EXCHANGE AGENT. DO NOT SEND THE LETTER OF TRANSMITTAL OR OLD NOTES TO THE
COMPANY OR THE TRUSTEE UNDER THE INDENTURE.
The tender by a Holder as set forth below and the acceptance thereof by the
Company will constitute a binding agreement between the tendering Holder and the
Company upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal. Except as set forth
below, a Holder who wishes to tender Old Notes for exchange pursuant to the
Exchange Offer must transmit such Old Notes, together with a properly completed
and duly executed Letter of Transmittal, and all other required documentation,
or facsimiles thereof, to the Exchange Agent at the address set forth on the
back cover page of this Prospectus on or prior to 5:00 p.m., New York City time,
on the Expiration Date.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE ELIGIBLE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT THE TENDERING HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY TO THE
EXCHANGE AGENT BEFORE THE EXPIRATION DATE. HOLDERS MAY REQUEST THEIR RESPECTIVE
BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE
ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any tender by a Holder that is not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date will constitute an agreement between such
Holder and the Company in accordance with the terms and subject to the
conditions set forth herein and in the Letter of Transmittal.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered Holder of the Old Notes who
has not completed either the box entitled "Special Exchange Instructions" or the
box entitled "Special Delivery Instructions" on the Letter of Transmittal or
(ii) by an Eligible Institution (as defined below). In the event that a
signature on a Letter of Transmittal or a notice of withdrawal, as the case may
be, is required to be guaranteed, such guarantee must be by a firm which is a
member of a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or is otherwise an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act (collectively, "Eligible Institutions"). If Old Notes are
registered in the name of a person other than a signer of the Letter of
Transmittal, the Old Notes surrendered for exchange must either (i) be endorsed
by the registered Holder, with the signature thereon guaranteed by an Eligible
Institution or (ii) be accompanied by a bond power, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered Holder, with the signature thereon guaranteed by an Eligible
Institution along with the other documents required upon transfer by the Letter
of Transmittal. The term "Holders" as used herein with respect to the Old Notes
means any person in whose name the Old Notes are registered on the books of the
registrar for the Old Notes (currently, the Trustee).
Tenders may be made only in principal amounts of $1,000 and integral
multiples thereof. Subject to the foregoing, Holders may tender less than the
aggregate principal amounts represented by the Old Notes deposited with the
Exchange Agent provided they appropriately indicate this fact in the Letter of
Transmittal accompanying the tendered Old Notes.
<PAGE> 21
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Old Notes tendered for exchange will be
determined by the Company in its sole, reasonable discretion, which
determination shall be final and binding. The Company reserves the absolute
right to reject any and all tenders of any particular Old Notes not properly
tendered or to reject any particular Old Notes whose acceptance might, in the
judgment of the Company or its counsel, be unlawful. The Company also reserves
the absolute right to waive any defects or irregularities or conditions of the
Exchange Offer as to any particular Old Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Old Notes in the Exchange Offer). The interpretation of the
terms and conditions of the Exchange Offer (including the Letter of Transmittal
and the instructions thereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes for exchange must be cured within such reasonable period of time as
the Company shall determine. The Company will use reasonable efforts to give
notification of defects or irregularities with respect to tenders of Old Notes
for exchange but shall not incur any liability for failure to give such
notification. Tenders of the Old Notes will not be deemed to have been made
until such irregularities have been cured or waived.
The Exchange Agent and the Depository (as defined below) have confirmed
that any financial institution that is a participant in the Depository's system
may utilize the Depository's Automated Tender Offer Program to tender Old Notes.
If any Letter of Transmittal, endorsement, bond power, power of attorney or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, such person
should so indicate when signing, and, unless waived by the Company, proper
evidence satisfactory to the Company of such person's authority to so act must
be submitted.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender Old Notes in the Exchange Offer should contact such Holder promptly
and instruct such Holder to tender on such beneficial owner's behalf.
Effect of Tender
Tenders of Old Notes pursuant to the Exchange Offer described herein and in
the Letter of Transmittal will constitute a binding agreement between the
tendering Holder of the Old Notes and Company upon the terms and subject to the
conditions of the Exchange Offer. The acceptance of an Exchange Offer by a
tendering Holder will constitute the agreement by such Holder to deliver good
and marketable title to the tendered Old Notes free and clear of all liens,
charges, claims, encumbrances, interests and restrictions of any kind. Holders
of Old Notes do not have any appraisal or dissenters' rights under the Delaware
General Corporation Law or the Indenture, in connection with the Exchange Offer.
Representations, Warranties and Covenants of Holders
Each person tendering Old Notes in exchange for Registered Notes in the
Exchange Offer will represent, warrant and covenant to the Company that, among
other things: (i) any Old Notes tendered are held by such Holder free and clear
of all security interests, liens, restrictions, charges, encumbrances,
conditional sale agreements or other obligations relating to their sale or
transfer, and are not subject to any adverse claim when the same are accepted by
the Company; (ii) the Registered Notes acquired pursuant to the Exchange Offer
are being obtained in the ordinary course of business of the person receiving
such Registered Notes, whether or not such person is the holder; (iii) neither
the holder of Old Notes nor any such other person is participating, intends to
participate or has an arrangement or understanding with any person to
participate, in the distribution of such Registered Notes; (iv) if the Holder is
a broker-dealer, or is participating in the Exchange Offer for the purposes of
distributing the Registered Notes, he, she or it must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction of the Registered Notes acquired
by such person and cannot rely on the position of the staff of the SEC set forth
in no-action letters, (v) neither the Holder nor any such other person is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act or, if such holder is an "affiliate," that such Holder will comply with the
registration and prospectus delivery requirements of the Securities Act ; and
(vi) such person acknowledges that the Company is relying on the
representations, warranties and covenants made by such person in acceptance of
such Old Notes tendered. The person tendering Old Notes must also make similar
representations regarding any beneficial owner of the Old Notes being tendered.
As set forth in the Letter of Transmittal, certain additional customary
representations, covenants and warranties also will be required of tendering
Holders of Old Notes.
While the Company has no present plan to acquire any Old Notes that are not
tendered in the Exchange Offer, the Company reserves the right in its sole
discretion to purchase or make offers for any Old Notes that remain outstanding
subsequent to the Expiration Date and, to the extent permitted by applicable
law, purchase Old Notes in the open market, in privately negotiated transactions
or otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
Any Holder whose Old Notes have been mutilated, lost, stolen or destroyed
will be responsible for obtaining replacement securities or for arranging for
indemnification with the Trustee. Holders may contact the Exchange Agent for
assistance with such matters.
<PAGE> 22
Acceptance of Old Notes for Exchange; Delivery of Registered Notes
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the Registered Notes promptly after acceptance
of the Old Notes. See "- Conditions to the Exchange Offer." For purposes of the
Exchange Offer, the Company shall be deemed to have accepted properly tendered
Old Notes for exchange when, as and if the Company has given oral or written
notice thereof to all Holders of properly tendered Old Notes. The Exchange Agent
will act as agent for tendering Holders of Old Notes for the purposes of
receiving the Registered Notes from the Company.
In all cases, issuances of Registered Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of such Old Notes, a properly completed and duly
executed Letter of Transmittal, and all other required documents; provided,
however, that the Company reserves the absolute right to waive any defects or
irregularities in the tender or conditions of the Exchange Offer.
Book-Entry Delivery Procedures
The Exchange Agent will establish promptly an account with respect to the
Old Notes at the Depository Trust Company (the "Depository" or "DTC") for
purposes of the Exchange Offer. Any financial institution that is a participant
in the Depository may make a book-entry delivery of Old Notes by causing the
Depository to transfer Old Notes to the Exchange Agent's account. However,
although delivery of Old Notes may be effected through book-entry transfer at
the Depository, a properly completed and executed Letter of Transmittal, and any
other documents required by the Letter of Transmittal, must, in any case, be
transmitted to, and received by, the Exchange Agent at its address set forth
below prior to the Expiration Date. Old Notes will not be deemed surrendered
until the Letter of Transmittal is received by the Exchange Agent. DELIVERY OF A
LETTER OF TRANSMITTAL TO THE DEPOSITORY WILL NOT CONSTITUTE VALID DELIVERY TO
THE EXCHANGE AGENT.
Guaranteed Delivery Procedures
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available or (ii) who cannot deliver their Old Notes, the Letter of
Transmittal, or any other required documents to the Exchange Agent prior to the
Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company
(by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder, the certificate number(s) of such Old
Notes and the principal amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within five New
York Stock Exchange trading days after the Expiration Date, the Letter
of Transmittal, together with the certificate(s) representing the Old
Notes in proper form for transfer or a book-entry confirmation, as the
case may be, and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or a facsimile thereof),
as well as the certificate(s) representing all tendered Old Notes in
proper form for transfer and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five
New York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
Withdrawal of Tenders
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time before 5:00 p.m., New York City time, on the Expiration Date.
Tenders of Old Notes may not be withdrawn at any time after 5:00 p.m., New York
City time, on the Expiration Date, unless the applicable Exchange Offer is
extended with changes in the terms of such Exchange Offer that are materially
adverse to the tendering Holder, in which case tenders of Old Notes may be
withdrawn.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Old Notes to be withdrawn (the "depositor"),
(ii) identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes) and (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Old Notes were tendered (including any required signature
guarantees, and (iv) if such Old Notes are owned by a new beneficial owner,
evidence satisfactory to the Company that the person withdrawing the tender has
succeeded to the
<PAGE> 23
beneficial ownership of the Old Notes). If a beneficial owner of Old Notes
tendered through a custodian wishes to withdraw the Old Notes tendered, such
beneficial owner must contact the custodian and direct the custodian to withdraw
such Old Notes in accordance with the procedures set forth herein. In order to
withdraw such Old Notes the custodian must provide a written notice of
withdrawal (or facsimile thereof) to the Exchange Agent, at its address set
forth on the back cover page of this Prospectus, prior to the Expiration Time,
which notice must contain: (i) the name of the person who tendered the Old
Notes, (ii) a description of the Old Notes to be withdrawn (including the
certificate number or numbers and (ii) if such Old Notes are owned by a new
beneficial owner, evidence satisfactory to the company that the person
withdrawing the tender has succeeded to the beneficial ownership of the Old
Notes. If the Old Notes were tendered by book-entry transfer, the custodian also
must debit the Exchange Agent's account at the Depository through which the
tender was made of all Old Notes to be withdrawn
A PURPORTED NOTICE OF WITHDRAWAL WHICH LACKS ANY OF THE REQUIRED
INFORMATION WILL NOT BE AN EFFECTIVE WITHDRAWAL OF A TENDER PREVIOUSLY MADE.
TENDERS OF OLD SECURITIES MAY NOT BE WITHDRAWN AFTER THE EXPIRATION DATE.
Holders who have tendered in the Exchange Offer will continue to have
withdrawal rights following any extension of such Exchange Offer. Any permitted
withdrawal of tenders of Old Notes may not be rescinded, and any Old Notes so
withdrawn will thereafter be deemed not validly tendered for purposes of the
Exchange Offer and the holder thereof will be deemed to have rejected the
Exchange Offer with respect to the withdrawn Old Notes. However, withdrawn Old
Notes may be re-tendered prior to the Expiration Date, as extended, by following
the procedures for tendering.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, in its sole
discretion, whose determination shall be final and binding on all parties. Any
Old Notes so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer, and no Registered Notes will be issued with
respect thereto unless the Old Notes so withdrawn are validly retendered.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "The Exchange Offer - Procedures for Tendering
Old Notes" at any time prior to the Expiration Date.
Conditions to the Exchange Offer
Notwithstanding any other provisions of the Exchange Offer or any
extension of such Exchange Offer, the Company will not be required to issue
Registered Notes, and may terminate such Exchange Offer by oral or written
notice to the Exchange Agent and the Holders of the Old Notes, or, at its
option, modify or otherwise amend such Exchange Offer, if any of the following
conditions has not been satisfied, prior to or concurrently with the
consummation of such Exchange Offer:
(a) there shall not have been any action taken or threatened, or any
statute, rule, regulation, judgment, order, stay, decree or injunction
promulgated, enacted, entered, enforced or deemed applicable to the
Exchange Offer, or the exchange of Old Notes pursuant to the Exchange
Offer (the "Exchange"), by or before any court or governmental
regulatory or administrative agency or authority or tribunal, domestic
or foreign, which (i) challenges the making of the Exchange Offer or
the Exchange, or might, directly or indirectly, prohibit, prevent,
restrict or delay consummation of the Exchange Offer or the Exchange,
or might otherwise adversely affect in any material manner the
Exchange Offer or the Exchange or (ii) in the sole judgment of the
Company, could materially adversely affect the business, condition
(financial or otherwise), income, operations, properties, assets,
liabilities or prospects of the Company, taken as a whole, or
materially impair the contemplated benefits of the Exchange Offer to
the Company or might be material to Holders of Old Notes in deciding
whether to accept such Exchange Offer;
(b) there shall not have occurred or be likely to occur (i) any event
affecting the business or financial affairs of the Company that, in
the sole judgment of the Company, would or might prohibit, prevent,
restrict or delay consummation of the Exchange Offer, or the Exchange,
or any event that will or is reasonably likely to materially alter the
contemplated benefits of the Exchange Offer to the Company or might be
material to Holders of Old Notes in deciding whether to accept such
Exchange Offer or (ii) a Change of Control (as defined in the
Indenture) of the Company;
(c) there shall not have occurred (i) any general suspension of or
limitation on trading in securities on the NYSE or in the
over-the-counter market (whether or not mandatory), (ii) any material
adverse change in the price of the Old Notes, (iii) a material
impairment in the general trading market for debt securities, (iv) a
declaration of a banking moratorium or any suspension of payments in
respect of banks by federal or state authorities in the United States
(whether or not mandatory), (v) a commencement of a war, armed
hostilities or other national or international crisis directly or
indirectly relating to the United States, (vi) any limitation (whether
or not mandatory) by any governmental authority on, or other event
having a reasonable likelihood of affecting, the extension of credit
by banks or other lending institutions in the United States or (vii)
any material adverse change in United States securities or financial
markets generally, or in the case of any of the foregoing existing at
the time of the commencement of the Exchange Offer, a material
acceleration or worsening thereof;
(d) the Trustee shall not have objected in any respect to, or taken any
action that could in the sole judgment of the Company adversely affect
the consummation the Exchange Offer, or the Exchange, nor shall any
such person or groups of persons have taken any action that challenges
the validity or effectiveness of the procedures used by the Company in
making the Exchange Offer or the Exchange;
<PAGE> 24
(e) any other person or persons whose consent is or may be required in
order to consummate the Exchange Offer including without limitation,
the holders of the Company's Series B and Series C Preferred Stock and
Sanwa under the Revolving Credit Facility, shall not have objected in
any respect to, or taken any action that could in the sole judgment of
the Company adversely affect the consummation of, any of the Exchange
Offer, or the Exchange, nor shall any such person or groups of persons
have taken any action that challenges the validity or effectiveness of
the procedures used by the Company in making the Exchange Offer, or
the Exchange;
(f) any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or
qualification of the Indenture under the Trust Indenture Act of 1939,
as amended. The Company will use its reasonable best efforts to
prevent the issuance of any such order and, if any such order is
issued, to obtain the withdrawal of any such order at the earliest
possible moment; and
(g) there shall occur a change in the current interpretations by the staff
of the Commission which, in the Company's reasonable judgment, might
materially impair the Company's ability to proceed with the Exchange
Offer.
If any of the foregoing conditions are not satisfied, the Company may (i)
terminate the Exchange Offer and return such Old Notes to the Holders who
tendered them; (ii) extend such Exchange Offer and retain all tendered Old Notes
which have not been withdrawn prior thereto until the Expiration Date of such
Exchange Offer. (See "- Withdrawal of Tenders" and "Expiration Date; Extensions;
Amendments"); or (iii) waive the unsatisfied conditions with respect to the
Exchange Offer and accept all Old Notes tendered and not previously withdrawn.
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company, in whole or in part, in its sole discretion. Any
determination made by the Company concerning an event, development or
circumstance described or referred to above shall be conclusive and binding.
Termination of Certain Rights
Holders of the Old Notes to whom this Exchange Offer is made have special
registration rights under the Registration Rights Agreement. The Registration
Rights Agreement provides that certain rights under such agreement shall
terminate upon the occurrence of (i) the filing with the Commission of the
Registration Statement, (ii) the effectiveness under the Securities Act of the
Registration Statement or the Shelf Registration Statement (as hereinafter
defined), (iii) the consummation of the Exchange Offer, (iv) the maintenance of
the Registration Statement continuously effective for a period of not less than
the minimum period required under applicable federal and state securities laws
(provided that in no event shall such Exchange Offer remain open and the
registration statement relating thereto remain continuously effective, in each
case, for less than 30 calendar days) and (v) the delivery by the Company to the
Registrar (currently the Trustee) under the Indenture of Registered Notes in the
same aggregate principal amount of Old Notes tendered by Holders thereof
pursuant to the Exchange Offer. Upon the consummation of the Exchange Offer, any
Holder of Old Notes who exchanges such Old Notes for Registered Notes and any
Holder of Old Notes who does not exchange such Old Notes for Registered Notes
will not have any further rights under the Registration Rights Agreement
(including registration rights), unless such non-exchanging Holder is either not
permitted by law or any policy of the Commission to participate in the Exchange
Offer or is a broker-dealer.
Liquidated Damages
In the event of a failure to have the registration statement for the
Exchange Offer declared effective by no later than November 5, 1997, or upon the
occurrence of any other Registration Default under and as defined in the
Registration Rights Agreement (see "Description of the Registered Notes -
Registration Rights; Liquidated Damages"), the Company is required to pay
liquidated damages to each Holder during the first 90-day period immediately
following the occurrence of such Registration Default in an amount equal to .50%
per annum on the principal amount of Old Notes held by such holder, increasing
by an additional .50% per annum at the beginning of each subsequent 90-day
period up to a maximum of 2.0% per annum; provided that such liquidated damages
will, in each case, cease to accrue (subject to the occurrence of another
Registration Default) on the date on which all Registration Defaults have been
cured. The filing and effectiveness of the Registration Statement of which this
Prospectus is a part and the consummation of the Exchange Offer will eliminate
all rights of the Holders eligible to participate in the Exchange Offer to
receive damages that would have been payable if such actions had not occurred.
See "Description of the Registered Notes - Registration Rights; Liquidated
Damages."
Exchange Agent
The State Street Bank and Trust Company has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance, requests
for additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent at the address which follows:
<PAGE> 25
By Registered or Certified Mail:
The State Street Bank and Trust Company
Two International Place, 4th Floor By Facsimile:
Boston, MA 02110 617-664-5371
Attention: Jacqueline Rivera Confirm by Telephone: Jacqueline Rivera
Corporate Trust Department 617-664-5419
(Wright Medical Technology, Inc. (Originals of all documents
Exchange) submitted by facsimile should
be sent promptly by hand,
overnight courier or registered
or certified mail.)
Fees and Expenses
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, facsimile transmission, telephone or in person by
officers and regular employees of the Company and its affiliates.
The Company retained Jefferies & Company, Inc. as the Dealer Manager in
connection with the First Exchange Offer. The Company will not make any payments
to brokers, dealers or others soliciting acceptance of either the First Exchange
Offer or the Exchange Offer other than the Dealer Manager. The Company also will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The expenses to be incurred in connection with the Exchange Offer and the
First Exchange Offer will be paid by the Company and are estimated in the
aggregate to be approximately $2.8 million. Such expenses include fees and
expenses of the Dealer Manager, Exchange Agent and the Trustee, accounting,
legal fees, among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Old Notes pursuant to the
Exchange Offer, then the amount of any such transfer taxes (whether imposed on
the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering Holder.
Certain Consequences to Holders Not Tendering in the Exchange Offer
The Registered Notes will be issued in exchange for Old Notes only after
timely receipt by the Exchange Agent of such Old Notes, a properly completed and
duly executed Letter of Transmittal, and all other required documentation.
Participation in the Exchange Offer is voluntary. Holders of the Old Notes are
urged to consult their financial and tax advisors in making their own decisions
on what action to take.
Old Notes that are not tendered or are tendered but not accepted will,
following consummation of the Exchange Offer, continue to be subject to any
existing restrictions upon transfer thereof. The Company will restrict trading
in the securities held by any non-tendering Holder. The Company has, pursuant to
the terms of the Indenture, placed a stop transfer order with the Trustee
prohibiting any transfer of such securities unless the transaction qualifies for
an exemption from the registration requirements of the Securities Act. The
restrictive legends printed on any certificates representing such securities
will remain after consummation of the Exchange Offer.
To the extent that Old Notes are tendered and accepted in the Exchange
Offer, the trading market for untendered and tendered but unaccepted Old Notes
could be adversely affected due to the limited amount that remain outstanding
following the Exchange Offer.
Accounting Treatment
The Registered Notes would be recorded at the same carrying value as the
Old Notes, as reflected in the Company's accounting records on the date of the
exchange. Accordingly, no gain or loss for accounting purposes will be
recognized by the Company. The costs of the Exchange Offer and the expenses
related to the issuance of the Old Notes and the Registered Notes will be
expensed as debt modification costs.
<PAGE> 26
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the
Registered Notes offered hereby. In consideration for issuing the Registered
Notes as contemplated in this Prospectus, the Company will receive in exchange
Old Notes in like principal amount or principal amount at maturity, as the case
may be, the terms and forms of which are identical in all material respects to
the Registered Notes. The Old Notes surrendered in exchange for Registered Notes
will not result in any increase in the indebtedness of the Company.
CAPITALIZATION
The following table sets forth the cash and cash equivalents, total debt
and total capitalization of the Company as of June 30, 1997. The table should be
read in conjunction with the consolidated financial statements of the Company
and the related notes thereto, and other information included elsewhere in the
Prospectus. All dollar amounts shown are in thousands.
<TABLE>
<CAPTION>
As of
June 30,
1997
<S> <C>
Cash and cash equivalents......................... $ 1,234
Total debt (including current maturities and
excluding notes and trade payables):
Sanwa Line of Credit.......................... $ 15,775
Series B Senior Secured Notes(1).............. 84,777
Capitalized lease obligations................. 283
--------
Total debt................................ 100,835
Mandatorily Redeemable
Series B Preferred Stock..................... 66,314
Redeemable Convertible
Series C Preferred Stock......................... 27,218
Stockholders' investment.......................... (76,358)
--------
Total capitalization...................... $118,009
<FN>
- ---------------------
(1) Amount shown is net of original unamortized issue discount of $223.
</FN>
</TABLE>
<PAGE> 27
SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of the
Company for each of the fiscal years ended December 31, 1994 through 1996 and
for the six month period ended December 31, 1993 as well as selected financial
data of the Company's predecessor, for the year ended December 31, 1992 and the
six month period ended June 30, 1993. The selected consolidated financial data
for each of the years ended December 31, 1994 through 1996 have been derived
from the Company's audited consolidated financial statements. The selected
financial data for the six month periods ended June 30, 1997 and 1996 have been
derived from unaudited condensed, consolidated financial statements and, in the
opinion of the Company's management, includes all adjustments (of a normal and
recurring nature) which are necessary to present fairly the data for such
periods. The selected financial data for the year ended December 31, 1992 and
the six months ended June 30, 1993 have been derived from unaudited financial
statements related to the large joint and small joint orthopaedic implant
business of Dow Corning and its subsidiary business Dow Corning Wright, the
Company's Predecessor. This data should be read in conjunction with, and is
qualified in its entirety by, the consolidated financial statements of the
Company and the related notes thereto, included elsewhere or incorporated by
reference herein. All dollar amounts shown are in thousands.
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------------------- -----------------------------------------------------------------
Year Ended Jan. 1 to July 1 to Years Ended Six Months Ended
Dec. 31, June 30, Dec. 31, December 31, June 30,
1992 1993 1993 1994 1995 1996 1996 1997
------------------------- -----------------------------------------------------------------
Operating Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales.......................... $ 71,598 $ 35,033 $ 43,027 $ 95,763 $ 123,196 $ 121,868 $ 62,137 $ 64,383
Gross profit....................... 45,334 20,141 30,324 52,153 89,474 77,435 42,003 40,859
Operating income (loss)............ 10,414 1,849 1,863 (47,131) 6,303 (3,055) 2,647 (751)
Operating income (loss) per common
share.............................. NA NA (0.41) (6.10) (2.24) (3.90) (1.49) (1.94)
Parent Company Charges............. 2,187 1,133 -- -- -- -- -- --
Net interest expense............... NA NA 4,518 9,209 11,322 11,947 5,913 6,227
Net income (loss).................. 5,101 437 (2,572) (49,380) (6,492) (14,589) (2,998) (7,103)
Ratio of earnings to fixed
charges 1.......................... NA NA NA NA NA NA NA NA
<FN>
(1) Earnings were inadequate to cover fixed charges alone , and fixed charges,
preferred dividends and accretion of preferred stock, in aggregate, during the
presented periods. Certain of the preferred dividends are, at the option of the
Company, payable in kind.
</FN>
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR THE COMPANY
------------------------- --------------------------------------------------------------------
Year Ended Jan. 1 to July 1 to Years Ended Six Months Ended
Dec. 31, June 30, Dec. 31, December 31, June 30,
1992 1993 1993 1994 1995 1996 1996 1997
------------------------ ---------------------------------------------------------------------
Balance Sheet Data:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total assets.................... $ 71,747 $ 72,691 $ 113,497 $ 154,551 $ 174,371 $ 166,326 $ 175,081 $ 163,686
Long-term debt.................. 243 108 84,605 84,983 84,462 84,668 84,634 84,707
Mandatorily Redeemable Series B
Preferred Stock................. NA NA -- 47,658 46,757 59,959 47,762 66,314
Redeemable Convertible Series C
Preferred Stock................. NA NA -- -- 20,548 24,995 22,772 27,218
Stockholders'investment......... -- -- 11,602 (25,502) (25,177) (58,506) (37,111) (76,358)
Parent company investment....... 64,543 68,029 NA NA NA NA NA NA
</TABLE>
<PAGE> 28
DESCRIPTION OF THE REGISTERED NOTES
General
The Company will issue up to $85,000,000 aggregate principal amount of
Registered Notes under the Indenture between the Company and State Street Bank
and Trust Company, as Trustee. No Registered Notes are currently outstanding.
The terms of the Registered Notes will include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act as in
effect on the date of the Indenture. The holders of Registered Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary of certain provisions of the Indenture does not purport to
be complete and is qualified in its entirety by reference to the Indenture,
including the definitions therein of certain terms used below.
The Registered Notes will rank senior in right of payment to all senior
subordinated and subordinated Indebtedness (as defined in the Indenture and
repeated herein (below) of the Company. The Registered Notes will rank pari
passu in right of payment with all senior borrowings, including any remaining
Old Notes and borrowings under the Revolving Credit Facility. The Registered
Notes and any remaining Old Notes will be secured by a first priority security
interest in the Collateral. See "Security" below.
The Trustee will act as paying agent and registrar of the Registered Notes.
The Company may change any paying agent and registrar without notice.
Principal, Maturity and Interest
The Registered Notes will consist of an aggregate principal amount of up to
$85,000,000 and will mature on July 1, 2000. Interest on the Registered Notes
will accrue at the rate of 11 3/4% per annum and will be payable semi-annually
on the Interest Payment Dates, commencing on January 1, 1998, to holders of
record on the immediately preceding June 15 and December 15, respectively,
provided that the interest rate will be 12 1/4% on August 7, 1998 if a Sale (as
defined in the Indenture and repeated herein below) has not occurred. Interest
on the Registered Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from the date of original
issuance. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months. The Registered Notes will be payable both as to principal
and interest at the office or agency of the Company or, at the option of the
Company, payment of interest may be made by check mailed to the holders of the
Registered Notes at their respective addresses set forth in the register of
holders of Registered Notes or by wire transfer to an account designated by a
holder of the Registered Notes. Until otherwise designated by the Company, the
Company's office or agency will be the office of the Trustee maintained for such
purpose.
"Sale" means (i) the sale, lease or transfer of all or substantially all of
the Company's assets to any Person or group (other than the Principals (as
defined below)) or (ii) the acquisition by any Person or group (as such term is
used in Section 13(d)(3) of the Exchange Act) (other than the Principals and
their Related Parties (as defined below)) of a direct or indirect majority
interest (more than 50%) in the voting power of the Voting Stock (as defined in
the Indenture and repeated herein below) of the Company by way of merger or
consolidation or otherwise.
Security
The Registered Notes and any remaining Old Notes will be secured by a first
priority security interest in the collateral which consists of certain fixed
assets, intellectual property rights and other intangible assets of the Company,
now in existence or hereafter acquired, other than cash, cash equivalents,
accounts receivable and inventory, by a first priority pledge of the Capital
Stock of all current and future United States Subsidiaries and by the Company's
ownership of the shares of capital stock of all current and future foreign
subsidiaries of the Company that issue share certificates. This Collateral
includes two tracts of land owned by the Company, certain leasehold estates as
well as items of equipment located at 5677 and 5640 Airline Road and another
tract owned by the Company and additional equipment at 11576 Memphis-Arlington
Road, both in Arlington, Tennessee in addition to items of equipment located at
4919 Warrensville Center Road in Cleveland, Ohio. The Collateral also includes a
number of patents and trademarks registered to the Company or whose application
is currently pending and which relate to the Company's of business.
<PAGE> 29
The Company has entered into a security agreement, a stock pledge agreement
and certain other collateral assignment agreements (collectively, the
"Collateral Agreements") providing for the grant of a security interest in or
pledge of the Collateral (including certain fixed assets, intellectual property
rights, Capital Stock of all current and future United States Subsidiaries, fee
or leasehold interests in real property and other intangible assets of the
Company but excluding cash, cash equivalents, accounts receivable and
inventory), now in existence or hereafter acquired, by the Company to State
Street Bank and Trust Company, N.A., as collateral agent (in such capacity, the
"Collateral Agent"), for the benefit of the holders of the Registered Notes,
such security to be shared with any remaining Holders of Old Notes. The
Collateral Agreements prohibit the creation of indirect Subsidiaries of the
Company. Such pledges and security interests secure the payment and performance
when due of all of the Obligations of the Company under the Indenture, the
Registered Notes and any remaining Old Notes, as provided in the Collateral
Agreements.
The Collateral Agreements will grant certain blanket-type Liens to the
Collateral Agent against the non-real property fixed assets of the Company which
are intended to secure the Obligations of the Company under the Indenture and
the Registered Notes, as well as any remaining Old Notes. The Company has,
subject to the restriction on incurring Indebtedness, and Liens set forth
herein, the right to grant (and suffer to exist) Purchase Money Liens against
non-real property fixed assets of the Company and has the right to acquire any
such assets subject to Purchase Money Liens (and suffer to exist such Liens).
The Collateral Agent's blanket Liens are intended to be, and shall be, at all
times automatically subordinate in priority to all such Purchase Money Liens.
The Company is not required to grant a second priority Lien in any such asset to
the Collateral Agent (and no such second priority Lien shall exist in favor of
the Collateral Agent other than by virtue of the fact that first priority
Purchase Money Liens may be granted after the Collateral Agent's blanket Liens
are in effect). Under certain circumstances, upon written notice by the Company,
the Collateral Agent will release its blanket Liens on such assets or execute
any reasonable subordination of lien documentation with respect thereof. If any
such asset shall at any time remain free from any Purchase Money Lien for a
period of time greater than six (6) months, the Company shall promptly grant the
Collateral Agent a first priority Lien (and any confirmatory Lien) with respect
to such asset to secure the Obligations of the Company under the Registered
Notes and the Indenture, except (x) if such asset is a Minor Asset (as defined),
(y) to the extent not permitted by restrictions on the encumbering of such
non-real property fixed asset (which restrictions are permitted by the terms of
the Indenture) or (z) with respect to fixtures located in real property leased
by the Company under operating leases. Subject to certain exceptions, the
Company shall not be required to grant or perfect any individual (non-blanket)
Lien with respect to any asset of the Company with a market value of $50,000 or
less (a "Minor Asset").
The Collateral Agreements grant the holders of the Registered Notes, and
any remaining Holders of the Old Notes, with respect to real property assets and
interests (including fixtures) of the Company ("Real Property Assets"), a first
priority Lien in all fee real property and certain leasehold interests owned or
leased by the Company as of the date of the Indenture, provided that, with
respect to leasehold interests, such grants are limited to the extent such
leasehold interests may be encumbered pursuant to the terms of their respective
underlying leases. If any Real Property Assets are not mortgageable, the Company
is required to use reasonable efforts with third parties to render such assets
mortgageable. Subject to the restrictions on incurring indebtedness and Liens
set forth herein, with respect to Real Property Assets acquired (including by
way of merger or consolidation) after the date of the Indenture, the Company
shall have the right to grant (and suffer to exist) Purchase Money Liens against
such assets and have the right to acquire any such assets subject to Purchase
Money Liens (and suffer to exist such liens); the Collateral Agent will not be
entitled to a second priority Lien thereon. If any such Real Property Asset
shall at any time remain free from any Purchase Money Lien for a period of time
greater than six (6) months, the Company shall promptly grant the Collateral
Agent a shared first priority Lien with respect to such asset to secure the
Obligations under the Indenture, as well as any remaining Obligations under the
Indenture, except (x) if such asset is a Minor Asset, (y) if such asset is an
interest in real property, the encumbrance of which is prohibited by the
agreement, document or instrument governing such interest in real property, or
(z) with respect to fixtures located on real property leased by the Company
under operating leases.
Notwithstanding anything herein to the contrary, the Company shall not
encumber any asset or property of the Company or suffer to exist any Lien
thereon, other than as expressly permitted herein.
So long as no Event of Default shall have occurred and be continuing, and
subject to certain terms and conditions in the Indenture and the Collateral
Agreements, the Company will be entitled to receive all dividends, interest and
other payments made upon or with respect to the Capital Stock of any
Subsidiary's collateral pledged by it and to exercise any voting, other
consensual rights and other rights pertaining to such collateral pledged by it.
Upon the occurrence and during the continuance of an Event of Default, (a) all
rights of the Company to exercise such voting, other consensual rights or other
rights shall cease upon notice from the Collateral Agent, and all such rights
shall become vested in the Collateral Agent, which, to the extent permitted by
law, shall have the sole right to exercise such voting,
<PAGE> 30
other consensual rights or other rights, and (b) all rights of the Company to
receive all dividends, interest and other payments made upon or with respect to
the pledged collateral shall cease and such dividends, interest and other
payments shall be paid to the Collateral Agent, and (c) the Collateral Agent may
sell the pledged collateral or any part thereof in accordance with the terms of
the Collateral Agreements. All funds distributed under the Collateral Agreements
and received by the Collateral Agent for the benefit of the holders of the
Registered Notes and any remaining Holders of the Old Notes shall be distributed
by the Collateral Agent in accordance with the provisions of the Indenture.
Under the terms of the Collateral Agreements, the Collateral Agent will
determine the circumstances and manner in which the pledged collateral shall be
disposed of, including, but not limited to, the determination of whether to
release all or any portion of the pledged collateral from the Liens created by
the Collateral Agreements and whether to foreclose on the pledged collateral
following an Event of Default. Upon the full and final payment and performance
of all obligations of the Company under the Indenture, any remaining Old Notes
and the Registered Notes, the Collateral Agreements shall terminate and the
pledged collateral shall be released. However, the Collateral Agent shall
release its Lien on any after acquired property subject to a Purchase Money
Lien, as contemplated by the section entitled "Security." In addition, in the
event that the pledged collateral is sold, and provided that no Default or Event
of Default is existing, the Collateral Agent shall release simultaneously with
such sale the Liens in favor of the Collateral Agent in the assets sold;
provided, that the Collateral Agent shall have received all documentation
required by the Trust Indenture Act therefor.
Optional Redemption
The Registered Notes and any remaining Old Notes are subject to redemption
at the option of the Company, in whole or in part, upon not less than 30 nor
more than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on July 1 of the years indicated below:
Redemption
Year Percentage
1997.....................103%
1998 and thereafter......100%
The restrictions on optional redemptions set forth in the Indenture do not
limit the Company's right to make open market purchases of the Registered Notes,
or any remaining Old Notes, from time to time.
Repurchase Upon Change of Control
Upon the occurrence of a Change of Control (as hereinafter defined), each
holder of Registered Notes shall have the right to require the Company to
repurchase all or any part (equal to $1,000 or an integral multiple thereof) of
such holder's Registered Notes pursuant to the offer described below (the
"Change of Control Offer") at a purchase price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (the "Change of Control Payment"). Such requirement may not be
waived by the Company or the Trustee. Within 40 days following any Change of
Control, the Company shall mail a notice to each holder stating: (1) that the
Change of Control Offer is being made pursuant to the covenant entitled "Change
of Control" and that all Registered Notes tendered will be accepted for payment;
(2) the purchase price and the purchase date, which shall be no earlier than 30
days nor later than 40 days from the date such notice is mailed (the "Change of
Control Payment Date"); (3) that any Registered Note not tendered will continue
to accrue interest; (4) that, unless the Company defaults in the payment of the
Change of Control Payment, all Registered Notes accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date; (5) that holders electing to have any Registered Notes
purchased pursuant to a Change of Control Offer will be required to surrender
the Registered Notes, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Registered Notes completed, to the Paying Agent
at the address specified in the notice prior to the close of business on the
third Business Day preceding the Change of Control Payment Date; (6) that
holders will be entitled to withdraw their election if the Paying Agent
receives, not later than the close of business on the second Business Day
preceding the Change of
<PAGE> 31
Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the holder, the principal amount of Registered Notes
delivered for purchase, and a statement that such holder is withdrawing his
election to have such Registered Notes purchased; and (7) that holders whose
Registered Notes are being purchased only in part will be issued Registered
Notes equal in principal amount to the unpurchased portion of the Registered
Notes surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof. The Company will comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Registered Notes in
connection with a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment Registered Notes or portions thereof tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Registered Notes
or portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Registered Notes so accepted together with an Officers' Certificate
stating the Registered Notes or portions thereof were tendered to the Company.
The Paying Agent shall promptly mail to each holder of Registered Notes so
accepted payment in an amount equal to the purchase price for such Registered
Notes, and the Trustee shall promptly authenticate and mail to each holder a
Registered Note equal in principal amount to any unpurchased portion of the
Registered Notes surrendered, if any, provided, that each such Registered Note
shall be in a principal amount of $1,000 or an integral multiple thereof. The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders of the Registered
Notes to require that the Company repurchase or redeem the Registered Notes in
the event of a takeover, recapitalization or similar restructuring.
"Change of Control" means (i) the sale, lease or transfer of all or
substantially all of the Company's assets to any Person or group (as such term
is used in Section 13(d)(3) of the Exchange Act) (other than the Principals and
their Related Parties (as defined below)), (ii) the liquidation or dissolution
of the Company, (iii) the acquisition by any Person or group (as such term is
used in Section 13(d)(3) of the Exchange Act) (other than the Principals and
their Related Parties, as defined herein below) of a direct or indirect majority
in interest (more than 50%) of the voting power of the Voting Stock (as defined
herein below) of the Company by way of merger or consolidation or otherwise or
(iv) any transaction the result of which is (x) if such transaction occurs prior
to the first sale of common equity of the Company pursuant to a registration
statement under the Securities Act that results in at least 25% of the then
outstanding common equity of the Company being sold to the public, that the
Principals and their Related Parties beneficially own less, directly or
indirectly, than 35% of the voting power of the Voting Stock of the Company
beneficially owned by the Principals, directly or indirectly, on the date of the
Indenture, and (v) if such transaction occurs thereafter, that any Person or
group (as defined above) (other than the Principals and their Related Parties)
owns, directly or indirectly, more of the voting power of the Voting Stock of
the Company than the Principals and their Related Parties.
"Principals" means KKEP and Herbert W. Korthoff.
"Related Party" with respect to any Principal means (A) the general partner
and each limited partner of KKEP as of the date of the Indenture, (B) any 50%
(or more) owned Subsidiary of either Principal or both Principals jointly, or
(C) any spouse or immediate family member or trust (in the case of an
individual) of such Principal.
Selection and Notice
If less than all of the Registered Notes are to be redeemed at any time,
selection of Registered Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which the Registered Notes are listed, or, if the Registered Notes
are not so listed, on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate, provided that no Registered Notes of $1,000 or
less shall be redeemed in part. Notice of redemption shall be mailed by first
class mail at least 30 but not more than 60 days before the redemption date to
each Holder of Registered Notes to be redeemed at its registered address. If any
Registered Note is to be redeemed in part only, the notice of redemption that
relates to such Registered Note shall state the portion of the principal amount
thereof to be redeemed. A new Registered Note of the same Series as the original
Registered Note in principal amount equal to the unredeemed portion thereof will
be issued in the name of the Holder thereof upon cancellation of the original
Registered Note. On and after the redemption date, interest ceases to accrue on
Registered Notes or portions thereof called for redemption.
<PAGE> 32
Certain Covenants
The Indenture contains, among others, the following covenants:
Restricted Payments
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly make any Restricted Payment unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b) immediately after such Restricted Payment (the value of any such
payment, if other than cash, being determined by the Board of
Directors and evidenced by a resolution set forth in an Officers'
Certificate delivered to the Trustee) and after giving effect thereto
on a pro forma basis, the Consolidated Net Worth of the Company would
be at least $25 million; and
(c) the Company's Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
Restricted Payment is made, calculated on a pro forma basis as if such
Restricted Payment had been made at the beginning of such four-quarter
period, would have been at least 3 to 1; and
(d) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the
date of the Indenture, dated June 30, 1993, governing the Series B
Notes (the "Series B Indenture") (including Restricted Payments
permitted by clause (ii) of the next succeeding paragraph), is less
than the sum of (x) 50% of the Consolidated Net Income of the Company
for the period (taken as one accounting period) from the beginning of
the first quarter immediately after the first date on which the
Company's Consolidated Net Worth exceeds $25 million to the end of the
Company's most recently ended four full fiscal quarters for which
internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, 100% of such deficit), plus (y) 100% of the
aggregate net cash proceeds received by the Company from the issue or
sale of Equity Interests of the Company (other than Equity Interests
sold to a Subsidiary of the Company and other than Disqualified Stock)
since the date of the Series B Indenture, plus (z) 100% of the net
cash proceeds received by the Company from the issuance or sale, other
than to a Subsidiary of the Company, of any debt security of the
Company that has been converted into Equity Interests of the Company
(other than Disqualified Stock) since the date of the Series B
Indenture.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company in exchange for, or out of the proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock); (iii)
the redemption, repurchase or payoff of Indebtedness under the Revolving Credit
Facility; (iv) the redemption, repurchase or payoff of Purchase Money
Indebtedness; (v) the redemption, repurchase or payoff of any Indebtedness with
proceeds of any Refinancing Indebtedness permitted to be incurred under "Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock"; or
(vi) the repurchase, redemption or other acquisition or retirement for value of
any Equity Interests of the Company or any Subsidiary of the Company held by any
officer or employee of the Company (other than Principals or any Related Party)
or any of the Company's distributors or sales representatives; provided,
however, that the aggregate amount of all such repurchases, redemptions and
other acquisitions and retirements under this clause (vi) on or after the date
of the Indenture shall not exceed $2 million.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the "Restricted Payments" covenants were computed, which
calculations may be based upon the Company's latest available financial
statements.
<PAGE> 33
Incurrence of Indebtedness and Issuance of Preferred Stock
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, incur any Indebtedness (including Acquired Debt) and the
Company will not issue any Disqualified Stock and will not permit any of its
Subsidiaries to issue any shares of preferred stock; provided, however, that the
Company may incur Indebtedness or issue shares of Disqualified Stock if (i) the
Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least equal to 2.50:1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period and (ii) the Weighted Average Life to Maturity of such
Indebtedness is greater than the remaining Weighted Average Life to Maturity of
the Registered Notes.
The foregoing limitations will not apply to (a) the incurrence by the
Company and its Subsidiaries of Indebtedness pursuant to the Revolving Credit
Facility in an aggregate principal amount not to exceed $50 million in the
aggregate at any one time outstanding (as such aggregate amount may be
permanently reduced from time to time pursuant to the requirements of the
Indenture); (b) the incurrence by the Company and its Foreign Subsidiaries of
Hedging Obligations incurred to fix the interest rate on any variable rate
Indebtedness otherwise permitted by the Indenture; (c) the incurrence by the
Company and its Foreign Subsidiaries of Purchase Money Indebtedness that does
not exceed $10 million; (d) the incurrence by the Company of Indebtedness
represented by the Old Notes and the Registered Notes; (e) Indebtedness owed by
the Company to any of its Subsidiaries or any such Subsidiary to the Company or
any other Subsidiary of the Company; (f) the incurrence by the Company (and its
Subsidiaries, as to clause (a) above; and its Foreign Subsidiaries, as to clause
(c) above) of Indebtedness issued in exchange for, or the proceeds of which are
contemporaneously used to extend, refinance, renew, replace, or refund
(collectively, "Refinance") Indebtedness referred to in clauses (a), (c) and (d)
above, and outstanding Indebtedness incurred in compliance with Section 4.08(a)
of the Indenture (the "Refinancing Indebtedness"); provided, however, that such
Refinancing Indebtedness (A) in the case of a Refinancing of Indebtedness under
the Revolving Credit Facility, is limited to an aggregate commitment (inclusive
of revolving credit borrowings and the undrawn face amount of letters of credit,
whether or not constituting Indebtedness) not in excess of $50 million (as such
amount may be permanently reduced from time to time pursuant to Section 4.11 of
the Indenture), and (B) in the case of other Refinancing Indebtedness (1) the
principal amount of such Refinancing Indebtedness shall not exceed the principal
amount of Indebtedness so Refinanced (plus the amount of reasonable expenses
incurred in connection therewith), (2) the Refinancing Indebtedness shall have a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of the Indebtedness being extended, refinanced, renewed,
replaced or refunded, and (3) the Refinancing Indebtedness shall rank in right
of payment no more senior (and at least as subordinated) to the Old Notes and
the Registered Notes than did the Indebtedness being Refinanced (whether
revolving credit borrowings, trade letters of credit, standby letters of credit
or a combination thereof); or (g) the incurrence by the Company or trade letters
of credit incurred in the ordinary course of business in an amount not to exceed
$5 million at any one time outstanding.
Asset Sales
The Company will not, and will not permit any of its Subsidiaries to, (a)
sell, lease, transfer or otherwise dispose of (including by way of a
sale-and-leaseback) any Business Segment (as defined in the Indenture), either
in a single transaction or a group of related transactions, other than the sale
of inventory or materials in the ordinary course of business (provided that the
sale, lease, conveyance or other disposition of all or substantially all of the
assets of the Company shall be governed by the provisions of the Indenture
described below under the caption "Merger, Consolidation or Sale of Assets"), or
(b) sell equity securities of any of its Subsidiaries for net proceeds in excess
of $5 million, in each case whether in a single transaction or a series of
related transactions (each of the foregoing, an "Asset Sale"), unless (x) the
Company (or the Subsidiary, as the case may be) receives consideration at the
time of such Asset Sale at least equal to the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) of the assets sold or otherwise disposed of and (y) at
least 80% of the consideration therefor received by the Company or such
Subsidiary is in the form of cash; provided, however, that the amount of (A) any
liabilities (as shown on the Company's or such Subsidiary's most recent balance
sheet or in the notes thereto), of the Company or any Subsidiary that are
assumed by the transferee of any such assets and (B) any notes or other
obligations received by the Company or any such Subsidiary from such transferee
that are promptly, but in no event more than 30 days after receipt, converted by
the Company or such Subsidiary into cash, shall be deemed to be cash (to the
extent of the cash received) for purposes of this provision.
<PAGE> 34
Within 180 days after any Asset Sale (the "Asset Sale Application Period"),
the Company may apply the Net Proceeds from such Asset Sale to either (a)
permanently reduce the availability under the Revolving Credit Facility (and if
the outstanding principal amount under the Revolving Credit Facility exceeds the
availability thereunder after such reduction, then reduce the amount outstanding
to an amount at least equal to such availability), or (b) an investment in
another business or capital expenditure or other fixed assets in the same or a
similar line of business as the Company was engaged in on the date of the Series
B Indenture. Any Net Proceeds from the Asset Sale that are not applied or
invested as provided in the preceding sentence constitute "Excess Proceeds." In
accordance with the provisions of the Indenture, the Company shall make an offer
(an "Asset Sale Offer") to all Holders of the Registered Notes to purchase the
maximum principal amount of Registered Notes that may be purchased out of the
Excess Proceeds, at an offer price in cash in an amount equal to 100% of the
outstanding principal amount thereof plus accrued and unpaid interest, if any,
to the date fixed for the closing of such offer; provided, however, that in the
event that the Excess Proceeds from such Asset Sale, plus the Excess Proceeds
from all prior Asset Sale Offers which have not been applied to an Asset Sale
Offer pursuant to the Indenture or the Indenture, are less than $2.0 million,
the application of such aggregate Excess Proceeds to an Asset Sale Offer may be
deferred until such time as such aggregate Excess Proceeds, plus the aggregate
amount of Excess Proceeds resulting from any subsequent Asset Sale(s), are at
least equal to $2.0 million. To the extent that the aggregate amount of
Registered Notes tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Company may use such deficiency for general corporate
purposes. If the aggregate principal amount of Registered Notes surrendered by
Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Registered Notes to be purchased on a pro rata basis.
Liens
Neither the Company nor any of its Subsidiaries may directly or indirectly
create, incur, assume or suffer to exist any Lien on any asset now owned or
hereafter acquired, or any income or profits therefrom or assign or convey any
right to receive income therefrom, except (i) Liens on accounts receivable and
inventory of the Company and its Subsidiaries and on the other assets described
in clause (C) of subdivision (i) of Section 10.01(d) of the Indenture, and the
proceeds thereof, securing Indebtedness (and, whether or not included as
Indebtedness, trade letters of credit and/or standby letters of credit and/or
reimbursement obligations in respect thereof, and any and all related interest,
fees and related obligations) pursuant to the Revolving Credit Facility in an
aggregate principal amount (as to borrowings) and an aggregate undrawn face
amount (as to letters of credit, whether or not constituting Indebtedness) not
to exceed $50 million in the aggregate at any one time outstanding (as such
aggregate amount may be permanently reduced from time to time pursuant to
Section 4.11 of the Indenture), (ii) Purchase Money Liens or construction
mortgages created on any type of property, construction or improvement of such
property by the Company or a Foreign Subsidiary to secure the purchase price or
construction cost or improvement cost of only such property in an amount up to
100% of the total cost of such property, construction or improvement, (iii)
Liens to secure obligations for which the Company is fully indemnified by Dow
Corning, provided that the Company provides the Trustee with an Officers'
Certificate setting forth the good faith opinion of the Company's Board of
Directors that Dow Corning is indemnifying the Company in full for all
liabilities, damages and costs relating to such Lien and the obligations it
secures and (iv) Liens on property of the Company or its Subsidiaries which
secure environmental claims of any governmental authority; provided, that all
such claims do not exceed $1 million in the aggregate, provided further that
such environmental claims are being contested or remedied in good faith by the
Company and, provided further that if the Company obtains security (in the form
of a letter of credit, cash collateral, escrow account or indemnity from a third
party which the Company deems financially capable of performing its obligations
under such indemnity), to secure the payment and satisfaction of any such claim,
such environmental claim shall not be counted towards such $1 million aggregate
limitation to the extent such security secures such payment and satisfaction,
(v) Liens securing the obligations under the Registered Notes and the Indenture,
and (vi) Permitted Liens.
Limitation on Granting Liens and Restrictions on Subsidiary Dividends
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of (a) the Company or
any Subsidiary to grant Liens on the assets of such Person in favor of the
Holders of the Registered Notes, or (b) any Subsidiary to (i) pay dividends or
make any other distributions to the Company or any of its Subsidiaries (A) on
its Capital Stock or (B) with respect to any other interest or participation in,
or measured by, its profits, or (ii) pay any indebtedness owed to the Company or
any of its Subsidiaries, or (c) any Subsidiary to make loans or advances to the
Company or any of its Subsidiaries or (d) any Subsidiary to transfer any of its
properties or assets to the Company or any of its Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (i) the Revolving
Credit Facility, provided that such restrictions do not restrict the granting or
perfecting of Liens on the collateral
<PAGE> 35
securing the Registered Notes and any remaining Old Notes, as contemplated by
the Indenture, (ii) the Indenture, the Registered Notes, and any remaining Old
Notes (iii) applicable law, (iv) any instrument governing Indebtedness or
capital stock of a person acquired (including by way of merger or consolidation)
by the Company or any of its Subsidiaries as in effect at the time of such
acquisition (except to the extent such Indebtedness was incurred in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any person, or the properties or assets of any person, other than
the person, or the property or assets of the person, so acquired, (v) with
respect to clauses (a) and (d) above, (1) restrictions on encumbering in leases
and other agreements entered into prior to the date of the Indenture and (2)
customary restrictions on encumbering in leases and other agreements entered
into on or after the date of the Indenture in the ordinary course of business,
(vi) with respect to clauses (a) and (d) above, Purchase Money obligations,
provided that such encumbrance or restriction does not apply to any other
property or asset of the Company or its Subsidiaries, and (vii) permitted
Refinancing Indebtedness, provided that such restrictions contained in any
agreement governing such Refinancing Indebtedness are no more restrictive taken
as a whole than those contained in any agreements governing the Indebtedness
being refinanced.
Merger, Consolidation, or Sale of Assets
The Company may not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions to, another corporation, person or entity
unless (i) the Company is the surviving corporation or the entity or the person
formed by or surviving any such consolidation or merger (if other than the
Company) or to which such sale, assignment, transfer, lease, conveyance or other
dispositions shall have been made is a corporation organized or existing under
the laws of the United States, any state thereof or the District of Columbia;
(ii) the entity or person formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made assumes all the
obligations of the Company pursuant to a supplemental indenture in a form
reasonably satisfactory to the Trustee, under the Registered Notes, any
remaining Old Notes, and the Indenture; (iii) immediately after such transaction
no Default or Event of Default exists; and (iv) the Company or any Corporation
formed by or surviving any such consolidation or merger, or to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been made
(A) will have Consolidated Net Worth (immediately after the transaction but
prior to any purchase accounting adjustments resulting from the transaction)
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the covenant entitled "Incurrence of Indebtedness and Issuance
of Preferred Stock."
Transactions with Affiliates
The Company will not, and will not permit any of its Subsidiaries to,
conduct Affiliate Transactions, except for (a) Affiliate Transactions of
aggregate value less than $1 million which are on terms that are no less
favorable to the Company or the relevant Subsidiary than those that would have
been obtained in a comparable transaction by the Company or such Subsidiary with
an unrelated person and which are conducted in good faith and (b) Affiliate
Transactions in which the Company delivers to the Trustee an opinion as to the
fairness to the Company or such Subsidiary from a financial point of view issued
by an investment banking firm of national standing; provided, however, that (i)
any employment agreement entered into by the Company or any of its Subsidiaries
in the ordinary course of business and with the approval of the Company's board
of directors, (ii) transactions between or among the Company and/or its
Subsidiaries, (iii) transactions permitted by the provisions of the Indenture
described above under the covenant "Restricted Payments," (iv) the rendering of
management services by Kidd, Kamm & Company and the payment by the Company for
such services pursuant to the Management Services Agreement (as defined in the
Indenture) and (v) the rendering of services by Kidd, Kamm & Company in
connection with the acquisition of the Predecessor and the payment for such
services by the Company on the closing date of such acquisition, in each case,
shall not be deemed Affiliate Transactions.
Maintenance of Consolidated Net Worth
The Company shall not permit Consolidated Net Worth to be (i) less than
$17.5 million at the end of the fiscal year ending December 31, 1997 or (ii)
less than $20 million at the end of any fiscal year thereafter. It is
management's belief that the Company will be able to achieve this Consolidated
Net Worth requirement.
<PAGE> 36
Reports
Whether or not required by the rules and regulations of the Commission, so
long as any Registered Notes are outstanding, the Company will furnish to the
holders of Registered Notes all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and, with respect to the annual information only, a report thereon by
the Company's certified independent accountants.
Payments for Consent
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Registered Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Registered Notes unless such consideration is offered to
be paid or agreed to be paid to all holders of the Registered Notes that
consent, waive or agree to amend in the time frame set forth in the solicitation
documents relating to such consent, waiver or agreement.
Events of Default and Remedies
Each of the following constitutes an Event of Default under the Indenture:
(i) default for 30 days in the payment when due of interest on the Registered
Notes; (ii) default in payment when due of principal on the Old Notes or the
Registered Notes; (iii) failure by the Company to comply with the provisions
described under the covenants, "Asset Sales," "Merger, Consolidation, or Sale of
Assets," "Change of Control," "Restricted Payments," "Incurrence of Indebtedness
and Issuance of Preferred Stock" or "Minimum Consolidated Net Worth"; (iv)
failure by the Company for 30 days after notice to comply with certain other
agreements in the Indenture, the Registered Notes or the Collateral Agreements;
(v) default under (after giving effect to any applicable grace periods or any
extension of any maturity date) any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Subsidiaries (or
the payment of which is guaranteed by the Company or any of its Subsidiaries)
whether such Indebtedness or guarantee existed on the date of the Indenture, or
was or is created after the date of the Indenture if (a) either (x) such default
results from the failure to pay principal of or interest on such Indebtedness or
(y) as a result of such default the maturity of such Indebtedness has been
accelerated, and (b) the principal amount of such Indebtedness, together with
the principal amount of any other such Indebtedness with respect to which a
default (after the expiration of any applicable grace period or any extension of
the maturity date) has occurred, or the maturity of which has been so
accelerated, exceeds $2 million in the aggregate; (vi) failure by the Company or
any of its Subsidiaries to pay final judgments (other than any judgment as to
which a reputable insurance company has accepted full liability) aggregating in
excess of $1 million which judgments are not stayed or discharged within 60 days
after their entry, (vii) breach by the Company of any material representation or
warranty set forth in the Collateral Agreements, which breach is not cured by
the Company or waived within 30 days after notice to comply with such breach of
a material representation or warranty, or repudiation by the Company of its
obligations under the Collateral Agreements or the unenforceability of the
Collateral Agreements against the Company for any reason; and (ix) certain
events of bankruptcy or insolvency with respect to the Company or any of its
Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Registered
Notes may declare by written notice all the Registered Notes to be due and
payable immediately. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency, all outstanding
Registered Notes will become due and payable without further action or notice.
Holders of the Registered Notes may not enforce the Indenture or the Registered
Notes except as provided in the Indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding Registered
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from holders of the Registered Notes notice of any continuing
Default or Event of Default (except a Default or Event of Default relating to
the payment of principal or interest) if it determines that withholding notice
is in their interest.
The holders of a majority in aggregate principal amount of the Registered
Notes then outstanding, by written notice to the Trustee, may on behalf of the
holders of all of the Registered Notes (a) waive any existing Default or Event
of Default and its consequences under the Indenture except a continuing Default
or Event of Default in the payment of
<PAGE> 37
interest on, or the principal of, the Registered Notes, and/or (b) rescind an
acceleration and its consequences if the rescission would not conflict with any
judgment or decree if all existing Events of Default (except nonpayment of
principal or interest that has become due solely because of the acceleration)
have been cured or waived. Pursuant to Section 4.03 of the Indenture, the
Company must deliver an officers' certificate to the Trustee within 120 days
after the end of each fiscal year stating that, to the knowledge of each
signatory officer, each has complied with and is not in default of any of the
terms of the Indenture, or where an Event of Default has occurred, certifying to
any cure.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Registered Notes, any remaining Old Notes, the Indenture, the Security
Agreement, or the Pledge Agreement or for any claim based on, in respect of, or
by reason of, such obligations or their creation. Each holder of the Registered
Notes by accepting a Registered Note waives and releases all such liability. The
waiver and release are part of the consideration for issuance of the Registered
Notes. Such waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
Defeasance and Discharge of the Indenture and the Registered Notes
If, among other things, (A) the Company irrevocably deposits, or causes to
be deposited, in trust with the Trustee or the Paying Agent, at any time prior
to the stated maturity of the Registered Notes or the date of redemption of all
the outstanding Registered Notes, as trust funds in trust, money or direct
noncallable obligations of or guaranteed by the United States of America in an
amount sufficient (as to principal, premium (if any) and interest, but without
reinvestment thereof) to pay timely and discharge the entire principal of the
then outstanding Registered Notes and all interest due thereon to maturity or
redemption; (B) the Company delivers to the Trustee an Officer's Certificate
stating that all conditions precedent to satisfaction and discharge of the
Indenture have been complied with, and an Opinion of Counsel to the same effect;
(C) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit; and (D) the Company shall have delivered to the Trustee an
Opinion of Counsel or a ruling received from the Internal Revenue Service to the
effect that the holders of the Registered Notes will not recognize income, gain
or loss for Federal income tax purposes as a result of the Company's exercise of
its option under this provision and will be subject to Federal income tax on the
same amount and in the same manner and as the same times as would have been the
case if such option had not been exercised, then the Indenture shall cease to be
of further effect as to all outstanding Registered Notes (except, among other
things, as to (i) remaining rights of registration of transfer and substitution
and exchange of the Registered Notes, (ii) rights of holders to receive payment
of principal of and interest on the Registered Notes, and (iii) the rights,
obligations and immunities of the Trustee).
Transfer and Exchange
A holder may transfer or exchange Registered Notes in accordance with the
Indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any Registered Note selected for redemption. Also, the Company is not required
to transfer or exchange any Registered Note for a period of 15 days before a
selection of Registered Notes to be redeemed.
The registered holder of a Registered Note will be treated as the owner of
the security for all purposes.
Amendment, Supplement and Waiver
Except as provided in the next succeeding paragraph, the Indenture or the
Registered Notes may be amended or supplemented with the consent of the holders
of at least a majority in principal amount of the Registered Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange offer for Registered Notes) and
<PAGE> 38
any existing Default or Event of Default or compliance with any provision of the
Indenture or the Registered Notes may be waived with the consent of the holders
of a majority in principal amount of the then outstanding Registered Notes
(including consents obtained in connection with a tender offer or exchange offer
for Registered Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Registered Notes held by a non-consenting holder of
Registered Notes) (i) reduce the principal amount of Registered Notes whose
holders must consent to an amendment, supplement or waiver, (ii) reduce the
principal of or change the fixed maturity of any Registered Note or alter the
provisions with respect to the redemption of the Registered Notes or alter the
provisions with respect to repurchases or redemptions of the Registered Notes
with net proceeds from Asset Sales or upon a Change of Control, (iii) reduce the
rate of or change the time for payments of interest on any Registered Note, (iv)
waive a Default or Event of Default in the payment of principal of or premium,
if any, or interest on the Registered Notes, (v) make any Registered Note
payable in money other than that stated in the Registered Notes, (vi) make any
change in the provisions of the Indenture relating to waivers of past Defaults
or the rights of holders of Registered Notes to receive payments of principal of
or interest on the Registered Notes, (vii) waive a redemption payment with
respect to any Registered Note or (vii) make any change in the foregoing
amendment and waiver provisions.
Notwithstanding the foregoing, without the consent of any holder of
Registered Notes, the Company and the Trustee may amend or supplement the
Indenture or the Registered Notes to cure any ambiguity, defect or
inconsistency, to provide for uncertificated Registered Notes in addition to or
in place of certificated Registered Notes, to provide for the assumption of the
Company's obligations to holders of the Registered Notes in the case of a merger
or consolidation, to make any change that would provide any additional rights or
benefits to the holders of the Registered Notes or that does not adversely
affect the legal rights under the Indenture of any such holder, or to comply
with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act.
Concerning the Trustee
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The holders of a majority in principal amount of the then outstanding
Registered Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent person in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Registered Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
Certain Definitions
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified person, Indebtedness
of any other person existing at the time such other person merged with or into
or became a Subsidiary of such specified person, including Indebtedness incurred
in connection with, or in contemplation of, such other person merging with or
into or becoming a Subsidiary of such specified person.
"Affiliate" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a
<PAGE> 39
person shall be deemed to be control. Notwithstanding the above, neither
Jefferies & Company, Inc. nor any of its Affiliates shall be deemed to be
Affiliates of the Company.
"Business Segment" means (i) each Significant Subsidiary or (ii) any assets
or properties of the Company or any Subsidiary, now owned or hereafter acquired,
with an aggregate value of $5 million or greater.
"capital lease obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"Capital Stock" means any and all shares, interest, participations, rights
or other equivalents (however designed) of corporate stock, including, without
limitation, partnership interests.
"Consolidated Cash Flow" means with respect to any person for any period,
the Consolidated Net Income of such person for such period plus (a) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing Consolidated
Net Income), plus (b) provision for taxes based on income or profits to the
extent such provision for taxes was included in computing Consolidated Net
Income, plus (c) consolidated interest expense of such person for such period,
whether paid or accrued (including amortization of original issue discount,
non-cash interest payments and the interest component of capital lease
obligations), to the extent such expense was deducted in computing Consolidated
Net Income, plus (d) amortization (including amortization of good will and other
intangibles) of such person for such period to the extent such amortization was
deducted in computing Consolidated Net Income, in each case, on a consolidated
basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any person for any period,
the aggregate of the Net Income of such person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided,
that (i) the Net Income of any person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or distributions paid to the referent person
or a wholly owned Subsidiary, (ii) the Net Income of any person that is a
Subsidiary (other than a subsidiary of which at least 80% of the Capital Stock
having ordinary voting power for the election of directors or other governing
body of such Subsidiary is owned by the referent person directly or indirectly
through one or more Subsidiaries) shall be included only to the extent of the
amount of dividends or distributions paid to the referent person or a wholly
owned Subsidiary, (iii) the Net Income of any person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any person, the sum of (i)
the consolidated equity of the common stockholders of such person and its
consolidated Subsidiaries plus (ii) the respective amounts reported on such
person's most recent balance sheet with respect to any series of preferred stock
(other than Disqualified Stock) that by its terms is not entitled to the payment
of dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to the
extent of (a) any cash received by such person upon issuance of such preferred
stock and (b) the fair market value of any non-cash consideration received by
such person upon issuance of such preferred stock provided that such value has
been determined in good faith by a nationally-recognized investment bank, plus
(iii) with respect to the Company, the respective amounts reported on the
Company's most recent balance sheet for the Series A Preferred Stock, less (x)
all write-ups, subsequent to the date of the Indenture, in the book value of
assets owned by such person or a consolidated Subsidiary of such person, other
than (A) write-ups resulting from foreign currency translations and (B)
write-ups upon the acquisition of assets acquired in a transaction to be
accounted for by purchase accounting under GAAP, (y) all investments in
unconsolidated Subsidiaries and in persons that are not Subsidiaries (except, in
each case, a Permitted Investment), and (z) all unamortized debt discount and
expense and unamortized deferred financing charges (except deferred financing
charges arising from the issuance of the Registered Notes), all of the foregoing
determined in accordance with GAAP; provided however, that for the purposes of
Section 4.14 in the Indenture, the calculation of consolidated equity of the
common stockholders of such Person and its consolidated Subsidiaries as
expressed in the first clause (i) of this definition shall not require a
deduction for accrued dividends on the Company's Series B Preferred Stock and
Series C Preferred Stock.
"Default" means any event known to the Company or which should have been
known to the Company after due inquiry that is or with the passage of time or
the giving of notice or both would be an Event of Default.
<PAGE> 40
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the final
date of maturity of the Registered Notes.
"Equity Interests" means Capital Stock or warrants, options or other rights
to acquire Capital Stock (but excluding any debt security that is convertible
into, or exchangeable for Capital Stock).
"Fixed Charges" means, with respect to any person for any period, the sum
of (a) consolidated interest expense of such person for such period, whether
paid or accrued, to the extent such expense was deducted in computing
Consolidated Net Income (including amortization of original issue discount,
non-cash interest payments and the interest component of capital leases but
excluding amortization of deferred financing fees) and (b) the product of (i)
all cash dividend payments (and non-cash dividend payments in the case of a
person that is a Subsidiary) on any series of preferred stock of such person,
times (ii) a fraction, the numerator of which is one and the denominator of
which is one minus the then current combined federal, state and local statutory
tax rate of such person, expressed as decimal, in each case, on a consolidated
basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any person for any
period, the ratio of the Consolidated Cash Flow of such person for such period
to the Fixed Charges of such person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, guarantees, repays,
repurchases or redeems any Indebtedness (other than any Indebtedness under the
Revolving Credit Facility, or any other revolving credit borrowings) or issues
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the event for which the
calculation of the Fixed Charge Coverage Ratio is made, then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance or redemption of preferred stock, as if the same had occurred at
the beginning of the applicable period.
"Foreign Subsidiary" means, for any person, any Subsidiary of such person
which derives substantially all of its revenue from sales to non-U.S. persons.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any person, the obligations of
such person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any person, any indebtedness of such
person whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letter of credit (or
reimbursement agreements in respect thereof) or representing the balance
deferred and unpaid of the purchase price of any property (including pursuant to
capital leases but excluding the balance deferred and unpaid of the purchase
price of currency) or representing any Hedging Obligations, except any such
balance that constitutes an accrued expense or trade payment, if and to the
extent any of the foregoing indebtedness (other than Hedging Obligations) would
appear as a liability upon a balance sheet of such person prepared in accordance
with GAAP, and also includes, to the extent not otherwise included, the
Guarantee of items which would be included within this definition.
"Investments" means, with respect to any person all investments by such
person in other persons (including Affiliates) in the forms of loans (including
Guarantees), advances or capital contributions (excluding commission, travel and
similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities and all other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any
<PAGE> 41
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell or give a security interest in
and any filing of or agreement to give any financing statement under the Uniform
Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any person, the net income (loss) of
such person, determined in accordance with GAAP, excluding, however, any gain
(but not loss), together with any related provision for taxes on such gain (but
not loss) realized in connection with any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), and
excluding any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale, net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
secured by a Lien on the asset or assets the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Investments" means (a) any Investments in the Company, (b) any
Investments in cash equivalents; (c) Investments by the Company in a person, if
as a result of such Investment (i) such person becomes a wholly-owned Subsidiary
of the Company and the Capital Stock of such Subsidiary is pledged to secure the
obligations under the Registered Notes or (ii) such person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to or is liquidated into, the Company or a wholly-owned
Subsidiary of the Company; (d) Investments by the Company in any other Person
(whether or not the Investment is in the form of Capital Stock or Indebtedness
issued by, or other Equity Interests relating to, such other Person), provided
that (i) such other Person is not then, and does not thereby become, a
Subsidiary of the Company, (ii) the Board of Directors has adopted a resolution
evidencing its determination that such Investment is in furtherance of a
corporate purpose of the Company, (iii) no Default under Section 4.08 of the
Indenture would result from such Investment and (iv) the aggregate amount of all
Investments under this clause (d) does not exceed $10.0 million at any one time
outstanding; and (e) other Investments that do not exceed in the aggregate $2.0
million at any time outstanding.
"Permitted Liens" means (a) Liens in favor of the Company and/or its
Subsidiaries other than with respect to intercompany Indebtedness; (b) Liens on
property of a person existing at the time such person is acquired by, merged
into or consolidated with the Company or any Subsidiary of the Company; (c)
Liens on property existing at the time of acquisition thereof by the Company or
any Subsidiary of the Company; provided, that such Liens were not created in
contemplation of such acquisition; (d) Liens incurred in the ordinary course of
business in respect of Hedging Obligations or to support trade letters of
credit; (e) Liens to secure Indebtedness for borrowed money of a Subsidiary to
the Company or to another wholly-owned Subsidiary; (f) Liens (other than
pursuant to ERISA or environmental laws) to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business; (g) Liens existing on
the date of the Indenture including those securing the Registered Notes; (h)
Liens for taxes, assessments or governmental charges or claims that are not yet
delinquent or that are being contested or remedied in good faith by appropriate
proceeding, promptly instituted and diligently concluded; provided, that any
reserve or other appropriate provision as shall be required in conformity with
GAAP shall have been made therefor, (i) Liens arising by reason of any judgment,
decree or order of any court with respect to which the Company or any of its
Subsidiaries shall then in good faith be prosecuting an appeal or other
proceedings for review, the existence of which judgment, order or decree is not
an Event of Default under the Indenture; (j) encumbrances consisting of zoning
restrictions, survey exceptions, utility easements, licenses, rights of way,
easements of ingress or egress over property of the Company or any of its
Subsidiaries, rights or restrictions of record on the use of real property,
minor defects in title, landlord's and lessor's liens under leases on property
located on the premises rented, any interest or title of a lessor in respect of
any capital lease, and similar encumbrances, rights or restrictions on personal
or real property not interfering in any material respect with the ordinary
conduct of the business of the Company or any of its Subsidiaries; (k) Liens and
priority claims incidental to the conduct of business or the ownership of
properties incurred in the ordinary course of business and not in connection
with the borrowing of money or the obtaining of advances or credit, including,
without limitation, liens incurred or deposits made in connection with
mechanic's liens, workers' compensation, unemployment insurance and other types
of social security, or to secure the performance of tenders, bids, and
government contracts; and (l) any extension, renewal, or replacement (or
successive extensions, renewals or replacements), in whole or in part, of Liens
described in clauses (a) through (k) above.
<PAGE> 42
"Person" or "person" means any individual, corporation, partnership, joint
venture, association, joint stock company, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Purchase Money Liens" means (i) Liens to secure or securing Purchase Money
Obligations permitted to be incurred under the Indenture and (ii) Liens to
secure Refinancing Indebtedness incurred solely to Refinance Purchase Money
Obligations provided that such Refinancing Indebtedness is incurred no later
than six (6) months after the satisfaction of such Purchase Money Obligations.
"Purchase Money Obligations" means Indebtedness representing, or incurred
to finance, the cost of acquiring any assets (including Purchase Money
Obligations of any other person at the time such other person is merged with or
into or is otherwise acquired by the Company) other than the assets acquired in
the Acquisition, provided that (i) the principal amount of such Indebtedness
does not exceed 100% of such cost, (ii) any Lien securing such Indebtedness does
not extend to or cover any other asset or property other than the asset or
property being so acquired and (iii) such Indebtedness is incurred, and any
Liens with respect thereto are granted, within 180 days of the acquisition of
such property or asset.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Significant Subsidiary" means any Subsidiary which would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subsidiary" means, with respect to any person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
person or one or more of the other Subsidiaries of that person or a combination
thereof.
"Voting Stock" means, with respect to any Person, one or more classes of
the Capital Stock of such Person having general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of such Person (irrespective of whether or not at the time Capital
Stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years (rounded CONFIDENTIAL to the nearest
one-twelfth) obtained by dividing (a) the then outstanding principal amount of
such Indebtedness into (b) the total of the product obtained by multiplying (x)
the amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final maturity, in
respect thereof, by (y) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment.
Book-Entry; Delivery and Form
Most of the Old Notes issued in the First Exchange Offer were issued in the
form of Global Securities (together, the Global Security). The Global Security
was deposited with, and on behalf of, the Depository and registered in the name
of Cede & Co., as nominee of the Depository. It is anticipated that upon
completion of the Exchange Offer a new "Global Security" evidencing the
Registered Notes will be exchanged for the "Global Security" evidencing the Old
Notes.
Ownership of beneficial interests in a Global Security will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in a Global
Security will be shown on, and the transfer of that ownership will be effected
only through, records maintained by DTC or its nominee (with respect to
interests of participants) and the records of participants (with respect to
interests of persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of a
Global Security, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the Securities represented by such Global Security for
all purposes under the Indenture and the Registered Notes. No beneficial owner
of an interest in a Global Security will be able to transfer that interest
except in accordance with DTC's applicable procedures, in addition to those
provided for under the Indenture.
<PAGE> 43
Payments of the principal of, and interest on, a Global Security will be
made to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of a Global Security, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Security as shown on the
records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Security held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers registered in the names of nominees for such customers. Such payments
will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC will take any action permitted to be taken by
a holder of Registered Notes (including the presentation of Registered Notes for
exchange as described below) only at the direction of one or more participants
to whose account the DTC interests in a Global Security is credited and only in
respect of such portion of the aggregate principal amount of Registered Notes as
to which such participant or participants has or have given such direction.
However, if there is an Event of Default under the Registered Notes, DTC will
exchange the applicable Global Security for Certificated Securities, which it
will distribute to its participants.
The Company understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in a Global Security among participants of
DTC, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Company nor the Trustee will have any responsibility for the performance by DTC
or their respective participants or indirect participants of their respective
obligations under the rules and procedures governing their operations.
Certificated Securities
Upon acceptance for exchange of a Holder's Old Notes in definitive form,
Registered Notes will be issued in definitive form in the principal amount of
such Old Notes and registered in the name of the registered Holder of such Old
Notes (or in accordance with the "Special Exchange Instructions" in the Letter
of Transmittal) unless the Holder expressly requests in writing that such newly
issued Registered Notes be held in book-entry form at the Depository. The
certificates representing the Registered Notes will be issued in fully
registered form without interest coupons.
Subject to certain conditions, any person having a beneficial interest in
the Global Security may, upon request to the Trustee, exchange such beneficial
interest for Registered Notes in the form of Certificated Securities. Upon any
such issuance, the Trustee is required to register such Certificated Securities
in the name of, and cause the same to be delivered to, such person or persons
(or the nominee of any thereof). All such Certificated Securities evidencing Old
Notes would be subject to the legend requirements applicable to the Old Notes.
In addition, if (i) the Company notifies the Trustee in writing that the
Depository is no longer willing or able to act as a depository and the Company
is unable to locate a qualified successor within 90 days or (ii) the Company, at
its option, notifies the Trustee in writing that it elects to cause the issuance
of Registered Notes in the form of Certificated Securities under the Indenture,
then, upon surrender by the Global Note Holder of its Global Note, Registered
Notes in such form will be issued to each person that the Global Note Holder and
the Depository identify as being the beneficial owner of the related Registered
Notes.
<PAGE> 44
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the Registered Notes
represented by the Global Security (including principal, premium, if any,
interest and Liquidated Damages, if any) be made by wire transfer of immediately
available funds to the accounts specified by the Depository. With respect to
Certificated Securities, the Company will make all payments of principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available funds to the accounts specified by the Holders thereof or,
if no such account is specified, by mailing a check to each such Holder's
registered address. Secondary trading in long-term notes and debentures of
corporate issuers is generally settled in clearing-house or next-day funds. In
contrast, the Registered Notes represented by the Global Security are expected
to be eligible to trade in the PORTAL Market and to trade in the Depository's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such Registered Notes will, therefore, be required by the Depository
to be settled in immediately available funds. The Company expects that secondary
trading in the Certificated Securities will also be settled in immediately
available funds.
Registration Rights; Liquidated Damages
The Company and the Holders entered into the Registration Rights Agreement
as of August 7, 1997. Pursuant to the Registration Rights Agreement, the Company
agreed to (i) file with the Commission the Registration Statement on Form S-4
under the Securities Act with respect to the Registered Notes on or prior to 30
days after the Closing Date, (ii) use its reasonable best efforts to cause such
Registration Statement to become effective under the Securities Act on or prior
to 90 days after the Closing Date, (iii) use its reasonable best efforts to keep
the Registration Statement effective until consummation of the Exchange Offer
pursuant to its terms, and (iv) use its reasonable best efforts to consummate
the Exchange Offer not later than 120 days following the Closing Date unless the
Exchange Offer would not be permitted by a policy of the SEC. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
If the Form S-4 is not available with respect to the Exchange Offer, and,
in any event, if any holder of Transfer Restricted Securities shall notify the
Company that it is either not permitted by law or any policy of the Commission
to participate in the Exchange offer or is a broker dealer, the Company is
required to file with the Commission the Shelf Registration Statement to cover
resales of Transfer Restricted Securities by such holders thereof who satisfy
certain conditions relating to the provision of information in connection with
the Shelf Registration Statement. The Company will use its reasonable best
efforts to cause the Shelf Registration Statement to be declared effective by
the Commission as promptly as practicable after the date of filing.
The Registration Rights Agreement requires the Company to pay liquidated
damages if (i) the Registration Statement is not filed with the Commission on or
prior to 30 days after the Closing Date, (ii) the Registration Statement has not
been declared effective by the Commission within 90 days of the Closing Date,
(iii) the Company has not accepted for exchange Registered notes for all Old
Notes validly tendered in accordance with the terms of the Exchange Offer within
30 days after the date on which the Registration Statement is declared effective
by the Commission, or (iv) if a Shelf Registration Statement is filed and
declared effective by the Commission but thereafter ceases to be effective
without being succeeded within 30 days by a subsequent Shelf Registration filed
and declared effective (each event, a "Registration Default"). If a Registration
Default occurs the Company is required to pay liquidated damages to each Holder
during the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to .50% per annum on the principal
amount of Old Notes held by such holder, increasing by an additional .50% per
annum at the beginning of each subsequent 90-day period up to a maximum of 2.0%
per annum; provided that such liquidated damages will, in each case, cease to
accrue (subject to the occurrence of another Registration Default) on the date
on which all Registration Defaults have been cured. The filing and effectiveness
of the Registration Statement of which this Prospectus is a part and the
consummation of the Exchange Offer will eliminate all rights of the Holders
eligible to participate in the Exchange Offer to receive damages that would have
been payable if such actions had not occurred.
All accrued liquidated damages shall be paid to holders of record in the
same manner as interest payments on the Old Notes or the Registered Notes on
semi-annual dates which correspond to the Interest Payment Dates. Holders of Old
Notes will be required to make certain representations to the Company (as
described in the Registration Rights Agreement) in order to participate in the
Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments on the
Shelf Registration Statement within
<PAGE> 45
the time periods set forth in the Registration Rights Agreement in order to have
their Old Notes included in the Shelf Registration Statement and benefit from
the provisions regarding liquidated damages set forth in the preceding sentence.
<PAGE> 46
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain material U.S. federal income tax
consequences resulting from the Exchange Offer. The discussion is based on the
Internal Revenue Code of 1986, as amended (the "Code"), U.S. Treasury
Regulations (including temporary and proposed) promulgated thereunder, rulings
and decisions now in effect, all of which are subject to change possibly with
retroactive effect. The discussion assumes that as to any holder, the Registered
Notes and Old Notes are capital assets as of the Exchange Date. This discussion
does not address state, local, foreign or other tax laws and does not purport to
cover all aspects of U.S. federal income taxation that may be relevant to, or
the actual tax effect that any of the matters described herein will have on
certain holders (including insurance companies, tax-exempt organizations,
financial institutions, securities dealers, taxpayers subject to the alternative
minimum tax and persons other than U.S. Holders, as defined below) who may be
subject to special rules not discussed below. As used above, the term "U.S.
Holder" means a beneficial owner of Old Notes or Registered Notes that is, for
U.S. federal income tax purposes, (i) an individual citizen or resident of the
United States, (ii) a U.S. domestic corporation or (iii) otherwise subject to
U.S. federal income tax on a net income basis in respect of the Old Notes or
Registered Notes. HOLDERS OF OLD NOTES ARE URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND OTHER TAX CONSEQUENCES OF THE EXCHANGE
OFFER AND OF THE CONTINUED HOLDING AND DISPOSITION OF EITHER THE OLD NOTES OR
THE REGISTERED NOTES.
Tax Consequences of the Exchange Offer
The exchange of Old Notes for Registered Notes pursuant to the Exchange
Offer will not be a taxable event for United States federal income tax purposes,
and the tax characteristics of the Registered Notes (e.g., tax basis, holding
period, issue price and issue date) will be the same as those of the Old Notes
exchanged therefor.
For purposes of this discussion, any reference to "Notes" is to both the
Old Notes and the Registered Notes.
Payment of Interest
Consequences under the Contingent Payment Regulations
As described above under "Description of the Registered Notes - Principal,
Maturity and Interest," interest on the Registered Notes will accrue at the rate
of 11 3/4 % per annum, provided that the interest rate will increase to 12 1/4%
(such increase, the "Increased Interest") on August 7, 1998 if a Sale (as
defined in the Indenture) has not occurred by that time. In light of this
provision, the Notes may be subject to Treasury Regulations that apply to debt
instruments that provide for one or more contingent payments (the "contingent
payment regulations"), where the contingency is neither "remote" nor
"incidental." Subject to the discussion in the following paragraph, if the
possibility that the Company would be required to pay Increased Interest under
the Notes was not a remote or incidental contingency as of the issue date, a
holder (including a holder who otherwise uses a cash method of accounting for
federal income tax purposes) could be required to accrue all payments on the
Notes (including amounts that would otherwise constitute de minimis original
issue discount ("OID") and projected payments of interest) on a constant yield
basis and, in certain circumstances, to include market discount in income sooner
than otherwise required and to treat gain recognized on the disposition of the
Notes as interest income (rather than as capital gain). If applicable, the
contingent payment regulations would require the Company to prepare for holders
a projected payment schedule to determine the holders' interest accruals and any
necessary adjustments thereto.
However, the Notes would not be subject to the contingent payment
regulations if, based on all the facts and circumstances as of the issue date,
it was either (i) significantly more likely than not that a Sale would occur
within one year, or (ii) significantly more likely than not that a Sale would
not occur within one year. In such a case, the yield to maturity of the Notes
would be calculated based on the payment schedule that would be applicable under
(i) or (ii) above, as appropriate. A holder would be required to take into
account any OID resulting from such calculation on a constant yield basis over
the term of the Notes. Hence, if, as of the issue date of the Notes, it was
significantly more likely than not that a Sale would not occur within one year,
a holder would be required to include in income as OID, calculated on a constant
yield basis, a portion of the Increased Interest prior to the date such amount
is paid. Alternatively, if, as of the issue date of the Notes, it was
significantly more likely than not that a Sale would occur by
<PAGE> 47
August 7, 1998, the Notes would be treated as accruing interest at the rate of
11 3/4 % per annum, which would generally be taxable to a holder at the time
such interest is paid or accrued in accordance with such holder's method of tax
accounting. If, contrary to the assumption about the likelihood of a Sale that
is made for purposes of these rules, a Sale actually occurs or does not occur by
August 7, 1998, the Notes would be treated as having been reissued on the date
of the change in circumstances for purposes of applying the OID rules under
sections 1272 and 1273 of the Code, possibly including the contingent payment
regulations.
As of the issue date of the Notes, it was uncertain whether a Sale was, or
was not, significantly more likely than not to occur within one year thereof.
Accordingly, the Company expects that the Notes will be governed by the
contingent payment regulations, which would require a holder to accrue all
payments on the Notes as OID over their term based on the projected payment
schedule to be prepared by the Company (subject to later adjustments). Further,
if a Note is held with a tax basis that differs from the adjusted issue price
(as defined below), a holder would be required to reasonably allocate such
difference to the daily portions of interest or projected payments over the
remaining term of the Notes. Generally, until all remaining contingent payments
on the Notes become fixed, gain and (subject to certain limitations) loss
recognized by a holder with respect to the Notes would be ordinary, rather than
capital, in nature.
Holders are strongly urged to consult their tax advisors as to the tax
considerations relating to the payment of interest on the Notes, in particular
in connection with the possible application of the contingent payment
regulations.
Consequences if the Contingent Payment Regulations do not Apply
If, contrary to the company's expectation, the contingent payment
regulations discussed above were not to apply to the Notes, stated interest on
the Notes generally would be taxable to a holder as ordinary income at the time
that it is paid or accrued, in accordance with the holder's method of accounting
for U.S. federal income tax purposes. In addition, if the stated redemption
price at maturity (defined below) of the Notes exceeds their issue price by more
than a de minimis amount, the Notes will be treated as issued with OID. Such OID
will be includable in a holder's income on a constant yield basis over the term
of the Notes, regardless of such holder's method of accounting. In such a case,
a holder of Notes will be required to include accrued OID in gross income in
advance of the receipt of cash in respect of such income. The stated redemption
price at maturity of a debt instrument is the sum of all payments to be made
with respect to such instrument, other than interest at a single fixed rate (or
certain floating rates) that is unconditionally payable at least annually for
the entire term of the debt instrument (provided, however, that in the case of a
debt instrument providing for alternative payment schedules, such single fixed
rate is the lowest fixed rate payable under any alternative payment schedule).
Market Discount. A Note generally will be treated as purchased at a market
discount if (i) the amount for which a holder purchased the Note is less than
the Note's issue price and (ii) the Note's stated redemption price at maturity
(or, in the case of a Note issued with OID, the Note's "revised issue price")
exceeds the amount for which the holder purchased the Note by at least 0.25% of
such Note's stated redemption price at maturity (or revised issue price)
multiplied by the number of complete years to maturity. If such excess is not
sufficient to cause the Note to be treated as purchased at a market discount,
then such excess constitutes "de minimis market discount". The Code provides
that for these purposes, the "revised issue price" of a debt instrument
generally equals its issue price plus the amount of any previously accrued OID.
Any gain recognized on the maturity or disposition of, or any partial principal
payment on, a Note purchased at a market discount will be treated as ordinary
income to the extent that such gain or payment does not exceed the accrued
market discount on such Note. Alternatively, a holder who purchases a Note with
market discount may elect to include market discount in income currently over
the term of the Note. Such an election would apply to all debt instruments with
market discount acquired by the electing holder on or after the first taxable
year to which the election applies. This election, once made, may not be revoked
without the consent of the Internal Revenue Service (the "IRS"). Market discount
will accrue on a straight-line basis unless the holder elects to accrue such
market discount on a constant yield basis. Such an election would apply only to
the Note with respect to which such election is made and may not be revoked
without the consent of the IRS. A holder of a Note purchased with market
discount that does not elect to include market discount in income currently will
be required to defer until maturity or disposition deductions for interest on
borrowings allocable to such Note in an amount not exceeding the accrued market
discount on such Note.
Acquisition Premium. A holder who purchased a Note for a price less than or
equal to the stated redemption price at maturity but greater than the adjusted
issue price (such excess being "acquisition premium") generally will be entitled
to a reduction in the amount of OID otherwise required to be included in income.
The adjusted issue price of a Note will be the issue price increased by the
amount of OID previously includible in the gross income of any holder
<PAGE> 48
(determined without regard to any reduction for acquisition premium or
amortizable bond premium (discussed below)) reduced by any payments other than
qualified stated interest. The amount of the reduction to which a holder may be
entitled in any given year is equal to a fraction, the numerator of which is the
amount of the acquisition premium and the denominator of which is the excess of
the sum of all amounts payable with respect to the Note after the purchase date,
other than payments of qualified stated interest, over the adjusted issue price
of the Note on the date of purchase.
Amortizable Bond Premium. If a holder's initial tax basis in a Note exceeds
the amount payable at maturity of the Note, the excess will be treated as
"amortizable bond premium." In such case, a holder may elect under section 171
of the Code to amortize the bond premium annually on a constant yield basis.
Such holder's adjusted tax basis in the Note is decreased by the amount of the
allowable amortization. Amortizable bond premium is treated as an offset to
interest income on the related Note rather than as an interest deduction, except
as may be provided in the Treasury regulations. An election to amortize bond
premium would apply to amortizable bond premium on all taxable bonds held at or
acquired after the beginning of such holder's taxable year as to which the
election is made, and may be revoked only with the consent of the IRS.
Election to Treat All Interest as OID. A holder may elect to include in
gross income all interest that accrues on a Note on a constant yield basis. For
purposes of this election, interest includes qualified stated interest and OID,
market discount, de minimis market discount and unstated interest, if any, as
adjusted by acquisition premium, if any. This election will generally apply only
to the Note to which it is made and may not be revoked without the consent of
the IRS. Holders of Notes considering this election should consult their tax
advisors concerning the consequences thereof.
Sale, Exchange or Redemption
In general, a holder of Notes will recognize gain or loss upon the sale,
exchange, redemption, retirement or other disposition of the Notes measured by
the difference between the amount realized on the disposition (to the extent
such amount does not represent accrued but unpaid interest) and the holder's
adjusted basis in the Notes. Assuming the Notes are subject to the contingent
payment regulations, a holder's adjusted basis in a Note generally will equal
the cost of such Note increased by interest previously accrued on the Note and
decreased by the amount of any noncontingent payment and the projected amount of
any contingent payment previously made on the Note. Except as discussed below, a
holder would be required to treat any gain recognized as ordinary income (rather
than capital gain). In certain circumstances after all remaining contingent
payments become fixed, such gain or loss will be capital gain or loss and will
be long-term capital gain or loss if the holder holds the Notes for more than
one year prior to disposition and short-term capital gain or loss if the holder
holds the Notes for one year or less prior to disposition. In the case of an
individual holder of Notes, such long-term capital gain will be subject to tax
at a reduced rate, and will be treated as long-term capital gain eligible for a
further reduced rate if the Notes are held for more than eighteen months.
Alternatively, if the Notes are not subject to the contingent payment
regulations, a holder's adjusted basis in Notes will generally equal the issue
price of the Notes plus the amount of accrued OID, if any, with respect thereto,
and the amount, if any, of income attributable to market discount included in
such holder's income, and reduced by the amount of any amortizable bond premium
applied to reduce interest on the Notes and the amounts of any payments on the
Notes that are not qualified stated interest payments. Any gain or loss
recognized by a holder in such a case would be capital gain or loss and would be
long-term or short-term capital gain or loss, and subject to tax, as discussed
above.
Backup Withholding
Backup withholding of U.S. federal income tax at a rate of 31% may apply to
payments of principal and interest made in respect of Notes, and to payments of
proceeds from the sale, exchange, redemption, retirement or other disposition of
Notes to or through certain brokers, unless, in general, the beneficial owner of
the Notes complies with certain information reporting procedures or is an exempt
recipient. Any amounts withheld from a payment to a beneficial owner pursuant to
these backup withholding rules may be allowed as a refund or credit against the
beneficial owner's U.S. federal income tax.
PLAN OF DISTRIBUTION
Except as described below, a broker-dealer may not participate in the
Exchange Offer in connection with a distribution of the Registered Notes. Such
broker-dealer should be deemed an underwriter in connection with such
distribution and such broker-dealer would be required to comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any secondary resale transactions. A broker-dealer may,
<PAGE> 49
however, receive Registered Notes for its own account pursuant to the Exchange
Offer in exchange for Old Notes when such Old Notes were acquired as a result of
market-making activities or other trading activities. Each such broker-dealer
must acknowledge that it will deliver a prospectus in connection with any resale
of such Registered Notes. This Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer (other than an "affiliate" of
the Company) in connection with resales of such Registered Notes. The Company
has agreed that for a period of 90 days after the Expiration Date, it will make
this Prospectus, as amended or supplemented, available to any such broker-dealer
for use in connection with any such resale.
The Company will not receive any proceeds from any sale of Registered Notes by
broker-dealers. Registered Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Registered Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through brokers or dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Registered Notes. Any
broker-dealer that resells Registered Notes that were received by it for its own
account pursuant to the Exchange Offer may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any such resale of
the Registered Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in a Letter of Transmittal. The Company has agreed to pay all expenses incident
to the Exchange Offer other than commissions or concessions of any brokers and
dealers and transfer taxes and will indemnify the holders of the Old Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
The Registered Notes will constitute new issues of securities with no
established trading market. The Company does not intend to list the Registered
Notes on any national securities exchange or to seek approval for quotation
through any automated quotation system. The Company has been advised by the
Dealer Manager of the First Exchange Offer that following completion of the
Exchange Offer, the Dealer Manager intends to make a market in the Registered
Notes. However, the Dealer Manager is not obligated to do so and any
market-making activities with respect to the Registered Notes may be
discontinued at any time without notice. Accordingly, no assurance can be given
that an active public or other market will develop for the Registered Notes or
as to the liquidity of or the trading market for the Registered Notes. If a
trading market does not develop or is not maintained, Holders of the Registered
Notes may experience difficulty in reselling the Registered Notes or may be
unable to sell them at all. If a market for the Registered Notes develops, any
such market may cease to continue at any time. If a public trading market
develops for the Registered Notes, future trading prices of the Registered Notes
will depend on many factors, including, among other things, prevailing interest
rates, the Company's results of operations and the market for similar securities
and other factors, including the financial condition of the Company.
INFORMATION REGARDING THE COMPANY
Additional information regarding the Company is contained in its filings
with the Commission pursuant to the Exchange Act. See "Available Information"
and "Certain Documents Attached as Exhibits."
ACCOUNTING TREATMENT OF THE EXCHANGE OFFER
The Exchange will be accounted for by the Company as a modification of debt
with the associated issuance costs being expensed as incurred.
<PAGE> 50
LEGAL MATTERS
The validity of the Registered Notes and certain other legal matters will
be passed upon for the Company by Fried, Frank, Harris, Shriver & Jacobson,
Washington, D.C.
EXPERTS
The consolidated financial statements and schedule of the Company for the
six month period ending December 31, 1993 and for the fiscal years as of
December 31, 1994, 1995 and 1996 incorporated by reference in this Prospectus
and elsewhere in the Registration Statement of which this Prospectus is a part,
have been audited by Arthur Andersen, LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
<PAGE> 51
TABLE OF CONTENTS A manually signed copy of a facsimile of the
Letter of Transmittal will be accepted. The
AVAILABLE INFORMATION........4 Letter of Transmittal, certificates
representing the Old Notes and any other
PROSPECTUS SUMMARY...........6 required documents should be sent by each
Holder or his or her broker, dealer,
commercial bank, trust company or other
THE COMPANY nominee to the Depository at one of the
addresses as set forth below.
RECENT DEVELOPMENTS.........
THE EXCHANGE OFFER.........7 The Depository:
The Depository Trust Company
SUMMARY TERMS OF THE
REGISTERED NOTES........10 By Mail, Hand or Overnight Courier:
55 Water Street
SUMMARY COMBINED FINANCIAL New York, NY 10004
AND OPERATING DATA......11 Telephone: (212) 898-1200
By Facsimile: (212) 709-1525
CAUTIONARY STATEMENT
REGARDING FORWARD- Any questions or requests for assistance or
LOOKING STATEMENTS......13 additional copies of this Prospectus, Letter
of Transmittal, and Notice of Guaranteed
RISK FACTORS..............13 Delivery may be directed to the Exchange
Agent at its telephone number or address
THE EXCHANGE OFFER........18 set forth below. You may also contact your
broker, dealer, commercial bank or trust
USE OF PROCEEDS...........26 company or other nominee for assistance
concerning the Exchange Offer.
CAPITALIZATION............26
SELECTED CONSOLIDATED
FINANCIAL DATA..........27 The Exchange Agent:
DESCRIPTION OF THE State Street Bank and Trust Company
REGISTERED NOTES........28
Two International Place, 4th Floor
Boston, MA 02110
Telephone: (617) 664-5419
By Facsimile: (617) 664-5371
CERTAIN FEDERAL INCOME
TAX CONSEQUENCES........46
PLAN OF DISTRIBUTION......48
INFORMATION REGARDING
THE COMPANY.............49
ACCOUNTING TREATMENT OF
THE EXCHANGE OFFER......49
LEGAL MATTERS.............50
EXPERTS...................50
<PAGE> 52
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Restated Certificate of Incorporation provides that each
person who was or is made a party to, or is involved in, any action, suit or
proceeding by reason of the fact that he or she was a director or officer of the
Registrant (or was serving at the request of the Registrant as a director,
officer, employee or agent for another entity) will be indemnified and held
harmless by the Registrant, to the full extent authorized by the Delaware
General Corporation Law.
Under Section 145 of the Delaware General Corporation Law, a corporation
may indemnify a director, officer, employee or agent of the corporation against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him or her if he or she acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interest of the corporation and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. In the case of an action brought by or in the right of a corporation,
the corporation may indemnify a director, officer, employee or agent of the
corporation against expenses (including attorneys' fees) actually and reasonably
incurred by him or her if he or she acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interest of the
corporation, except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless a court finds that, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as the court shall deem proper.
The Registrant's Restated Certificate of Incorporation provides that to the
fullest extent permitted by Delaware General Corporation Law as the same exists
or may hereafter be amended, a director of the Registrant shall not be liable to
the Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director. The Delaware General Corporation Law permits Delaware
corporations to include in their certificates of incorporation a provision
eliminating or limiting director liability for monetary damages arising from
breaches of their fiduciary duty. The only limitations imposed under the statute
are that the provision may not eliminate or limit a director's liability (i) for
breaches of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or involving
intentional misconduct or known violations of law, (iii) for the payment of
unlawful dividends or unlawful stock purchases or redemptions, or (iv) for
transactions in which the director received an improper personal benefit.
The Registrant is insured against liabilities which it may incur by reason
of its indemnification of officers and directors in accordance with its Restated
Certificate of Incorporation. In addition, directors and officers are insured,
at the Registrant's expense, against certain liabilities that might arise out of
their employment and are not subject to indemnification under the Restated
Certificate of Incorporation.
The foregoing summaries are necessarily subject to the complete text of the
statutes, Restated Certificate of Incorporation and agreements referred to above
and are qualified in their entirety by reference thereto.
ITEM 21(A). EXHIBITS
3.1 Articles of Incorporation (filed as Exhibit 3.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995
and incorporated herein by reference).
3.2 Bylaws (filed as Exhibit 3.2 to Registrant's Registration on Form S-4
No. 33-69286 filed by the Company on November 10, 1993 and
incorporated herein by reference).
4.1 Indenture dated as of August 7, 1997 between the Registrant and State
Street Bank and Trust Company, as Trustee.
4.2 Form of Note for the Registrant's Series D 11 3/4 % Senior Secured
Step-up Note.
4.3 Registration Rights Agreement dated as of August 7, 1997 between the
Registrant and Holders of the Registrant's Series C 11 3/4 % Senior
Secured Step-up Notes.
<PAGE> 53
5 Opinion of Fried, Frank, Harris, Shriver & Jacobson as to the legality
of the Registered Notes being registered.
8 Opinion of Fried, Frank, Harris, Shriver & Jacobson, as to certain
federal income tax consequences. See pages 46-8 of the Registration
Statement.
11 Statement regarding computation of Registrant's Earnings per share
(filed as Exhibit 11.1 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, and incorporated herein by
reference).
12.1 Statement regarding computation of the Registrant's supplemental
ratios of earnings to fixed charges (filed as Exhibit 11.2 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, and incorporated herein by reference).
13.1 Annual Report to security holders filed on Form 10-K for the fiscal
year ended December 31, 1996.
13.2 Quarterly Report to security holders filed on Form 10-Q for the
quarter ended March 31, 1997.
13.3 Quarterly Report to security holders filed on Form 10-Q for the
quarter ended June 30, 1997.
21 List of Subsidiaries of the Registrant (filed as Exhibit 21.1 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and incorporated herein by reference).
23.1 Consent of Arthur Andersen, LLP, with respect to the Registrant.
23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in the
opinion filed as Exhibit 5).
24 Power of Attorney (included in the Registration Statement at p. II-3).
25 State Street Bank and Trust Company Statement of Eligibility and
Qualification under the Trust Indenture Act of 1939 on Form T-1.
99.1 Letter of Transmittal for Exchange Offer.
ITEM 21(B). FINANCIAL STATEMENT SCHEDULES
All financial statement schedules of the Company which are required to be
included herein are included in the Annual Report of the Company on Form 10-K
for the fiscal year ended December 31, 1996 and the Company's Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1997 and June 30, 1997, all three
of which are attached hereto as Exhibits and incorporated herein by reference.
ITEM 22. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE> 54
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF ARLINGTON, STATE OF
TENNESSEE, ON SEPTEMBER 3, 1997.
WRIGHT MEDICAL TECHNOLOGY, INC.
By:/s/Richard D. Nikolaev
Richard D. Nikolaev
President and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints Thomas
M. Patton (with full power to him to act along), his or her true and lawful
attorney in fact and agent for him or her and on his or her behalf and in his or
her name, place and stead, in any and all capacities to sign any and all
amendments (including post-effective amendments) to this Registration Statement,
and to file the same, with exhibits and any and all other documents filed with
respect thereto, with the Securities and Exchange Commission (or any other
governmental or regulatory authority), granting unto said attorney, full power
and authority to do and to perform each and every act and thing requisite and
necessary to be done in and about the premises in order to effectuate the same
as fully to all intents and purposes as he or she might or could do if
personally present, hereby ratifying and confirming all that said attorney in
fact and agent, may lawfully do or cause to be done by virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
NAME TITLE DATE
/s/Richard D. Nikolaev Director, President and September 3, 1997
Richard D. Nikolaev Chief Executive Officer
(Principal Executive
Officer)
/s/Lewis H. Ferguson, III Director September 3, 1997
Lewis H. Ferguson, III
/s/William J. Kidd Director September 3, 1997
William J. Kidd
/s/Kurt L. Kamm Director September 3, 1997
Kurt L. Kamm
<PAGE> 55
/s/Walter S. Hennig Director September 3, 1997
Walter S. Hennig
/s/Gregory K. Butler Vice President and Chief September 3, 1997
Gregory K. Butler Financial Officer
(Principal Financial
Officer)
/s/Joyce B. Jones Controller September 3, 1997
Joyce B. Jones (Principal Accounting
Officer)
<PAGE> 56
EXHIBIT INDEX
Exhibit
No. Description
3.1 Articles of Incorporation (filed as Exhibit 3.1 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995
and incorporated herein by reference).
3.2 Bylaws (filed as Exhibit 3.2 to Registrant's Registration on Form S-4
No. 33-69286 filed by the Company on November 10, 1993 and
incorporated herein by reference).
4.1 Indenture dated as of August 7, 1997 between the Registrant and State
Street Bank and Trust Company, as Trustee.
4.2 Form of Note for the Registrant's Series D 11 3/4 % Senior Secured
Step-up Note.
4.3 Registration Rights Agreement dated as of August 7, 1997 between the
Registrant and Holders of the Registrant's Series C 11 3/4 % Senior
Secured Step-up Notes.
5 Opinion of Fried, Frank, Harris, Shriver & Jacobson as to the legality
of the Registered Notes being registered.
8 Opinion of Fried, Frank, Harris, Shriver & Jacobson, as to certain
federal income tax consequences. See pages 46-8 of the Registration
Statement.
11 Statement regarding computation of Registrant's Earnings per share
(filed as Exhibit 11.1 to Registrant's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997, and incorporated herein by
reference).
12.1 Statement regarding computation of the Registrant's supplemental
ratios of earnings to fixed charges (filed as Exhibit 11.2 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended June
30, 1997, and incorporated herein by reference).
13.1 Annual Report to security holders filed on Form 10-K for the fiscal
year ended December 31, 1996.
13.2 Quarterly Report to security holders filed on Form 10-Q for the
quarter ended March 31, 1997.
13.3 Quarterly Report to security holders filed on Form 10-Q for the
quarter ended June 30, 1997.
21 List of Subsidiaries of the Registrant (filed as Exhibit 21.1 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, and incorporated herein by reference).
23.1 Consent of Arthur Andersen, LLP, with respect to the Registrant.
23.2 Consent of Fried, Frank, Harris, Shriver & Jacobson (included in the
opinion filed as Exhibit 5).
24 Power of Attorney (included in the Registration Statement at p. II-3).
25 State Street Bank and Trust Company Statement of Eligibility and
Qualification under the Trust Indenture Act of 1939 on Form T-1.
99.1 Letter of Transmittal for Exchange Offer.
Wright Medical Technology, Inc.
$85,000,000
11 3/4 % Senior Secured Step-Up Notes
due July 1, 2000
INDENTURE
Dated as of August 7, 1997
State Street Bank and Trust Company
Trustee
<PAGE> 58
TABLE OF CONTENTS
Article 1 Definitions And Incorporation By Reference..........................2
Section 1.01. Definitions..................................................2
Section 1.02. Other Definitions...........................................12
Section 1.03. Incorporation By Reference Of Trust Indenture Act...........13
Section 1.04. Conflict With Trust Indenture Act...........................13
Section 1.05. Rules Of Construction.......................................13
Article 2 The Securities.....................................................14
Section 2.01. Form And Dating.............................................14
Section 2.02. Execution And Authentication................................15
Section 2.03. Registrar And Paying Agent..................................15
Section 2.04. Paying Agent To Hold Money In Trust.........................16
Section 2.05. Securityholder Lists........................................16
Section 2.06. Transfer And Exchange.......................................16
Section 2.07. Replacement Securities......................................22
Section 2.08. Outstanding Securities......................................22
Section 2.09. Treasury Securities.........................................22
Section 2.10. Temporary Securities........................................23
Section 2.11. Cancellation................................................23
Section 2.12. Defaulted Interest..........................................23
Article 3 Redemption.........................................................23
Section 3.01. Notices To Trustee..........................................23
Section 3.02. Selection Of Securities To Be Redeemed......................24
Section 3.03. Notice Of Redemption........................................24
Section 3.04. Effect Of Notice Of Redemption..............................25
Section 3.05. Deposit Of Redemption Price.................................25
Section 3.06. Securities Redeemed In Part.................................25
Section 3.07. Optional Redemption.........................................25
Section 3.08. Offer To Redeem By Application Of Net Proceeds..............25
Article 4 Covenants...........................................................26
Section 4.01. Payment Of Securities.......................................26
Section 4.02. Sec Reports: Financial Statements..........................27
Section 4.03. Compliance Certificate......................................28
Section 4.04. Stay, Extension And Usury Laws..............................28
Section 4.05. Corporate Existence.........................................29
Section 4.06. Taxes.......................................................29
Section 4.07. Limitations On Restricted Payments..........................29
Section 4.08. Limitations On Incurrence Of Indebtedness
And Issuance Of Preferred Stock...........................31
Section 4.09. Limitation On Liens.........................................32
Section 4.10. Limitation On Granting Liens And Restrictions On
Subsidiary Dividends......................................33
Section 4.11. Limitations On Certain Asset Sales..........................33
Section 4.12. Change Of Control...........................................34
Section 4.13. Transactions With Affiliates................................36
Section 4.14. Maintenance Of Consolidated Net Worth.......................36
Section 4.15. Liquidation.................................................37
Section 4.16. Rule 144a Information Requirement...........................37
Section 4.17. Payments For Consent........................................38
Section 4.18. Restrictions On Indirect Subsidiaries.......................38
<PAGE> 59
Article 5 Successors..........................................................38
Section 5.01. When Company May Merge, Etc.................................38
Section 5.02. Successor Corporation Substituted...........................39
Article 6 Defaults And Remedies...............................................39
Section 6.01. Events Of Default...........................................39
Section 6.02. Acceleration................................................43
Section 6.03. Other Remedies..............................................44
Section 6.04. Waiver Of Past Defaults.....................................44
Section 6.05. Control By Majority.........................................44
Section 6.06. Limitation On Suits.........................................44
Section 6.07. Rights Of Holders To Receive Payment........................45
Section 6.08. Collection Suit By Trustee..................................45
Section 6.09. Trustee May File Proofs Of Claim............................45
Section 6.10. Priorities..................................................46
Section 6.11. Undertaking For Costs.......................................46
Article 7 Trustee, Collateral, Agent And Co-Trustee...........................47
Section 7.01. Duties Of Trustee...........................................47
Section 7.02. Rights Of Trustee...........................................48
Section 7.03. Individual Rights Of Trustee................................48
Section 7.04. Trustee's Disclaimer........................................48
Section 7.05. Notice Of Defaults..........................................49
Section 7.06. Reports By Trustee To Holders...............................49
Section 7.07. Compensation And Indemnity..................................49
Section 7.08. Replacement Of Trustee......................................50
Section 7.09. Successor Trustee By Merger, Etc............................51
Section 7.10. Eligibility; Disqualification...............................51
Section 7.11. Preferential Collection Of Claims Against Company...........51
Section 7.12. Appointment Of Co-Trustee And Collateral Agent..............51
Section 7.13. Trustee And Collateral Agent To Cooperate...................51
Article 8 Discharge Of Indenture..............................................52
Section 8.01. Termination Of Company's Obligations........................52
Section 8.02. Application Of Trust Money..................................53
Section 8.03. Repayment To Company........................................53
Section 8.04. Reinstatement...............................................53
Article 9 Amendments..........................................................54
Section 9.01. Without Consent Of Holders..................................54
Section 9.02. With Consent Of Holders.....................................54
Section 9.03. Compliance With Trust Indenture Act.........................55
Section 9.04. Revocation And Effect Of Consents...........................55
Section 9.05. Notation On Or Exchange Of Securities.......................56
Section 9.06. Trustee Protected...........................................56
Article 10 Security...........................................................56
Section 10.01. Collateral Agreements......................................56
Section 10.02. Recording, Etc.............................................58
Section 10.03. Authorization Of Actions To Be Taken By The Collateral
Agent Under The Collateral Agreements.....................59
Section 10.04. Release Of Lien............................................60
Section 10.05. Lien Subordination.........................................61
<PAGE> 60
Section 10.06. Reliance On Opinion Of Counsel.............................62
Section 10.07. Purchaser May Rely.........................................62
Section 10.08. Payment Of Expenses........................................62
Section 10.09. Trustee's And Collateral Agent's Duties....................62
Section 10.10. Authorization Of Receipt Of Funds By The Trustee And
The Collateral Agent Under The Collateral Agreements......63
Section 10.11. Termination Of Security Interests..........................63
Section 10.12. Certificates And Opinions..................................63
Article 11 Miscellaneous......................................................63
Section 11.01. Trust Indenture Act Controls...............................63
Section 11.02. Notices....................................................63
Section 11.03. Communication By Holders With Other Holders................64
Section 11.04. Certificate And Opinion As To Conditions Precedent.........64
Section 11.05. Statements Required In Certificate Or Opinion..............64
Section 11.06. Rules By Trustee And Agents................................65
Section 11.07. Legal Holidays.............................................65
Section 11.08. No Recourse Against Others.................................65
Section 11.09. Counterparts...............................................65
Section 11.10. Variable Provisions........................................65
Section 11.11. Governing Law..............................................66
Section 11.12. No Adverse Interpretation Of Other Agreements..............67
Section 11.13. Successors.................................................67
Section 11.14. Severability...............................................67
Section 11.15. Table Of Contents, Headings, Etc...........................67
Section 11.16. Qualification Of Indenture.................................67
Section 11.17. Amendments To Collateral Agreements........................67
Section 11.18. Registration Rights........................................68
<PAGE> 61
CROSS-REFERENCE TABLE*
Trust Indenture Act Section....................................Indenture Section
310(a)(1)...................................................................7.10
(a)(2)..........................................................7.10; 11.16
(a)(3).................................................................N.A.
(a)(4).................................................................N.A.
(a)(5).................................................................7.10
(b).......................................................7.08; 7.10; 11.02
(c)....................................................................N.A.
311(a)......................................................................7.11
(b)....................................................................7.11
(c)....................................................................N.A.
312(a)......................................................................2.05
(b)...................................................................11.03
(c)...................................................................11.03
313(a)...................... ...............................................7.06
(b)(1).................................................................N.A.
(b)(2).................................................................7.06
(c).............................................................7.06; 11.02
(d)....................................................................7.06
314(a).........................................................4.02; 4.03; 11.02
(b)............................................................10.02; 10.12
(c)(1)................................................................11.04
(c)(2)................................................................11.04
(c)(3).................................................................N.A.
(d)............................................................10.02; 10.12
(e)...................................................................11.05
(f)....................................................................N.A.
315(a)...................................................................7.01(b)
(b).............................................................7.05; 11.02
(c).................................................................7.01(a)
(d).................................................................7.01(c)
(e)....................................................................6.11
316(a)(last sentence).......................................................2.09
(a)(1)(A)..............................................................6.05
(a)(1)(B)..............................................................6.04
(a)(2).................................................................N.A.
(b)....................................................................6.07
317(a)(1)...................................................................6.08
(a)(2).................................................................6.09
(b)....................................................................2.04
318(a).....................................................................11.01
N.A. means Not Applicable
- --------
* This Cross-Reference Table is not part of the Indenture.
<PAGE> 62
INDENTURE dated as of August 7, 1997 between Wright Medical Technology,
Inc., a Delaware corporation ("Company"), and State Street Bank and Trust
Company, a Massachusetts trust company ("Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Company's 11 3/4 % Series C
Senior Secured Step-Up Notes due July 1, 2000 (the "Series C Notes") and the
class of 11 3/4 % Series D Senior Secured Step-Up Notes due July 1, 2000 to be
exchanged for the Series C Notes (the "Exchange Notes" and, together with the
Series C Notes, the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"Acquired Debt" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other person merged
with or into or became a Subsidiary of such specified person, including
Indebtedness incurred in connection with, or in contemplation of, such other
person merging with or into or becoming a Subsidiary of such specified person.
"Acquisition" means the acquisition of substantially all of the assets
of the large joint orthopedic implant business of Dow Corning Corporation and
its subsidiary Dow Corning Wright Corporation by the Company pursuant to that
certain Purchase and Sale Agreement, dated as of May 14, 1993, by and among the
Company, Dow Corning Corporation and its subsidiary Dow Corning Wright
Corporation.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to control. Notwithstanding the above, neither Jefferies &
Company, Inc. nor any of its Affiliates shall be deemed to be Affiliates of the
Company.
"Agent" means any Registrar, Paying Agent, or co-registrar.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of the Board.
"Business Day" means any day other than a Legal Holiday.
<PAGE> 63
"Business Segment" means (i) each Significant Subsidiary or (ii) any
assets or properties of the Company or any of its Subsidiaries, now owned or
hereafter acquired, with an aggregate value of $5 million or greater. For the
purposes of determining the "value" for this definition, such assets or
properties shall be deemed to be valued at $5 million or greater if (a) they are
sold by the Company or any of its Subsidiaries for $5 million or more or (b)
they otherwise have a fair market value at the time of transfer of $5 million or
more.
"Capital lease obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock, including,
without limitation, partnership interests.
"Cash Equivalents" means (i) readily marketable obligations of or
obligations guaranteed by the United States of America or issued by any agency
thereof and backed by the full faith and credit of the United States of America,
(ii) readily marketable direct obligations issued by any state of the United
States of America or any political subdivision thereof having the highest rating
obtainable from either Moody's Investors Service, Inc. or Standard & Poor's
Corporation, Inc., (iii) commercial paper having a rating in one of the two
highest rating categories of Moody's Investors Services, Inc. or Standard &
Poor's Corporation, Inc., (iv) certificates of deposit issued by, bankers'
acceptances and deposit accounts of, and time deposits with, commercial banks of
recognized standing chartered in the United States of America or Canada with
capital, surplus and undivided profits aggregating in excess of $500,000,000,
(v) readily marketable debt securities issued by domestic corporations and (vi)
shares of money market funds that invest solely in Investments of the kind
described in clauses (i) through (v) above.
"Collateral" means (i) all "Collateral" as defined in the Security
Agreement and the Intellectual Property Security Agreements; (ii) all "Pledged
Collateral" as defined in the Pledge Agreement; (iii) all real property
mortgaged pursuant to the Deed of Trust; and (iv) any property or interest, in
which a security interest is required to be, or has been, granted pursuant to
Section 10.01(b) hereof.
"Collateral Agent" means State Street Bank and Trust Company, N.A. or
any successor thereto and thereafter means the successor.
"Collateral Agreements" means, collectively, the following agreements
between the Company and the Collateral Agent, each dated the date hereof: (i)
the Security Agreement attached hereto as Exhibit C; (ii) the Pledge Agreement
attached hereto as Exhibit D; (iii) the Intellectual Property Security
Agreements; (iv) the Deed of Trust attached hereto as Exhibit E; and (v) all
other agreements, documents and instruments from time to time required to
create or grant a Security Interest as contemplated in Section 10.01(b) hereof.
"Company" means the party named as such above until a successor
replaces it in accordance with Article 5 and thereafter means the successor.
<PAGE> 64
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (a) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale (to the extent such losses were deducted in computing
consolidated Net Income), plus (b) provision for taxes based on income or
profits to the extent such provision for taxes was included in computing
Consolidated Net Income, plus (c) consolidated interest expense of such Person
for such period, whether paid or accrued (including amortization of original
issue discount, non-cash interest payments and the interest component of capital
lease obligations), to the extent such expense was deducted in computing
Consolidated Net Income, plus (d) amortization (including amortization of
goodwill and other intangibles) of such person for such period to the extent
such amortization was deducted in computing Consolidated Net Income, in each
case, on a consolidated basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, that (i) the Net Income of any Person that is not a Subsidiary or that
is accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid to the referent
Person or a wholly owned Subsidiary, (ii) the Net Income of any Person that is a
Subsidiary (other than a Subsidiary of which at least 80% of the Capital Stock
having ordinary voting power for the election of directors or other governing
body of such Subsidiary is owned by the referent Person directly or indirectly
through one or more Subsidiaries) shall be included only to the extent of the
amount of dividends or distributions paid to the referent Person or a wholly
owned Subsidiary, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person, the sum of
(i) the consolidated equity of the common stockholders of such Person and its
consolidated Subsidiaries plus (ii) the respective amounts reported on such
Person's most recent balance sheet with respect to any series of preferred stock
(other than Disqualified Stock) that by its terms is not entitled to the payment
of dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to the
extent of (i) any cash received by such Person upon issuance of such preferred
stock and (ii) the fair market value of any non-cash consideration received by
such Person upon issuance of such preferred stock provided that such value has
been determined in good faith by a nationally-recognized investment bank, plus
(iii) with respect to the Company, the respective amounts reported on the
Company's most recent balance sheet for the Series A Preferred Stock, less (x)
all write-ups, subsequent to the date of the Indenture, in the book value of
assets owned by such Person or a consolidated Subsidiary of such Person, other
than (A) write-ups resulting from foreign currency translations and (B)
write-ups upon the acquisition of assets acquired in a transaction to be
accounted for by purchase accounting under GAAP, (y) all investments in
unconsolidated Subsidiaries and in persons that are not Subsidiaries (except, in
each case, a Permitted Investment), and (z) all unamortized debt discount and
expense and unamortized deferred financing charges (except deferred financing
charges arising from this issuance of the Securities), all of the foregoing
determined in accordance with GAAP; provided, however, that for the purposes of
Section 4.14 herein, the calculation of consolidated equity of the common
<PAGE> 65
stockholders of the Company and its consolidated Subsidiaries as expressed in
the first clause (i) of this definition shall not require a deduction for
accrued dividends on the Company's Series B Preferred Stock and Series C
Preferred Stock.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.10 or such other address as the Trustee may give
notice to the Company.
"Co-Trustee" means any Person appointed by the Trustee pursuant to
Section 7.12 hereof.
"Deed of Trust" means the Deed of Trust dated as of the date hereof,
among the Company, the Collateral Agent and J. Martin Regan, Jr., as trustee for
the benefit of the Collateral Agent, for the further benefit of the Trustee and
the Holders, the form of which is attached hereto as Exhibit E.
"Default" means any event known to the Company or which should have
been known to the Company after due inquiry that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"Definitive Securities" means Securities that are in the form of the
Series C Note (attached hereto as Exhibit A-1) or the Series D Note (attached
hereto as Exhibit A-2), that do not include the information called for by
footnotes 1 and 2 thereof.
"Depository" means, with respect to the Securities issuable or issued
in whole or in part in global form, the person specified in Section 2.03 as the
Depository with respect to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock which, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures, or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the
maturity date of the Securities.
"Equity Interests" means Capital Stock or warrants, options or other
rights to acquire capital stock (but excluding any debt security which is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exchange Notes" means the Series D Senior Secured Notes due 2000 to be
issued pursuant to this Indenture in connection with the offer to exchange such
notes for Series C Notes that may be made by the Company pursuant to the
Registration Rights Agreement.
"Fixed Charges" means, with respect to any Person for any period, the
sum of (a) consolidated interest expense of such Person for such period, whether
paid or accrued, to the extent such expense was deducted in computing
Consolidated Net Income (including amortization of original issue discount,
non-cash interest payments and the interest component of capital leases but
excluding amortization of deferred financing fees) and (b) the product of (i)
all
<PAGE> 66
cash dividend payments (and non-cash dividend payments in the case of a person
that is a Subsidiary) on any series of preferred stock of such Person, times
(ii) a fraction, the numerator of which is one and the denominator of which is
one minus the then current combined federal, state and local statutory tax rate
of such person, expressed as a decimal, in each case, on a consolidated basis
and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, guarantees, repays,
repurchases or redeems any Indebtedness (other than any Indebtedness under the
Revolving Credit Facility, or any other revolving credit borrowings) or issues
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the event for which the
calculation of the Fixed Charge Coverage Ratio is made, then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance or redemption of preferred stock, as if the same had occurred at
the beginning of the applicable period.
"Foreign Subsidiary" means, for any Person, any Subsidiary of such
Person that derives substantially all of its revenues from sales to non-U.S.
Persons.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect on the date of the Indenture.
"Global Security" means a Security that contains the paragraph referred
to in footnote 1 and the additional schedule referred to in footnote 2 to the
form of the Series C Note attached hereto as Exhibit A-1 or the Series D Note
attached hereto as Exhibit A-2.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates.
"Holder" or "Securityholder" means a Person in whose name a Security is
registered.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property (including
pursuant to capital leases, but excluding the balance deferred and unpaid of the
<PAGE> 67
purchase price of currency) or representing any Hedging Obligations, except any
such balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing indebtedness (other than Hedging Obligations) would
appear as a liability upon a balance sheet of such person prepared in accordance
with GAAP, and also includes, to the extent not otherwise included, the
Guarantee of items which would be included within this definition.
"Indenture" means this Indenture dated as of August 7, 1997, as further
amended or supplemented from time to time.
"Intellectual Property" means patents, patent applications, trademarks,
trademark applications and registrations, trade names, service marks, service
mark applications and registrations, copyrights, designs, rights in confidential
and proprietary information (other than personal property described in Section
10.01(d)(i)(C)(3)) and other intellectual property and any license to use any of
the same and rights in any thereof.
"Intellectual Property Security Agreements" means, collectively, (i)
the Confirmation and Grant of Security Interest in Trademarks, the form of which
is attached hereto as Exhibit F, and (ii) the Confirmation and Grant of Security
Interest in Patents, the form of which is attached hereto as Exhibit G, each
dated the date hereof, between the Company and the Collateral Agent.
"Investments" means, with respect to any Person, all investments by
such Person in other persons (including Affiliates) in the forms of loans
(including Guarantees), advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities and all other items that are
or would be classified as investments on a balance sheet prepare in accordance
with GAAP.
"Kidd Kamm" means Kidd Kamm Equity Partners, L.P., and any successor
thereto.
"Letters of Transmittal" means, collectively, those certain Letters of
Transmittal and Exit Consents by and among the Company and those Holders of
Series B Notes tendering in the offer to exchange Series B Notes for Series C
Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 2.4 of the Registration Rights Agreement.
"Management Services Agreement" means that certain Management Services
Agreement, dated as of June 30, 1993, by and between the Company and Kidd, Kamm
& Company, pursuant to which Kidd, Kamm & Company will provide management
consulting services from time to time.
<PAGE> 68
"Net Income" means, with respect to any person, the net income (loss)
of such person, determined in accordance with GAAP, excluding, however, any gain
(but not loss), together with any related provision for taxes on such gain (but
not loss), realized in connection with any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), and
excluding any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets the
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering Circular" means the Offering Circular, dated the date hereof,
and all supplements thereto, and all exhibits, schedules or other attachments
thereto.
"Officer" means the Chairman of the Board, the Vice Chairman, the
President, any Vice- President, the Treasurer, the Controller, the Secretary,
any Assistant Treasurer or any Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers,
one of whom must be the Chairman of the Board, the President, the Treasurer
or a Vice-President of the Company. See Sections 11.04 and 11.05.
"Old Indenture" means the Indenture, dated as of June 30, 1993, between
the Company and State Street Bank and Trust Company as successor trustee for the
holders of the Company's Series A and B 10 3/4% Senior Secured Notes, as amended
and supplemented.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee. See Sections 11.04 and 11.05
"Permitted Investments" means (a) any Investments in the Company; (b)
any Investments in Cash Equivalents; (c) Investments by the Company in a Person,
if as a result of such Investment (i) such Person becomes a wholly owned
Subsidiary of the Company and the Capital Stock of such Subsidiary is pledged to
secure the obligations under the Securities or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a wholly owned
Subsidiary of the Company; (d) Investments by the Company in any other Person
(whether or not the Investment is in the form of Capital Stock or Indebtedness
issued by, or other Equity Interests relating to, such other Person), provided
that (i) such other Person is not then, and does not thereby become, a
<PAGE> 69
Subsidiary of the Company, (ii) the Board of Directors has adopted a resolution
evidencing its determination that such Investment is in furtherance of a
corporate purpose of the Company, (iii) no Default under Section 4.08 of the
Indenture would result from such Investment and (iv) the aggregate amount of all
Investments under this clause (d) does not exceed $10.0 million at any one time
outstanding; and (e) other Investments that do not exceed in the aggregate $2.0
million at any time outstanding.
"Permitted Liens" means (a) Liens in favor of the Company and/or its
Subsidiaries other than with respect to intercompany Indebtedness; (b) Liens on
property of a Person existing at a time such Person is acquired by, merged into
or consolidated with the Company or any Subsidiary of the Company; (c) Liens on
property existing at the time of acquisition thereof by the Company or any
Subsidiary of the Company; provided, that such Liens were not created in
contemplation of such acquisition; (d) Liens incurred in the ordinary course of
business in respect of Hedging Obligations or to support trade letters of
credit; (e) Liens to secure Indebtedness for borrowed money of a Subsidiary to
the Company or to another wholly owned Subsidiary; (f) Liens (other than
pursuant to ERISA or environmental laws) to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business; (g) Liens existing on
the date of the Indenture including those securing the Securities; (h) Liens for
taxes, assessments or governmental charges or claims that are not yet delinquent
or that are being contested or remedied in good faith by appropriate proceedings
promptly instituted and diligently concluded; provided, that any reserve or
other appropriate provision as shall be required in conformity with GAAP shall
have been made therefor; (i) Liens arising by reason of any judgment, decree or
order of any court with respect to which the Company or any of its Subsidiaries
shall then in good faith be prosecuting appeal or other proceedings for review,
the existence of which judgment, order or decree is not an Event of Default
under the Indenture; (j) encumbrances consisting of zoning restrictions, survey
exceptions, utility easements, licenses, rights of way, easements of ingress or
egress over property of the Company or any of its Subsidiaries, rights or
restrictions of record on the use of real property, minor defects in title,
landlord's and lessor's liens under leases on property located on the premises
rented, any interest or title of a lessor in respect of any capital lease, and
similar encumbrances, rights or restrictions on personal or real property not
interfering in any material respect with the ordinary conduct of the business of
the Company or any of its Subsidiaries; (k) Liens and priority claims incidental
to the conduct of business or the ownership of properties incurred in the
ordinary course of business and not in connection with the borrowing of money or
the obtaining of advances or credit, including, without limitation, liens
incurred or deposits made in connection with mechanic's liens, workers'
compensation, unemployment insurance and other types of social security, or to
secure the performance of tenders, bids, and government contracts; and (l) any
extension, renewal, or replacement (or successive extensions, renewals or
replacements), in whole or in part, of Liens described in clauses (a) through
(k) above.
"Person" or "person" means any individual, corporation, partnership,
joint venture, association, joint stock company, limited liability company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Pledge Agreement" means the Pledge Agreement, dated the date hereof,
between the Company and the Collateral Agent, the form of which is attached
hereto as Exhibit D.
<PAGE> 70
"principal" of a debt security means the principal of the security plus
the premium, if any, on the security.
"Purchase Money Lienholder" means a lienholder of a Purchase Money Lien
permitted by this Indenture.
"Purchase Money Obligations" means Indebtedness representing, or
incurred to finance, the cost of acquiring any assets (including Purchase Money
Obligations of any other Person at the time such other Person is merged with or
into or is otherwise acquired by the Company), other than the assets acquired in
the Acquisition; provided that (i) the principal amount of such Indebtedness
does not exceed 100% of such cost, (ii) any Lien securing such Indebtedness does
not extend to or cover any other asset or property other than the asset or
property being so acquired and (iii) such Indebtedness is incurred, and any
Liens with respect thereto are granted, within 180 days of the acquisition of
such property or asset.
"Purchase Money Liens" means (i) Liens to secure or securing Purchase
Money Obligations permitted to be incurred under the Indenture and (ii) Liens to
secure Refinancing Indebtedness incurred solely to Refinance Purchase Money
Obligations provided that such Refinancing Indebtedness is incurred no later
than six (6) months after the satisfaction of such Purchase Money Obligations.
"Registration Rights Agreement" means the Registration Rights Agreement
dated the date hereof, by and among the Tenderors and the Company, as such
agreement may be amended, modified or supplemented from time to time.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Securities" means Securities which were acquired by the
Holder thereof other than pursuant to an effective registration statement under
the Securities Act of 1933, as amended, or Rule 144 (or any successor rule)
thereunder.
"Revolving Credit Facility" means the credit facility which may provide
for revolving credit borrowings and/or trade letters of credit and/or standby
letters of credit, in an aggregate principal amount (as to borrowings) and
aggregate undrawn face amount (as to letters of credit) that does not in the
aggregate exceed $50 million at any one time outstanding, and which credit
facility does or may include one or more Subsidiaries of the Company or others
as obligors thereunder, and does or may include any related notes, guarantees,
collateral documents, instruments and agreements from time to time executed in
connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time as permitted in this Indenture.
"Sale" means (i) the sale, lease or transfer of all or substantially
all of the Company's assets to any Person or group (other than the Principals
and their Related Parties (as defined in Section 4.12(b)) or (ii) the
acquisition by any Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act) (other than the Principals and their Related Parties (as
defined in Section 4.12(b)) of a direct or indirect majority interest (more than
50%) in the voting power of the Voting Stock of the Company by way of merger or
consolidation or otherwise.
<PAGE> 71
"SEC" means the Securities and Exchange Commission.
"Securities" means, collectively, the Series C Notes issued pursuant to
this Indenture, and when and if issued as provided in the Registration Rights
Agreement, the Series D Notes.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the Trustee, as custodian with respect to
the Securities in global form, or any successor entity thereto.
"Security Agreement" means the Security Agreement, dated as of the date
hereof, between the Company and the Collateral Agent, the form of which is
attached hereto as Exhibit C.
"Security Interest" means the Liens on the Collateral created by this
Indenture and the Collateral Agreements (including the Liens required to be
granted and/or granted pursuant to Section 10.01(b)) in favor of the Collateral
Agent for the benefit of the Collateral Agent, the Trustee and the Holders.
"Series C Notes" means the Series C Notes issued pursuant to this
Indenture.
"Series D Notes" means the Exchange Notes.
"Series A Preferred Stock" means the Company's Series A Preferred
Stock, par value $.01 per share, issued and outstanding as of the date of this
Indenture.
"Series B Preferred Stock" means the Company's issued and outstanding
Series B Preferred Stock, par value $.01 per share.
"Series C Preferred Stock" means the Company's issued and outstanding
Series C Preferred Stock, par value $.01 per share.
"Significant Subsidiary" means any Subsidiary which would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulations S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Subsidiary" means, with respect to any person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
person or one or more of the other Subsidiaries of that person or a combination
thereof.
"Tenderors" means the persons named on the signature pages attached to
the Letters of Transmittal who have tendered Securities.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.
77aaa-77bbbb), as amended, and as in effect on the date of execution of this
Indenture.
<PAGE> 72
"Transfer Restricted Securities" means Securities that bear or are
required to bear the legend set forth in Section 2.06(g) hereof.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor.
"Trust Officer" means any officer in the Corporate Trust Office of the
Trustee or any other officer or assistant officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
"Voting Stock" means, with respect to any Person, one or more classes
of the Capital Stock of such Person having general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of such Person (irrespective of whether or not at the time Capital
Stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years (rounded to the nearest
one-twelfth) obtained by dividing (a) the then outstanding principal amount of
such Indebtedness into (b) the total of the product obtained by multiplying (x)
the amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final maturity, in
respect thereof, by (y) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment.
SECTION 1.02. OTHER DEFINITIONS.
Defined in
Term Section
"Affiliate Transaction"...............................4.13(a)
"Asset Sale"..........................................4.11(a)
"Asset Sale Offer"....................................3.08
"Asset Sale Application Period".......................4.11
"Bankruptcy Law"......................................6.01
"Change of Control"...................................4.12
"Change of Control Date"..............................4.12
"Change of Control Offer".............................4.12
"Change of Control Payment Date"......................4.12
"Custodian"...........................................6.01
"DTC".................................................2.03
"Event of Default"....................................6.01
"Excess Proceeds".....................................4.11
"Incur"...............................................4.08
"Legal Holiday".......................................11.07
"Minimum Equity"......................................4.15
"Offer"...............................................4.15
"Offer Amount"........................................4.15
"Offer Period"........................................4.15
<PAGE> 73
"Paying Agent"........................................2.03
"Purchase Money Indebtedness".........................4.08
"Refinance"...........................................4.08
"Refinancing Indebtedness"............................4.08
"Registrar"...........................................2.03
"Restricted Payments".................................4.07
"Specified Asset"....................................10.01(b)
"U.S. Government Obligations".........................8.01
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Securities means the Company.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
SECTION 1.04. CONFLICT WITH TRUST INDENTURE ACT.
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act or another provision that would be required or deemed
under such Act to be a part of and govern this Indenture if this Indenture were
subject thereto, the latter provision shall control. If any provision of this
Indenture modifies or excludes any provision of the Trust Indenture Act that may
be so modified or excluded, the latter provision shall be deemed to apply to
this Indenture as so modified or to be excluded, as the case may be.
SECTION 1.05. RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
<PAGE> 74
(4) words in the singular include the plural, and in the
plural include the singular, and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE SECURITIES
SECTION 2.01. FORM AND DATING.
The Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A-1 to this Indenture. The Exchange Notes
and the Trustee's certificate of authentication shall be substantially in the
form of Exhibit A-2 to this Indenture. The aggregate principal amount of
Securities shall initially be no greater than $85,000,000. In the event Exchange
Notes are issued pursuant to the exchange offer contemplated by the Registration
Rights Agreement, the principal amount of Series C Notes outstanding shall be
reduced by the amount of Exchange Notes so issued. The Securities may have
notations, legends or endorsements required by law, stock exchange rule or
usage. Each Security shall be dated the date of its authentication. The
Securities shall be in denominations of $1,000 and integral multiples thereof.
After the Securities have ceased to be Restricted Securities, the Company shall
from time to time prepare and deliver to the Trustee printed and engraved forms
of Note certificates in quantities specified by the Trustee.
The terms and provisions contained in the Securities shall constitute,
and are hereby expressly made, a part of this Indenture and to the extent
applicable, the Company and the Trustee, by their execution and delivery of this
Indenture, and the Holders by accepting the Securities, expressly agree to such
terms and provisions and to be bound thereby. In case of a conflict, the
provisions of this Indenture shall control.
The Series C Notes will initially be issued in registered form as
Definitive Securities. Certain of the Series C Notes (after satisfaction of the
restrictions in Section 2.06 hereof) and Exchange Notes will be issued in global
form, substantially in the form of Exhibits A-1 and A-2, respectively, attached
hereto (including footnotes 1 and 2 thereto). The Global Securities shall
represent such of the outstanding Securities as shall be specified therein and
each shall provide that it shall represent the aggregate amount of outstanding
Securities from time to time endorsed thereon and that the aggregate amount of
outstanding Securities represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges and redemptions. Any endorsement
of a Global Security to reflect the amount of any increase or decrease in the
amount of outstanding Securities represented thereby shall be made by the
Trustee or the Securities Custodian, at the direction of the Trustee, in
accordance with instructions given by the Holder thereof.
<PAGE> 75
SECTION 2.02. EXECUTION AND AUTHENTICATION.
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities
and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated by the Trustee, the Security
shall nevertheless be valid.
A Security shall not be valid until authenticated by the authorized
manual signature of the Trustee. The signature shall be conclusive evidence that
the Security has been authenticated under this Indenture.
The Trustee shall authenticate Securities for original issue up to the
aggregate principal amount stated in paragraph 4 of the Securities, upon a
written order of the Company signed by two Officers or by one Officer and either
an Assistant Treasurer or Assistant Secretary of the Company, delivered to a
Trust Officer of the Trustee. The aggregate principal amount of Securities
outstanding at any time may not exceed such amount except as provided in Section
2.07 hereof. Such order shall specify the amount of the Series C Notes to be
authenticated and the date upon which the original issue thereof is to be
authenticated. In addition, on or prior to the registered exchange offer
consummation date contemplated hereby, the Trustee shall authenticate Exchange
Notes to be issued in the registered exchange offer in the same aggregate
principal amount as Series A Notes upon a written order of the Company signed by
two Officers or by one Officer and either an Assistant Treasurer or an Assistant
Secretary of the Company. Such order shall specify the amount of the Exchange
Notes to be authenticated in the registered exchange offer.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. An authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
SECTION 2.03. REGISTRAR AND PAYING AGENT.
The Company shall maintain in the Borough of Manhattan, City of New
York, State of New York, and in such other locations as it shall determine, (i)
an office or agency where Securities may be presented for registration of
transfer or for exchange ("Registrar") and (ii) an office or agency where
Securities may be presented for payment ("Paying Agent"). The Registrar shall
keep a register of the Securities and of their transfer and exchange. The
Company may appoint one or more co-registrars and one or more additional paying
agents. The term "Registrar" includes any co-registrar and the term "Paying
Agent" includes any additional paying agent. The Company may change any Paying
Agent or Registrar without notice to any Holder. The Company shall notify the
Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
<PAGE> 76
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depository with respect to the Global Securities.
The Company initially appoints State Street Bank and Trust Company,
N.A., to act as Securities Custodian with respect to the Global Securities.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
Prior to each due date of the principal or interest on any Security,
the Company shall deposit with the Paying Agent sufficient funds to pay
principal, premium, if any, and interest then so becoming due. The Company shall
require each Paying Agent other than the Trustee to agree in writing that the
Paying Agent will hold in trust for the benefit of Holders or the Trustee all
money held by the Paying Agent for the payment of principal or interest on the
Securities, and will notify the Trustee of any default by the Company in making
any such payment. While any such default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. The Company at any time
may require a Paying Agent to pay all money held by it to the Trustee. Upon
payment over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. The
Company shall notify the Trustee in writing of the name and address of the
Paying Agent if a person other than the Trustee is named Paying Agent at any
time or from time to time.
SECTION 2.05. SECURITYHOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is not
the Registrar, the Company shall furnish to the Trustee at least seven Business
Days before each Interest Payment Date and, at such other times as the Trustee
may request in writing, a list in such form and as of such date as the Trustee
may reasonably require of the names and addresses of Holders, and the Company
shall otherwise comply with TIA ss. 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) Transfer and Exchange of Definitive Securities. When Definitive
Securities are presented to the Registrar with the request:
(x) to register the transfer of the Definitive Securities; of
(y) to exchange such Definitive Securities for an equal principal
amount of Definitive Securities of other authorized denominations.
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Definitive Securities presented or surrendered for register of transfer or
exchange:
<PAGE> 77
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the
Registrar duly executed by the Holder thereof or by
his attorney, duly authorized in writing; and
(ii) in the case of Transfer Restricted Securities that
are Definitive Securities, shall be accompanied by
the following additional information and documents,
as applicable:
(A) if such Transfer Restricted Securities is being
delivered to the Registrar by a Holder for
registration in the name of such Holder, without
transfer, a certification from such Holder to
that effect in substantially the form of Exhibit
B hereto); or
(B) if such Transfer Restricted Security is being
transferred pursuant to any available exemption
from the registration requirements of the
Securities Act, a certification to that effect
(in substantially the form of Exhibit B hereto),
subject to the Company's right prior to any such
transfer to further require the delivery of an
Opinion of Counsel, certifications and other
information reasonably acceptable to the Company
and to the Registrar to the effect that such
transfer is in compliance with the Securities
Act, provided, however, that an Opinion of
Counsel shall not be required in the event of a
transfer pursuant to Rule 144 or Rule 144A under
the Securities Act.
(b) Restrictions on Transfer of a Definitive Security for a Beneficial
Interest in a Global Security. A Definitive Security may not be exchanged for a
beneficial interest in a Global Security except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Definitive
Security, duly endorsed or accompanied by appropriate instruments of transfer,
in form satisfactory to the Trustee, together with:
(i) if such Definitive Security is a Transfer Restricted Security,
certification, substantially in the form of Exhibit B hereto,
that such Definitive Security is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A under the
Securities Act; and
(ii) whether or not such Definitive Security is a Transfer Restricted
Security, written instructions directing the Trustee to make, or
to direct the Securities Custodian to make, an endorsement on the
Global Security to reflect an increase in the aggregate principal
amount of the Securities represented by the Global Security.
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased accordingly. If no Global Securities are then
<PAGE> 78
outstanding, the Company shall issue and the Trustee shall authenticate a new
Global Security in the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer and exchange
of Global Securities or beneficial interests therein shall be effected through
the Depository, in accordance with this Indenture (including the restrictions on
transfer set forth herein and the procedures of the Depository therefore.
(d) Transfer of a Beneficial Interest in a Global Security for a
Definitive Security.
(i) Any Person having a beneficial interest in a Global Security may
upon request exchange such beneficial interest for a Definitive
Security. Upon receipt by the Trustee of written instructions or
such other form of instructions as is customary for the Depository
from the Depository or its nominee on behalf of any Person having
a beneficial interest in a Global Security and upon receipt by
the Trustee of a written order or such other form of instructions
as is customary for the Depository or the Person designated by the
Depository as having such a beneficial interest in a Transfer
Restricted Security only, the following additional information and
documents (all of which may be submitted by facsimile):
(A) if such beneficial interest is being transferred to the
Person designated by the Depository as being the beneficial owner,
a certification from such person to that effect (in substantially
the form of Exhibit B hereto); or
(B) if such beneficial interest is being transferred to a
"qualified institutional buyer" (as defined in Rule 144A under
the Securities Act) in accordance with Rule 144A under the
Securities Act or pursuant to an exemption from registration in
accordance with Rule 144 or Regulation S under the Securities Act
or pursuant to an effective registration statement under the
Securities Act, a certification to that effect from the transferor
(in substantially the form of Exhibit B hereto); or
(C) if such beneficial interest is being transferred in reliance
on another exemption from the registration requirements of the
Securities Act, a certification to that effect from the transferee
or transferor (in substantially the form of Exhibit B hereto) and
an Opinion of Counsel from the transferee or transferor reasonably
acceptable to the Company and to the Registrar to the effect that
such transfer is in compliance with the Securities Act.
then the Trustee or the Securities Custodian, at the direction of the Trustee,
will cause, in accordance with the standing instructions and procedures existing
between the Depository and the Securities Custodian, the aggregate principal
amount of the Global Security to be reduced and following such reduction, the
Company will execute and, upon receipt of an authentication
<PAGE> 79
order in the form of an Officers' Certificate, the Trustee will authenticate and
deliver to the transferee a Definitive Security.
(ii) Definitive Securities issued in exchange for a beneficial
interest in a Global Security pursuant to this Section 2.06
(d) shall be registered in such names and in such authorized
denominations as the Depository, pursuant to instructions
from its direct or indirect participants or otherwise, shall
instruct the Trustee. The Trustee shall deliver such
Definitive Securities to the persons in whose names such
Securities are so registered.
(e) Restrictions on Transfer and Exchange of Global Securities. Notwith-
standing any other provisions of this Indenture (other than the provision set
forth in subsection (f) of this Section 2.06), a Global Security may not be
transferred as a whole except by the Depository to a nominee of the Depository
or by a nominee of the Depository to the Depository or another nominee of the
Depository or by the Depository or any such nominee to a successor Depository or
a nominee of such successor Depository.
(f) Authentication of Definitive Securities in Absence of Depository. If
at any time:
(i) the Depository for the Securities notifies the Company
that the Depository is unwilling or unable to continue as
Depository for the Global Securities and a successor
Depository for the Global Securities is not appointed by the
Company within 90 days after deliver of such notice; or
(ii) the Company, at its sole discretion, notifies the Trustee
in writing that it elects to cause the issuance of
Definitive Securities under this Indenture.
then the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate requesting the authentication and delivery of Definitive Securities,
will authenticate and deliver Definitive Securities, in an aggregate principal
amount equal to the principal amount of the Global Securities, in exchange for
Global Securities.
(g) Legends.
(i) Except as permitted by the following paragraph (ii), each Security
certificate evidencing the Global Securities and the Definitive
Securities (and all Securities issued in exchange therefor or
substitution thereof) shall bear a legend in substantially the
following form:
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH
<PAGE> 80
REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR
NOT SUBJECT TO, REGISTRATION. THE HOLDER OF THIS SECURITY BY
ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE
RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE
LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE
ON WHICH THE COMPANY OR ANY AFFILIATED PERSON OR THE COMPANY
AS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH
SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE
UNDER THE SECURITIES ACT, OR (C) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY'S RIGHT PRIOR TO ANY
SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (C), TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS
AND OTHER INFORMATION SATISFACTORY TO IT, AND SUBJECT TO THE
REQUIREMENT THAT IN EACH OF THE FOREGOING CASES, A
CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS
SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE
TRUSTEE. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE
HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a
Global Security) pursuant to Rule 144 under the Act or an
effective registration statement under the Act.
(A) in the case of any Transfer Restricted Security that is a
Definitive Security, the Registrar shall permit the Holder
thereof to exchange such Transfer Restricted Security for a
Definitive Security that does not bear the legend set forth
above and rescind any restriction on the transfer of such
Transfer Restricted Security; and
(B) any such Transfer Restricted Security represented by a
Global Security shall not be subject to the provisions set
forth in (i) above (such sales or transfers being subject
only to the provisions of Section 2.06(c) hereof); provided,
however, that with respect to any request for an exchange of
a Transfer Restricted Security that does not bear a legend,
which request is made in reliance
<PAGE> 81
upon Rule 144, the Holder thereof shall certify in writing
to the Registrar that such request is being made pursuant to
Rule 144 (such certification to be substantially in the form
of Exhibit B hereto).
(h) Cancellation and/or Adjustment of Global Security. At such time as all
beneficial interest in a Global Security have either been exchanged for
Definitive Securities, redeemed, repurchased or canceled, such Global Security
shall be returned to or retained and canceled by the Trustee. At any time prior
to such cancellation, if any beneficial interest in a Global Security is
exchanged for Definitive Securities, redeemed, repurchased or canceled, the
principal amount of Securities represented by such Global Security shall be
reduced and an endorsement shall be made on such Global Security, by the Trustee
or the Securities Custodian, at the direction of the Trustee, to reflect such
reduction.
(i) Obligations with respect to Transfers and Exchanges of Definitive
Securities.
(A) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate Definitive
Securities and Global Securities at the Registrar's request.
(B) No service charge shall be made to a Holder for any registration
or transfer or exchange, but the Company may require payment of a
sum sufficient to cover any transfer tax or similar governmental
charge payable in connection therewith (other than any such
transfer taxes or similar governmental charge payable upon
exchange or transfer pursuant to Sections 3.07, 3.08, 4.12 or
9.05 hereof).
(C) The Registrar shall not be required to register the transfer or
exchange of any Definitive Security selected for redemption in
whole or in part, except the unredeemed portion of any Definitive
Security being redeemed in part.
(D) All Definitive Securities and Global Securities issued upon any
registration of transfer or exchange of Definitive Securities or
Global Securities shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits under
the Indenture, as the Definitive Securities or Global Securities
surrendered upon such registration of transfer or exchange.
(E) The Company shall not be required
(1) to issue, register the transfer of or exchange Securities
during a period beginning at the opening of business 15 days
before the day of any selection of Securities for redemption
under Section 3.02 and ending at the close of business on
the day of selection, or
(2) to register the transfer of any Security so selected for
redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
<PAGE> 82
(F) Prior to due presentment for registration of transfer of any
Security, the Trustee, any Agent and the Company may deem and
treat the person in whose name any Security is registered as the
absolute owner of such Security for the purpose of receiving
payment of principal of and interest on such Security is overdue,
and neither the Trustee, any Agent nor the Company shall be
affected by notice to the contrary.
SECTION 2.07. REPLACEMENT SECURITIES.
If any mutilated Security is surrendered to the Trustee, or the Company and
the Trustee receive evidence to their satisfaction of the destruction, loss or
theft of any Security, the Company shall issue and the Trustee, upon the written
order of the Company signed by an Officer, shall authenticate a replacement
Security if the Trustee's requirements are met. If required by the Trustee or
the Company, an indemnity bond must be supplied by the Holder that is sufficient
in the judgment of the Trustee and the Company to protect the Company, the
Trustee, any Agent or any authenticating agent from any loss which any of them
may suffer if a Security is replaced. The Company may charge for its expenses in
replacing a Security.
Every replacement Security is an additional obligation of the Company and
shall be entitled to all benefits of this Indenture equally and proportionately
with all other Securities duly issued hereunder.
SECTION 2.08. OUTSTANDING SECURITIES.
The Securities outstanding at any time are all the Securities authenticated
by the Trustee except for those canceled by it, those delivered to it for
cancellation, those reductions in the interest in a Global Security effected by
the Trustee hereunder, and those described in this Section as not outstanding.
If a Security is replaced pursuant to Section 2.07 hereof, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the principal amount of any Security is considered paid under Section
4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue.
Except as set forth in Section 2.09 hereof, a Security does not cease to be
outstanding because the Company or an Affiliate holds the Security.
SECTION 2.09. TREASURY SECURITIES.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or an Affiliate of the Company shall be considered as though they
are not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Securities which the Trustee knows are so owned shall be so disregarded.
<PAGE> 83
SECTION 2.10. TEMPORARY SECURITIES.
Until Definitive Securities are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Securities. Temporary Securities
shall be substantially in the form of definitive Securities but may have
variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities. Holders
of temporary Securities shall be entitled to all benefits of this Indenture.
SECTION 2.11. CANCELLATION.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall dispose of
canceled Securities as the Company directs, subject to requirements of
applicable law. The Company may not issue new Securities to replace Securities
that it has paid or that have been delivered to the Trustee for cancellation.
SECTION 2.12. DEFAULTED INTEREST.
If the Company fails to make a payment of interest on the Securities, it
shall pay such defaulted interest plus any interest payable on the defaulted
interest, in any lawful manner. It may pay such defaulted interest, plus any
such interest payable on it, to the persons who are Securityholders on a
subsequent special record date. The Company shall fix any such record date and
payment date. At least 15 days before any such record date, the Company shall
mail to Securityholders a notice that states the record date, payment date, and
amount of such interest to be paid.
ARTICLE 3
REDEMPTION
SECTION 3.01. NOTICES TO TRUSTEE.
If the Company elects to redeem Securities pursuant to the optional
redemption provisions of paragraph 5 of the Securities and Section 3.07 hereof,
it shall notify the Trustee by delivery of an Officers' Certificate at least 45
days but not more than 60 days (unless a shorter notice period shall be
satisfactory to the Trustee) prior to the redemption date and the principal
amount of Securities to be redeemed and the redemption price.
If the Registrar is not the Trustee, the Company shall, concurrently with
each notice of redemption, cause the Registrar to deliver to the Trustee a
certificate (upon which the Trustee may rely) setting forth the principal
amounts of and identifying Restricted Securities held by any Holder.
<PAGE> 84
SECTION 3.02. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all the Securities are to be redeemed, the Trustee shall
select the Securities to be redeemed pro rata or by lot or by a method that
occupies with the requirements of any exchange on which the Securities are
listed, if any, and that the Trustee considers fair and appropriate. The Trustee
shall make the selection not more than 60 days and not less than 30 days before
the redemption date form Securities outstanding not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Securities and portions
of them it selects shall be in amounts of $1,000 or integral multiples of
$1,000; except that if all of the Securities of a Holder are to be redeemed, the
entire outstanding amount of Securities held by such Holder shall be redeemed.
Provisions of this Indenture that apply to Securities called for redemption also
apply to portions of Securities called for redemption. The Trustee shall notify
the Company promptly of the Securities or portions of Securities to be called
for redemption.
SECTION 3.03. NOTICE OF REDEMPTION.
Subject to the provisions of Section 3.08 hereof, at least 30 days but not
more than 60 days before a redemption date, the Company shall mail a notice of
redemption to each Holder whose Securities are to be redeemed.
The notice shall identify the Securities to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) if any security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
redemption date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion will be
issued;
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemption price, that upon surrender to the
Paying Agent such Securities shall be paid at the redemption price stated
in the notice plus accrued interest to the redemption date, that if fewer
than all of the outstanding Securities are to be redeemed, the
identification numbers and principal amounts of particular Securities to be
redeemed and that no representation is made as to the correctness or
accuracy of the Cusip number, if any, set forth in such notice or printed
on the Securities;
(6) that, unless the Company defaults in making the redemption
payment, interest on Securities or portions thereof called for redemption
ceases to accrue on and after the redemption date; and
(7) the paragraph of the Securities pursuant to which the Securities
called for redemption are being redeemed. Failure to give notice or any
defect in the notice to any Holder shall not affect the validity of notice
given to any other Holder.
<PAGE> 85
At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense.
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date at the price set forth in the
notice.
SECTION 3.05. DEPOSIT OF REDEMPTION PRICE.
On or before the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent (or, if the Company or a subsidiary of the
Company is acting as Paying Agent, sufficient funds are deposited with, and
segregated and held in trust by, such Paying Agent in accordance with the terms
of this Indenture) money sufficient to pay the redemption price of and accrued
interest on all Securities to be redeemed on that date (other than Securities or
portions of Securities which have been surrendered by the Company to the Trustee
for cancellation in accordance with the terms of the Indenture). The Trustee or
the Paying Agent shall, after paying itself any sums due it from the Company,
return to the Company promptly any money not required for that purpose.
SECTION 3.06. SECURITIES REDEEMED IN PART.
Upon surrender of a Security that is redeemed in part, the Company shall
issue and the Trustee shall authenticate for the Holder at the expense of the
Company a new Security equal in principal amount to the unredeemed portion of
the Security surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
The Company may redeem all or any of the Securities, upon the terms and
subject to the conditions set forth in paragraph 5 of the Securities. Any
redemption pursuant to this Section 3.07 shall be made pursuant to the
provisions of Sections 3.01 through 3.06 hereof. The restrictions set forth in
paragraph 5 of the Securities shall not be deemed to limit the Company's right
to make open market purchases of the Securities from time to time.
SECTION 3.08. OFFER TO REDEEM BY APPLICATION OF NET PROCEEDS.
No later than 5 days following the expiration of the Asset Sale Application
Period for any Asset Sale in which Excess Proceeds remain from such Asset Sale
(or in the event that the Excess Proceeds from such Asset Sale, plus the Excess
Proceeds from all prior Asset Sales which have not been applied to an Asset Sale
Offer pursuant to Section 3.08, are less than $2.0 million, no later than 5 days
after such time as such aggregate Excess Proceeds, plus the aggregate amount of
Excess Proceeds resulting from any subsequent Asset Sale(s) which have not been
applied to an Asset Sale Offer pursuant to Section 3.08, are at least equal to
$2.0 million), the Company shall notify the Trustee in writing setting forth (i)
that an Asset Sale Offer shall be made, (ii) the redemption date,(iii) the
amount of Excess Proceeds and the maximum principal amount of Securities that
may be purchased out of the Excess Proceeds and (iv) the redemption price, and
shall furnish to the Trustee an Officer's Certificate to the effect and setting
forth that (x) the Company has consummated (an) Asset Sale(s), (y) the
conditions set forth in Section 4.11 hereof have been satisfied and (z) the
total amount of Net Proceeds from the Asset Sale(s), the
<PAGE> 86
amount of Net Proceeds, if any, applied by the Company to permanently reduce the
availability under the Revolving Credit Facility and the amount of Net Proceeds,
if any, reinvested by the Company in accordance with Section 4.11. Within 15
days thereafter, the Trustee shall select the Securities to be offered to be
redeemed in accordance with Section 3.02 hereof. Within 10 days thereafter, the
Company shall mail or cause the Trustee to mail (in the Company's name and at
its expense) an offer to redeem (the "Asset Sale Offer") to each Holder of
Securities whose Securities are to be offered to be redeemed. The Asset Sale
Offer shall identify the Securities to which it relates and shall contain the
information required by clauses (1) through (7) of Section 3.03 hereof. The
redemption price shall be 100% of principal amount of the Securities plus
accrued interest to the redemption date. The redemption date shall be at least
75 but not more than 90 days after the mailing of Notice of the Asset Sale
Offer.
A Holder receiving an Asset Sale Offer may elect to have redeemed the
Securities to which the Asset Sale Offer relates by completing and delivering to
the Trustee and the Company, on or before 50 days preceding the redemption date,
the form entitled "Option of Holder to Elect Purchase" on the reverse side of
the Security. A Holder may not elect to have redeemed less than all of the
Securities to which the Asset Sale Offer relates. In the event that less than
all of the Holders receiving an Asset Sale Offer elect to have Securities
redeemed, the Trustee shall promptly select, in accordance with Section 3.02
hereof, additional Securities held by Holders who have elected to have
Securities redeemed in an amount equal to the Securities held by Holders who
received the Asset Sale Offer but did not elect to have Securities redeemed. The
Company or the Trustee (in the Company's name and at its expense) shall, no
later than 40 days preceding the redemption date, mail an additional Asset Sale
Offer to the Holders of the Securities so selected. Such additional Asset Sale
Offer shall be deemed accepted by the Holder unless such Holder provides written
notice of non-acceptance to the Trustee and to the Company on or before 30 days
preceding the redemption date. The Trustee shall thereafter mail a notice of
redemption in accordance with Section 3.03 hereof at least 15 days prior to the
redemption date.
In the event the Excess Proceeds are not evenly divisible by $1,000, the
Trustee shall promptly refund to the Company the remaining portion of such
Excess Proceeds that are not so divisible. The Trustee shall, after paying
itself any sums due it from the Company, return promptly to the Company any
Excess Proceeds remaining after the redemption of Securities pursuant to offers
to redeem.
Other than as specifically provided in this Section 3.08, any redemption
pursuant to this Section 3.08 shall be made pursuant to the provisions of
Section 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF SECURITIES.
The Company shall duly pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities. Principal
and interest shall be considered paid on the date due if the Paying Agent (other
than the Company or a subsidiary of the Company) holds on that date money
designated for and sufficient to pay all principal and interest then due or, if
<PAGE> 87
the Company or a subsidiary of the Company is then acting as Paying Agent, such
Paying Agent holds on that date the full amount of such sufficient money
segregated and held in trust in accordance with the terms of this Indenture. To
the extent lawful, the Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on (i) overdue principal,
at the rate borne by the Securities, compounded semiannually; and (ii) overdue
installments of interest (without regard to any applicable grace period) at the
same rate, compounded semiannually.
SECTION 4.02. SEC REPORTS: FINANCIAL STATEMENTS.
(a) The Company and any other obligor upon the Securities shall file with
the Trustee, within 15 days after filing with the SEC, copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company or any other obligor upon the Securities is
required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act. If either the Company or any other obligor upon the Securities is not
subject to the requirements of such Section 13 or 15(d) of the Exchange Act, the
Company or such other obligor, as the case may be, shall file with the Trustee,
within 15 days after it would have been required to file with the SEC, financial
statements, including any notes thereto (and with respect to annual reports, an
auditors' report by a firm of established national reputation reasonably
satisfactory to the Trustee), and a "Management's Discussion and Analysis of
Financial Condition and Results of Operations," both comparable to that which
the Company or such other obligor, as the case may be, would have been required
to include in such annual reports, information, documents or other reports if
the Company or such other obligor, as the case may be, were subject to the
requirements of such Section 13 or 15(d) of the Exchange Act. Subsequent to the
qualification of the Indenture under the TIA, the Company and any other obligor
upon the Securities shall also comply with the provisions of TIA ss. 314(a).
(b) If the Company or any other obligor upon the Securities is required to
furnish annual or quarterly reports to its stockholders pursuant to the Exchange
Act, the Company or such other obligor, as the case may be, shall cause any
annual report furnished to its stockholders generally and any quarterly or other
financial reports furnished by it to its stockholders generally to be filed with
the Trustee and mailed to the Holders at their addresses appearing in the
register of Securities maintained by the Registrar. If either the Company or any
other obligor upon the Securities is not required to furnish annual or quarterly
reports to its stockholders pursuant to the Exchange Act, the Company or such
other obligor, as the case may be, shall cause its financial statements referred
to in Section 4.02(a) above, including any notes thereto (and with respect to
annual reports, an auditors' report by a firm of established national
reputation), and a "Management's Discussion and Analysis of Financial Condition
and Results of Operations," to be so mailed to the Holders within 120 days after
the end of each of its fiscal years and within 60 days after the end of each of
its first three fiscal quarters. The Company and any other obligor upon the
Securities will cause to be disclosed in a statement accompanying any annual
report or comparable information as of the date of the most recent financial
statements in each such report or comparable information the amount available
for payments pursuant to Section 4.07(a) hereof. As of the date hereof, the
Company's fiscal year ends on December 31.
<PAGE> 88
SECTION 4.03. COMPLIANCE CERTIFICATE.
(a) The Company (and any other obligor upon the Securities) shall deliver
to the Trustee, within 120 days after the end of each fiscal year of the
Company, an Officers' Certificate stating that a review of the activities of the
Company and its Subsidiaries (or of such obligor) during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether each has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his knowledge each has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions hereof (or, if a Default or Event of Default
shall have occurred, describing all such Defaults or Events of Default of which
he may have knowledge and what action the Company or such other obligor, as the
case may be is taking or proposes to take with respect thereto) and that to the
best of his knowledge no event has occurred and remains in existence by reason
of which payments on account of the principal of or interest, if any, on the
Securities are prohibited or if such event has occurred, a description of the
event and what action the Company or such other obligor, as the case may be, is
taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the annual financial
statements delivered pursuant to Section 4.02 above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements nothing has come to
their attention which would lead them to believe that the Company has violated
any provisions of Article 4 (other than Sections 4.02, 4.03, 4.04 and 4.16
thereof) or 5 of this Indenture or, if any such violation has occurred,
specifying the nature and period of existence thereof, it being understood that
such accountants shall not be liable directly or indirectly to any Person for
any failure to obtain knowledge of any such violation.
(c) The Company (and any obligor upon the Securities) will, so long as any
of the Securities are outstanding, deliver to the Trustee, forthwith upon any
Officer becoming aware of (i) any Default or Event of Default or (ii) any event
of default (continuing beyond any applicable grace period) under any other
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, an Officers' Certificate
specifying such Default, Event of Default or event of default and what action
each is taking or proposes to take with respect thereto.
SECTION 4.04. STAY, EXTENSION AND USURY LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay or
impede the execution of any
<PAGE> 89
power herein granted to the Trustee, but will suffer and permit the execution
of every such power as though no such law has been enacted.
SECTION 4.05. CORPORATE EXISTENCE.
Subject to Article 5, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its corporate existence
and the corporate, partnership or other existence of each Subsidiary of the
Company in accordance with the respective organization documents of each
Subsidiary of the Company and the rights (charter and statutory), licenses and
franchises of the Company and its Subsidiaries; provided, however, that the
Company shall not be required to preserve any such right, license or franchise,
or the corporate, partnership or other existence of any Subsidiary, if the Board
of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its subsidiaries
taken as a whole and that the loss thereof is not adverse in any material
respect to the Holders.
SECTION 4.06. TAXES.
The Company shall, and shall cause each of its Subsidiaries to, pay prior
to delinquency all material taxes, assessments and governmental levies, except
as contested in good faith and by appropriate proceedings or where failure to
effect such payment is not adverse in any material respect to the Holders.
SECTION 4.07. LIMITATIONS ON RESTRICTED PAYMENTS.
(a) The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly: (i) declare or pay any dividend or make any distribution
on account of the Company's or any of its Subsidiaries' Equity Interests (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of the Company or such Subsidiary or dividends or
distributions payable to the Company or any Wholly Owned Subsidiary of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Subsidiary or other Affiliate of the
Company (other than any such Equity Interests owned by the Company or any Wholly
Owned Subsidiary of the Company) in each case except for Permitted Investments;
(iii) voluntarily purchase, redeem or otherwise acquire or retire for value any
Indebtedness that is pari passu with or subordinated to the Securities; or (iv)
make any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments") unless, at the time of such Restricted Payment:
(1) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof; and
(2) immediately after such Restricted Payment (the value of any such
payment, if other than cash, being determined by the Board of Directors and
evidenced by a resolution) and after giving effect thereto on a pro forma basis,
the Consolidated Net Worth of the Company would be at least $25 million; and
<PAGE> 90
(3) the Company's Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial statements
are available immediately preceding the date on which such Restricted Payment is
made, calculated on a pro forma basis as if such Restricted Payment had been
made at the beginning of such four-quarter period, would have been at least 3 to
1; and
(4) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Subsidiaries after the date of
the Old Indenture (including Restricted Payments permitted by clause (ii) of
Section 4.07(b) hereof), is less than the sum of (x) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting period) from the
beginning of the first quarter immediately after the first date on which the
Company's Consolidated Net Worth exceeds $25 million to the end of the Company's
most recently ended four full fiscal quarters for which internal financial
statements are available at the time of such Restricted Payment (or, if such
Consolidated Net Income for such period is a deficit, 100% of such deficit),
plus (y) 100% of the aggregate net cash proceeds received by the Company from
the issue or sale of Equity Interests of the Company (other than Equity
Interests sold to a Subsidiary of the Company and other than Disqualified Stock)
since the date of the Old Indenture, plus (z) 100% of the net cash proceeds
received by the Company from the issuance or sale, other than to a Subsidiary of
the Company, of any debt security of the Company that has been converted into
Equity Interests of the Company (other than Disqualified Stock) since the date
of the Old Indenture.
For purposes of Section 4.07(a)(4) hereof, the net proceeds from the
issuance of shares of Capital Stock of the Company or any Subsidiary issued upon
conversion of debt securities shall be deemed to be the net book value of such
debt securities at the date of conversion (plus the additional amount required
to be paid upon such conversion, if any), less any cash payment on account of
fractional shares. For the purposes of this paragraph, the net book value of a
security shall be the amount received by the Company on the issuance of such
security, as adjusted on the books of the Company to the date of conversion. The
foregoing shall not be interpreted to limit the authority of the Board of
Directors, as set forth above, to determine the value of other securities of the
Company or other property received as net proceeds; provided, however, that the
value of the other property shall not exceed the net book value on the Company's
books of such property. For purposes of determining under clause (iv) above the
amount expended for Restricted Payments, cash distributed shall be valued at the
face amount thereof and property other than cash shall be valued at its fair
market value.
(b) Notwithstanding the foregoing provisions, the provisions of this
Section 4.07 shall not prohibit: (i) the payment of any dividend within 60 days
after the date of declaration thereof, if at said date of declaration such
payment would have complied with the provisions of the Indenture; (ii) the
redemption, repurchase, retirement or other acquisition of any Equity Interests
of the Company in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other Equity
Interests of the Company (other than any Disqualified Stock); (iii) the
redemption, repurchase or payoff of Indebtedness (whether revolving credit
borrowings, letters of credit, or otherwise) under the Revolving Credit
Facility;
<PAGE> 91
(iv) the redemption, repurchase or payoff of Purchase Money Indebtedness;
(v) the redemption, repurchase or payoff of any Indebtedness with proceeds of
any Refinancing Indebtedness permitted to be incurred under Section 4.08; or
(vi) the repurchase, redemption or other acquisition or retirement for value of
any Equity Interests of the Company or any Subsidiary of the Company held by any
officer or employee of the Company (other than Principals or any Related Party)
or any of the Company's distributors or sales representatives; provided,
however, that the aggregate amount of all such repurchases, redemptions and
other acquisitions and retirements under this clause (vi) on or after the date
of the Indenture shall not exceed $2 million.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which calculations
may be based upon the Company's latest available financial statements.
SECTION 4.08. LIMITATIONS ON INCURRENCE OF INDEBTEDNESS AND
ISSUANCE OF PREFERRED STOCK.
(a) The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and will not issue any Disqualified Stock
and will not permit any of its Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company may incur Indebtedness or issue
shares of Disqualified Stock if:
(i) the Fixed Charged Coverage Ratio for the Company's most recently
ended four full fiscal quarters for which internal financial statements are
available immediately preceding the date on which such additional
Indebtedness is incurred or such Disqualified Stock is issued would have
been at least equal to the ratio of 2.5:1, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred, or the Disqualified Stock
had been issued, as the case may be, at the beginning of such four-quarter
period; and
(ii) the Weighted Average Life to Maturity of such Indebtedness is
greater than the remaining Weighted Average Life to Maturity of the
Securities.
(b) The limitations of Section 4.08(a) will not apply to (i) the incurrence
by the Company and its Subsidiaries of Indebtedness (whether revolving credit
borrowings, trade letters of credit, standby letters of credit or a combination
thereof) pursuant to the Revolving Credit Facility in an aggregate principal
amount (as to borrowings) and in an aggregate undrawn face amount (as to letters
of credit, whether or not constituting Indebtedness) not to exceed $50 million
in the aggregate at any one time outstanding (as such aggregate amount may be
permanently reduced from time to time pursuant to Section 4.11 of this
Indenture); (ii) the incurrence by the Company and its Foreign Subsidiaries of
Hedging Obligations incurred to fix the interest rate on any variable rate
Indebtedness otherwise permitted by this Section 4.08; (iii) the incurrence by
the Company and its Foreign Subsidiaries of Indebtedness in connection with or
arising out of sale and leaseback transactions, capital lease obligations or
Purchase Money Obligations, provided, that the aggregate principal amount at any
one time outstanding of all such otherwise unpermitted sale and leaseback
transactions, capital lease obligations and Purchase Money
<PAGE> 92
Obligations does not exceed $10 million (collectively, "Purchase Money
Indebtedness"); (iv) the incurrence by the Company of Indebtedness represented
by the Securities; (v) Indebtedness owed by the Company to any of its
Subsidiaries or any such Subsidiary to the Company or any other Subsidiary of
the Company; (vi) the incurrence by the Company (and its Subsidiaries, as to
clause (i) above; and its Foreign Subsidiaries, as to clause (iii) above) of
Indebtedness issued in exchange for, or the proceeds of which are
contemporaneously used to extend, refinance, renew, replace, or refund
(collectively, "Refinance") Indebtedness referred to in clauses (i), (iii) and
(iv) above, and outstanding Indebtedness incurred in compliance with Section
4.08(a) hereof (the "Refinancing Indebtedness"); provided, however, that such
Refinancing Indebtedness (A) in the case of a Refinance of Indebtedness under
the Revolving Credit Facility, is limited to an aggregate commitment (inclusive
of revolving credit borrowings and the undrawn face amount of letters of credit,
whether or not constituting Indebtedness) not in excess of $50 million (as such
amount may be permanently reduced from time to time pursuant to Section 4.11 of
this Indenture), and (B) in the case of other Refinancing Indebtedness (1) the
principal amount of such Refinancing Indebtedness shall not exceed the principal
amount of Indebtedness so Refinanced (plus the amount of reasonable expenses
incurred in connection therewith), (2) the Refinancing Indebtedness shall have a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of the Indebtedness being extended, refinanced, renewed,
replaced or refunded, and (3) the Refinancing Indebtedness shall rank in right
of payment no more senior (and at least as subordinated) to the Securities than
did the Indebtedness being Refinanced; or (vii) the incurrence by the Company of
trade letters of credit incurred in the ordinary course of business in an amount
not to exceed $5 million at any one time outstanding.
SECTION 4.09. LIMITATION ON LIENS.
The Company will not, and will not permit its Subsidiaries to, directly or
indirectly create, incur, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except: (i) Liens on accounts
receivable and inventory of the Company and its Subsidiaries, and on the other
assets described in clause (C) of subdivision (i) of Section 10.01(d) of this
Indenture, and the proceeds thereof, securing Indebtedness (and, whether or not
included as Indebtedness, trade letters of credit and/or standby letters of
credit and/or reimbursement obligations in respect thereof, and any and all
related interest, fees and related obligations) pursuant to the Revolving Credit
Facility in an aggregate principal amount (as to borrowings) and an aggregate
undrawn face amount (as to letters of credit, whether or not constituting
Indebtedness) not to exceed $50 million in the aggregate at any one time
outstanding (as such aggregate amount may be permanently reduced from time to
time pursuant to Section 4.11 of this Indenture), (ii) Purchase Money Liens and
Liens for construction mortgages created on any type of property, construction
or improvement of such property by the Company or a Foreign Subsidiary to secure
the purchase price or construction cost or improvement cost of only such
property in an amount up to 100% of the total cost of such property,
construction or improvement, (iii) Liens to secure obligations for which the
Company is fully indemnified by Dow Corning, provided that the Company provides
the Trustee with an Officer's Certificate setting forth the good faith opinion
of the Company's Board of Directors that Dow Corning is indemnifying the Company
in full for all liabilities, damages and costs relating to such Lien and the
obligations it secures, (iv) Liens on property of the Company or its
Subsidiaries which secure environmental claims of any governmental authority,
provided that all such claims do not exceed $1 million in the aggregate,
provided further that such environmental claims are being contested or remedied
in good faith by the Company, and provided further that if the Company obtains
security (in the form of a letter of credit, cash collateral, escrow account or
third party indemnity from a third party which the Company deems financially
capable of performing its obligations under said indemnity) to secure the
payment and satisfaction of any such claim, such adequately secured
environmental claim shall not be counted towards such $1 million aggregate
limitation to the extent such security secures such payment and satisfaction,
(v) Liens securing the obligations under the Securities and the Indenture, and
(vi) Permitted Liens.
For the purposes of determining "adequate security" under clause (iv)
above, the Company shall provide the Trustee with an Officer's Certificate
certifying the basis for the Company's opinion that such security (in both
amount and form) secures the payment of, and satisfaction of liabilities with
respect to, the environmental claim for which such security relates and the
extent to which such security secures such payment and satisfaction.
SECTION 4.10. LIMITATION ON GRANTING LIENS AND RESTRICTIONS
ON SUBSIDIARY DIVIDENDS.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of (a) the Company or
any Subsidiary to grant Liens on the assets of such Person in favor of the
Holders, or (b) any Subsidiary to (i) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (A) on its Capital Stock
or (B) with respect to any other interest or participation in, or measured by,
its profits, or (ii) pay any Indebtedness owed to the Company or any of its
Subsidiaries or (c) any Subsidiary to make loans or advances to the Company or
any of its Subsidiaries or (d) any Subsidiary to transfer any of its properties
or assets to the Company or any of its Subsidiaries, except for such
encumbrances or restrictions existing under or by reasons of (i) the Revolving
Credit Facility, provided that such restrictions do not restrict the granting or
perfecting of Liens on the Collateral to the Collateral Agent, Trustee and
Holders as contemplated by this Indenture and the Collateral Agreements, (ii)
the Indenture and the Securities, (iii) applicable law, (iv) any instrument
governing Indebtedness or Capital Stock of a Person acquired (including by way
of merger or consolidation) by the Company or any of its Subsidiaries as in
effect at the time of such acquisition (except to the extent such Indebtedness
was incurred in contemplation of such acquisition), which encumbrance or
restriction is not applicable to any Person, or the properties or assets of any
Person, other than the Person, or the property or assets of the Person, so
acquired, (v) with respect to clauses (a) and (d) above, (1) restrictions on
encumbering in leases and other agreements entered into prior to the date of the
Indenture or acquired from a third party into on or after the date of the
Indenture in the ordinary course of business, (vi) with respect to clauses (a)
and (d) above, Purchase Money Obligations, provided that such encumbrance or
restriction does not apply to any other property or asset of the Company or its
Subsidiaries, and (vii) permitted Refinancing Indebtedness, provided that such
restrictions contained in any agreement governing such Refinancing Indebtedness
are no more restrictive taken as a whole than those contained in any agreements
governing the Indebtedness being refinanced.
SECTION 4.11. LIMITATIONS ON CERTAIN ASSET SALES.
(a) The Company will not, and will not permit any of its Subsidiaries to,
(i) sell, lease, transfer or otherwise dispose of (including by way of a
sale-and-leaseback) any Business
<PAGE> 93
Segment, other than the sale of inventory or materials in the ordinary course of
business (provided that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company shall be governed by Section
5.01 hereof), or (ii) sell Equity Interests of any of its Subsidiaries for net
proceeds in excess of $5 million, in each case whether in a single transaction
or a series of related transactions (each of the foregoing, an "Asset Sale"),
unless (x) the Company (or the Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets sold or otherwise
disposed of and (y) at least 80% of the consideration therefor received by the
Company or such Subsidiary is in the form of cash; provided, however, that the
amount of (A) any liabilities (as shown on the Company's or such Subsidiary's
most recent balance sheet or in the notes thereto), of the Company or any
Subsidiary that are assumed by the transferee of any such assets and (B) any
notes or other obligations received by the Company or any such Subsidiary from
such transferee that are promptly, but in no event more than 30 days after
receipt, converted by the Company or such Subsidiary into cash, shall be, deemed
to be cash (to the extent of the cash received) for purposes of this provision.
(b) Within 180 days after any Asset Sale (the "Asset Sale Application
Period"), the Company may apply the Net Proceeds from such Asset Sale to either
(i) permanently reduce the availability under the Revolving Credit Facility (and
if the outstanding principal amount under the Revolving Credit Facility exceeds
the availability thereunder after such reduction, then reduce the amount
outstanding to an amount at least equal to such availability), or (ii) make an
investment in another business or capital expenditure or a purchase of other
fixed assets in the same or a similar line of business as the Company was
engaged in on the date of the Old Indenture. Any Net Proceeds from the Asset
Sale that are not applied or invested as provided in the preceding sentence
constitute "Excess Proceeds." Prior to each application of Net Proceeds from an
Asset Sale, excluding any application pursuant to any Asset Sale Offer, the
Company shall deliver an Officers' Certificate to the Trustee setting forth the
intended application of such Net Proceeds and certifying that such Net Proceeds
are being applied in accordance with this Section 4.11(b).
In accordance with the provisions of Section 3.08 hereof, the Company shall
make an Asset Sale Offer to all Securityholders to purchase the maximum
principal amount of Securities that may be purchased out of the Excess Proceeds,
at an offer price in cash in an amount equal to 100% of the outstanding
principal amount thereof plus accrued and unpaid interest, if any, to the date
fixed for the closing of such offer; provided, however, that in the event that
the Excess Proceeds from such Asset Sale, plus the Excess Proceeds from all
prior Asset Sales which have not been applied to an Asset Sale Offer pursuant to
the Old Indenture or Section 3.08 of this Indenture, are less than $2.0 million,
the application of such aggregate Excess Proceeds to an Asset Sale Offer may be
deferred until such time as such aggregate Excess Proceeds, plus the aggregate
amount of Excess Proceeds resulting from any subsequent Asset Sale(s), are at
least equal to $2.0 million.
SECTION 4.12. CHANGE OF CONTROL.
(a) Upon the occurrence of a Change of Control, each Securityholder shall
have the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple
<PAGE> 94
thereof) of such Holder' Securities pursuant to the offer described below (the
"Change of Control Offer") at a purchase price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (the "Change of Control Payment"). The Change of Control Offer shall
remain open for a period of at least 20 Business Days after its commencement
unless a longer offering period is required by law.
(b) Within 40 days following any Change of Control, the Company shall mail
a notice to each holder stating: (1) that the Change of Control Offer is being
made pursuant to the covenant entitled "Change of Control" and that all
Securities tendered will be accepted for payment; (2) the purchase price and the
purchase date, which shall be no earlier than 30 days nor later than 40 days
from the date such notice is mailed (the "Change of Control Payment Date"); (3)
that any Security not tendered will continue to accrue interest; (4) that,
unless the Company defaults in the payment of the Change of Control Payment, all
Securities accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Payment Date; (5) that
Holders electing to have any Securities purchased pursuant to a Change of
Control Offer will be required to surrender the Securities, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Securities
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change of Control
Payment Date; (6) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of Securities delivered for purchase, and a statement that such
Holder is withdrawing his election to have Securities purchased; and (7) that
Holders whose Securities are being purchased only in part will be issued new
Securities equal in principal amount to the unpurchased portion of the
Securities surrendered, which unpurchased portion must be equal to $1,000 in
principal amount or an integral multiple thereof. The Company will comply with
the requirements of Rule 14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Securities in connection
with a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment Securities or portions thereof tendered pursuant
to the Change of Control Offer, (2) deposit with the Paying Agent an amount
equal to the Change of Control Payment in respect of all Securities or portions
thereof so tendered and (3) deliver or cause to be delivered to the Trustee the
Securities so accepted together with an Officers' Certificate stating the
Securities or portions thereof tendered to the Company. The Paying Agent shall
promptly mail to each Security Holder of Securities so accepted payment in an
amount equal to the purchase price for such Securities, and the Trustee shall
promptly authenticate and mail to each Holder a new Security equal in principal
amount to any unpurchased portion of the Securities surrendered, if any;
provided, that each such new Security shall be in a principal amount of $1,000
or an integral multiple thereof. The Company will publicly announce the results
of the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
"Change of Control" means (i) the sale, lease or transfer of all or
substantially all of the Company's assets to any Person or group (as such term
is used in Section 13(d)(3) of the Exchange Act) (other than the Principals (as
defined below)), (ii) the liquidation or dissolution of
<PAGE> 95
the Company, (iii) the acquisition by any Person or group (as such term is used
in Section 13(d)(3) of the Exchange Act) (other than the Principals and their
Related Parties) of a direct or indirect majority in interest (more than 50%) of
the voting power of the Voting Stock of the Company by way of merger or
consolidation or otherwise or (iv) any transaction the result of which is (x) if
such transaction occurs prior to the first sale of common equity of the Company
pursuant to a registration statement under the Securities Act that results in at
least 25% of the then outstanding common equity of the Company being sold to the
public, that the Principals and their Related Parties beneficially own less,
directly or indirectly, than 35% of the voting power of the Voting Stock of the
Company beneficially owned by the Principals, directly or indirectly, on the
date of the Indenture, and (y) if such transaction occurs thereafter, that any
Person or group (as defined above) (other than the Principals and their Related
Parties) owns, directly or indirectly, more of the voting power of the Voting
Stock of the Company than the Principals and their Related Parties.
"Related Party" with respect to any Principal means (A) the general partner
and each limited partner of Kidd Kamm as of the date of the Indenture, (B) any
50% (or more) owned Subsidiary of either Principal or both Principals jointly,
or (C) any spouse or immediate family member or trust (in the case of an
individual) of such Principal.
"Principals" means Kidd Kamm and Herbert W. Korthoff.
SECTION 4.13. TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any of its Subsidiaries to, sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), except for (a)
Affiliate Transactions of aggregate value less than $1 million which is on terms
that are no less favorable to the Company or the relevant Subsidiary than those
that would have been obtained in a comparable transaction by the Company or such
Subsidiary with an unrelated person and which are conducted in good faith and
(b) Affiliate Transactions in which the Company delivers to the Trustee an
opinion as to the fairness to the Company or such Subsidiary from a financial
point of view issued by an investment banking firm of national standing;
provided, however, that (i) any employment agreement entered into by the Company
or any of its Subsidiaries in the ordinary course of business and with the
approval of the Company's board of directors, (ii) transactions between or among
the Company and/or its Subsidiaries, (iii) transactions permitted by Section
4.07 hereof, (iv) the rendering of management services by Kidd, Kamm & Company
and the payment by the Company for such services pursuant to the Management
Services Agreement and (v) the rendering of services by Kidd, Kamm & Company in
connection with the Acquisition and the payment for such services by the Company
on the closing date of the Acquisition, in each case, shall not be deemed
Affiliate Transactions.
SECTION 4.14. MAINTENANCE OF CONSOLIDATED NET WORTH.
The Company shall not permit its Consolidated Net Worth at the end of each
fiscal year set forth below to be less than the amount set forth opposite such
fiscal year:
<PAGE> 96
Minimum
Consolidated
Year Ending Net Worth
December 31, 1997...........................17,500,000
Thereafter..................................20,000,000
SECTION 4.15. LIQUIDATION.
The Board of Directors or the stockholders of the Company may not adopt a
plan of liquidation which provides for, contemplates or the effectuation of
which is preceded by (i) the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company otherwise than substantially
as an entirety (Section 5.01 of this Indenture being the Section hereof which
governs any such sale, lease, conveyance or other disposition substantially as
an entirety) and (ii) the distribution of all or substantially all of the
proceeds of such sale, lease, conveyance or other disposition and of the
remaining assets of the Company to the holders of capital stock of the Company,
unless the Company, prior to making any liquidating distribution pursuant to
such plan, makes provision for the satisfaction of the Company's obligations
hereunder and under the Securities as to the payment of principal and interest.
The Company shall be deemed to make provision for such payments only if the
Company delivers in trust to the Trustee or Paying Agent (other than the
Company) money or U.S. Government Obligations maturing as to principal and
interest in such amounts and at such times as are sufficient without
consideration of any reinvestment of such interest to pay, when due, the
principal of and interest on the Securities and also delivers to the Trustee an
Opinion of Counsel to the effect that Holders of the Securities will not
recognize income, gain or loss for Federal income tax purposes as a result of
such action and will be subject to Federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such action
had not been taken and a favorable accountants' certificate as to the
sufficiency of such Obligations, without consideration of any reinvestment of
interest, to pay, when due, the principal of and interest on the Securities;
provided, however, that the Company shall not make any liquidating distribution
until after the Company shall have certified to the Trustee with an Officers'
Certificate at least five days prior to the making of any liquidating
distribution that it has complied with the provisions of this Section 4.15 and
that no Default or Event of Default then exists or would occur as a result of
any such liquidating distribution. The Company will pay the reasonable
compensation and expenses of the Trustee and the reasonable fees and expenses of
the Trustee's agents and counsel incurred in connection with this Section 4.15.
SECTION 4.16. RULE 144A INFORMATION REQUIREMENT.
The Company shall furnish to the Holders or beneficial holders of the
Securities and to prospective purchasers of Securities designated by the Holders
of Transfer Restricted Securities, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act until such
time as the Company either exchanges the Series C Notes for the Exchange Notes
or has registered the Series C Notes for resale under the Securities Act. The
Company will provide a copy of the Registration Rights Agreement to
prospective investors upon request.
<PAGE> 97
SECTION 4.17. PAYMENTS FOR CONSENT.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of the Indenture
or the Securities unless such consideration is offered to be paid or agreed to
be paid to all Holders that consent, waive or agree to amend in the time frame
set forth in the solicitation documents relating to such consent, waiver or
agreement.
SECTION 4.18. RESTRICTIONS ON INDIRECT SUBSIDIARIES.
The Company will not create, cause its Subsidiaries to create, or otherwise
suffer to exist any Subsidiary of a Subsidiary of the Company.
ARTICLE 5
SUCCESSORS
SECTION 5.01. WHEN COMPANY MAY MERGE, ETC.
The Company shall not consolidate or merge with or into (whether or not the
Company is the surviving corporation), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions to, another corporation, person or entity
unless:
(i) the Company is the surviving corporation or the entity or the
Person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia;
(ii) the corporation formed by or surviving any such consolidation or
merger (if other than the Company) or to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been made
assumes all the obligations of the Company pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee, under the
Securities and the Indenture;
(iii) immediately after such transaction no Default or Event of
Default exists; and
(iv) the Company or any corporation formed by or surviving any such
consolidation or merger, or to which such sale, assignment, transfer,
lease, conveyance or other disposition will have been made (A) will have
Consolidated Net Worth (immediately after the transaction but prior to any
purchase accounting adjustments resulting from the transaction) equal to or
greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred
at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of
<PAGE> 98
additional indebtedness pursuant to the Fixed Charge Coverage Ratio test
set forth in Section 4.08(a) hereof.
The Company shall deliver to the Trustee prior to the consummation of the
proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such supplemental
indenture comply with this Indenture.
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor person has been named
as the Company herein; provided, however, that the predecessor Company in the
case of a sale, lease, conveyance or other disposition shall not be released
from the obligation to pay the principal of and interest on the Securities.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any
Security when the same becomes due and payable and the default
continues for a period of 30 days;
(2) the Company defaults in the payment of the principal of any
Security when the same becomes due and payable at maturity, upon
redemption or otherwise;
(3) the Company fails to comply with any of its other agreements
or covenants in, or provisions of, the Securities, this Indenture, the
Registration Rights Agreement or the Collateral Agreements and the
default continues for the period and after the notice specified below;
(4) a default under (after giving effect to any applicable
grace periods or any extension of any maturity date) any mortgages,
indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of
the Indenture, if (a) either (A) such default results from the failure
to pay principal of or interest on such Indebtedness or (B) as a result
of such default the maturity of such Indebtedness has been accelerated,
and (b) the principal amount of such Indebtedness with respect to which
a default (after the expiration of any applicable grace period or any
extension of the maturity date) has
<PAGE> 99
occurred, or the maturity of which has been accelerated, exceeds $2
million in the aggregate;
(5) a final judgment or final judgments for the payment of money
are entered by a court or courts of competent jurisdiction against the
Company or any of its Subsidiaries (other than any judgment as to
which a reputable insurance company has accepted full liability)
aggregating in excess of $1 million which judgments are not stayed or
discharged within 60 days after their entry;
(6) (a) a breach by the Company of any material representation or
warranty set forth in the Collateral Agreements, (b) a repudiation by
the Company of its obligations under the Collateral Agreements, or (c)
the unenforceability of the Collateral Agreements against the Company
for any reason;
(7) the Company or any of its Subsidiaries pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief against it
in an involuntary case,
(C) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) generally is unable to pay its debts as the same become
due;
(8) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any of its
Subsidiaries in an involuntary case,
(B) appoints a Custodian of the Company or any of its
Subsidiaries or for all or substantially all of its property, or
(C) orders the liquidation of the Company or any of its
Subsidiaries,
and the order or decree remains unstayed and in effect for 60 days.
The term "Bankruptcy Law" means title 11 U.S. Code or any similar Federal
or State law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
A Default under clauses (3) (other than a Default under Sections 4.05,
4.07, 4.08, 4.11, 4.12, 4.15 or 5.01 which Default shall be an Event of Default
without the notice or passage of time specified in this paragraph), (5) or
(6)(a) is not an Event of Default until the Trustee or the
<PAGE> 100
Holders of at least 25% in principal amount of the then outstanding Securities
notify the Company of the Default and the Company does not cure the Default or
such Default is not waived within 30 days after receipt of the notice. The
notice must specify the Default, demand that it be remedied and state that the
notice is a "Notice of Default."
In the case of any Event of Default pursuant to the provisions of this
Section 6.01 occurring by reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Company with the intention of avoiding payment
of the premium which the Company would have to pay if the Company then had
elected to redeem the Securities pursuant to paragraph 5 of the Securities, an
equivalent premium (or in the event that the Company would not be permitted to
redeem the Securities pursuant to Section 5 of the Securities, the premium
payable on the first date thereafter on which such redemption would be
permissible) shall also become and be immediately due and payable to the extent
permitted by law, anything in this Indenture or in the Securities contained to
the contrary notwithstanding.
SECTION 6.02. ACCELERATION.
If an Event of Default (other than an Event of Default specified in clauses
(7) and (8) of Section 6.01) occurs and is continuing, the Trustee by notice to
the Company, or the Holders of at least 25% in principal amount of the then
outstanding Securities by notice to the Company and the Trustee, may declare the
unpaid principal of and any accrued interest on all the Securities to be due and
payable. Upon such declaration the principal and interest shall be due and
payable immediately. If an Event of Default specified in clause (7) or (8) of
Section 6.01 occurs, such an amount shall ipso facto become and be immediately
due and payable without any declaration or other act on the part of the Trustee
or any Holder. The Holders of a majority in principal amount of the then
outstanding Securities by notice to the Trustee may rescind an acceleration and
its consequences if the rescission would not conflict with any judgment or
decree and if all existing Event of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration.
SECTION 6.03. OTHER REMEDIES.
If an Event of Default occurs and its continuing, the Trustee may pursue
any available remedy to collect the payment of principal or interest on the
Securities or to enforce the performance of any provision of the Securities, its
rights in and to the Collateral, this Indenture or the Collateral Agreements,
including without limitation directing the Collateral Agent to act under any or
all of the Collateral Agreements as contemplated by Section 7.13 hereof.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
SECTION 6.04. WAIVER OF PAST DEFAULTS.
The Holders of a majority in principal amount of the then outstanding
Securities by notice to the Trustee may, on behalf of all the Holders, waive an
existing Default or Event of
<PAGE> 101
Default and its consequences except a continuing Event of Default in the payment
of the principal of or interest on any Security.
SECTION 6.05. CONTROL BY MAJORITY.
The Holders of a majority in principal amount of the then outstanding
Securities 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. However, the Trustee (i) may refuse to follow any
direction that conflicts with law or this Indenture or, subject to Section 7.01,
that the Trustee determines is unduly prejudicial to the rights of other
Securityholders, or would involve the Trustee in personal liability or (ii) may
take any other action deemed proper by the Trustee that is not inconsistent with
such direction. Prior to taking any action hereunder, the Trustee shall be
entitled to indemnification satisfactory to it in its sole discretion against
all losses, liabilities and expenses, including the reasonable fees and expenses
of the Trustee's agents and counsel, caused by taking or not taking such action.
SECTION 6.06. LIMITATION ON SUITS.
A Securityholder may pursue a remedy with respect to this Indenture or the
Securities only if:
(1) the Holder gives to the Trustee notice of a continuing Event of
Default;
(2) the Holders of at least 25% in principal amount of the then
outstanding Securities make a request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity satisfactory
to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in principal
amount of the then outstanding Securities do not give the Trustee a
direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of another
Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. RIGHTS OF HOLDERS TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal and interest on the
Security, on or after the respective due dates expressed in the Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Holder;
provided, however, that no Holder shall have the right to institute any such
suit, if and to the extent that the institution or prosecution thereof or the
entry of judgment therein would under applicable law result in the surrender,
impairment, waiver, or loss of any Liens of the Collateral Agreements upon any
property subject to such Lien.
<PAGE> 102
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(1) or (2) occurs and is
continuing, the Trustee may recover judgment in its own name and as trustee of
an express trust against the Company for the whole amount of principal and
interest remaining unpaid on the Securities and interest on overdue principal
and interest and such further amount as shall be sufficient to cover the costs
and, to the extent lawful, expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relative to the Company (or
any other obligor upon the Securities), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
property payable or deliverable on any such claims and any custodian in any such
judicial proceeding is hereby authorized by each Securityholder to make such
payments to the Trustee, and in the event that the Trustee shall consent to the
making of such payment directly to the Securityholders, to pay to the Trustee
any amount due to it for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel, and any other amounts due
the Trustee under Section 7.07 hereof. To the extent that the payment of any
such compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel, and any other amounts due the Trustee under Section 7.07
hereof out of the estate is any such proceeding, shall be denied for any reason,
payment of the same shall be secured by a Lien on, and shall be paid out of, any
and all distributions, dividends, money, securities and other properties which
the Holders of the Securities may be entitled to receive in such proceeding
whether in liquidation or under any plan of reorganization or arrangement or
otherwise. Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Securityholder any
plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof, or to authorize the Trustee to
vote in respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. PRIORITIES.
If the Trustee collects any money pursuant to this Article, it shall pay
out the money in the following order:
First: to the Trustee and the Collateral Agent for amounts due
under Section 7.07;
Second: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without
preference or priority of any kind, according to the amounts
due and payable on the Securities for principal and
interest, respectively; and
Third: to the Company.
<PAGE> 103
The Trustee may fix a record date and payment date for any payment to
Securityholders.
SECTION 6.11. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this Indenture
or in any suit against the Trustee for any action taken or omitted by it as a
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. This Section does
not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07,
or a suit by Holders of more than 10% in principal amount of the then
outstanding Securities.
ARTICLE 7
TRUSTEE, COLLATERAL, AGENT AND CO-TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions furnished to the Trustee to determine whether or not they
conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section 7.01.
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
<PAGE> 104
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(4) The Trustee shall not be required to risk or expend its
own funds or otherwise incur financial liability in the performance of
any of its duties hereunder or the exercise of any of its rights or
powers if it shall have reasonable grounds to believe that repayment of
such funds or adequate indemnification against such risk or loss,
including the reasonable fees and expenses of the Trustee's agents and
counsel, is not reasonably assured to it.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.
(e) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity satisfactory to its against any loss,
liability or expense, including but not limited to reasonable fees and expenses
of the Trustee's agents and counsel.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel, or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers.
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or an
Affiliate with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
7.10 and 7.11.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee is not responsible for and makes no representation as to
the validity or adequacy of this Indenture, the Collateral Agreements or the
Securities, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement of the
Company in the Indenture, any of the Collateral Agreements or any other document
in connection with the offer and sale or any of the Securities or any statement
in the Securities other than its authentication. The Trustee makes no
representation as to the validity, value or condition of any property covered or
intended to be covered by the Lien of the Collateral Agreements or any part
thereof or as to the title of the Company thereto or as to the security afforded
hereby or thereby. The Trustee may rely on the opinions delivered pursuant to
Section 10.2 and need not make any independent inquiry into the creation or
perfection of any Liens required by this Indenture or the Collateral Agreements.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Securityholders a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment on any Security (including any
failure to make any mandatory redemption payment required hereunder), the
Trustee may withhold the notice if and so long as a committee of its Trust
Officers in good faith determines that withholding the notice is in the
interests of Securityholders.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS.
Within 60 days after the reporting date stated in Section 11.10, the
Trustee shall mail to Securityholders a brief report dated as of such reporting
date that complies with TIA ss. 313(a). The Trustee also shall comply with TIA
ss. 313(b). The Trustee shall also transmit by mail all reports as required by
TIA ss. 313(c).
A copy of each report at the time of its mailing to Securityholders shall
be filed with the SEC and each stock exchange on which the Securities are
listed. The Company shall notify the Trustee when the Securities are listed on
any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee and the Collateral Agent from time to
time reasonable compensation for their services hereunder. The Trustee's and
Collateral Agent's compensation shall not be limited by any law on compensation
of a trustee of an express trust. The Company shall reimburse the Trustee and
the Collateral Agent upon request for all reasonable out-of-pocket expenses
incurred by them (including costs of collection in addition to its compensation
for its services). Such expenses shall include the reasonable fees and expenses
of the Trustee's and the Collateral Agent's agents, accountants, experts and
counsel.
The Company shall indemnify the Trustee and the Collateral Agent (in their
individual and fiduciary capacities) and each of their officers, directors,
employees, attorneys-in-fact and agents for, and shall hold each of such persons
harmless against any loss, liability, expense, disbursement (including any and
all environmental claims, liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind or
<PAGE> 105
nature whatsoever incurred by or asserted against the Trustee, its officers,
directors, employees, attorneys-in-fact, agents or counsel) in connection with
the administration of the Trust created by this Indenture, the performance of
its duties hereunder or the exercise of its rights hereunder. Each of the
Trustee and the Collateral Agent shall notify the Company promptly of any claim
for which it may seek indemnity. The Company shall defend the claim and the
Trustee and the Collateral Agent shall cooperate in the defense. The Trustee and
the Collateral Agent may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel. The Company need not pay for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
Notwithstanding the preceding paragraph, the Company need not reimburse any
expense or indemnify against any loss or liability incurred by the Trustee or
the Collateral Agent (or any other party listed in the foregoing paragraph)
through its own negligent action, its own negligent failure to act or own
willful misconduct.
To secure the Company's payment obligations in this Section, the Trustee
and the Collateral Agent shall have a lien prior to the Securities on all money
or property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Securities.
When the Trustee or the Collateral Agent incurs expenses or renders
services after an Event of Default specified in Section 6.01(7) or (8) occurs,
the expenses and the compensation for the services are intended to constitute
expenses of administration under any Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign by so notifying the Company. The Holders of a
majority in principal amount of the then outstanding Securities may remove the
Trustee by so notifying the Trustee and the Company. The Company may remove the
Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any Bankruptcy
Law;
(3) a custodian or public officer takes charge of the Trustee or it
property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Securities may appoint
a successor Trustee to replace the successor Trustee appointed by the Company.
<PAGE> 106
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the then outstanding Securities
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Securityholders. The
retiring Trustee shall promptly transfer all property held by it as Trustee to
the successor Trustee, subject to the lien provided for in Section 7.07.
Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the
Company's obligations under Section 7.07 hereof shall continue for the benefit
of the retiring trustee with respect to expenses and liabilities incurred by it
prior to such replacement.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA ss. 310(a). The Trustee shall always have a combined capital and surplus
as stated in Section 11.16. The Trustee is subject to TIA ss. 310(b), including
the optional provision permitted by the second sentence of TIA ss. 310(b)(9).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
SECTION 7.12. APPOINTMENT OF CO-TRUSTEE AND COLLATERAL AGENT.
If the Trustee deems it necessary or desirable in connection with the
ownership of the Collateral and the enforcement of the Collateral Agreements,
the Trustee may appoint a Collateral Agent or Co-Trustee with such powers of the
Trustee as may be designated by the Trustee at the time of such appointment or
subsequent thereto or as may be contemplated herein. Concurrently with the
execution of this Indenture, the Trustee hereby appoints The State Street Bank
and Trust Company, N.A., as the Collateral Agent to act as required by this
Indenture and the Collateral Agreements. The provisions of this Article 7 other
than the provisions of Section 7.05, 7.06 and 7.10 shall apply in favor of the
Collateral Agent or any Co-Trustee and each of their officers, directors,
employees, attorneys-in-fact and agents.
<PAGE> 107
SECTION 7.13. TRUSTEE AND COLLATERAL AGENT TO COOPERATE.
In exercising any remedies under this Indenture and any or all of the
Collateral Agreements, the Trustee and the Collateral Agent shall cooperate. In
addition, in exercising any remedies under any or all of the Collateral
Agreements, the Collateral Agent shall act only upon the direction of the
Trustee. If the Collateral Agent fails to so act, the Trustee, as
attorney-in-fact of the Collateral Agent, may act for the Collateral Agent. When
any notice to, or consent by, the Collateral Agent is required by the provisions
of this Indenture or any of the Collateral Agreements, such notice or consent
shall be sufficient if given to, or made by, the Trustee, who shall for such
purposes act as attorney-in-fact for the Collateral Agent.
ARTICLE 8
DISCHARGE OF INDENTURE
SECTION 8.01. TERMINATION OF COMPANY'S OBLIGATIONS.
This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 7.07 and the Trustee's and Paying Agent's
obligations under Section 8.03 shall survive) when all outstanding Securities
theretofore authenticated and issued have been delivered (other than destroyed,
lost or stolen Securities which have been replaced or paid) to the Trustee for
cancellation and the Company has paid all sums payable hereunder. In addition,
the Company may terminate all of its obligations under this Indenture if:
(1) the Company irrevocably deposits in trust with the Trustee or, at
the option of the Trustee, with a trustee satisfactory to the Trustee and
the Company under the terms of an irrevocable trust agreement in form and
substance satisfactory to the Trustee, money or U.S. Government Obligations
sufficient to pay when due principal and interest on the Securities to
maturity or redemption, as the case may be, and to pay all other sums
payable by it hereunder accompanied by a favorable accountants' certificate
as to the sufficiency of such Obligations, without consideration of any
reinvestment of interest, to pay, when due, the principal of and interest
on the Securities, provided that (i) the trustee of the irrevocable trust
shall have been irrevocably instructed to pay such money or the proceeds of
such U.S. Government Obligations to the Trustee and (ii) the Trustee shall
have been irrevocably instructed to apply such money or the proceeds of
such U.S. Government Obligations to the payment of said principal and
interest with respect to the Securities;
(2) the Company delivers to the Trustee an Officer's Certificate
stating that all conditions precedent to satisfaction and discharge of this
Indenture have been complied with, and an Opinion of Counsel to the same
effect;
(3) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit; and
(4) the Company shall have delivered to the Trustee an Opinion of
Counsel or a ruling received from the Internal Revenue Service to the
effect that the Holders of the
<PAGE> 108
Securities will not recognize income, gain or loss for Federal income tax
purposes as a result of the Company's exercise of its option under this
Section 8.01 and will be subject to Federal income tax on the same amount
and in the same manner and as the same times as would have been the case if
such option had not been exercised.
Then, this Indenture shall cease to be of further effect (except as
aforesaid and except as provided in the next succeeding paragraph), and the
Trustee, on demand of the Company, shall execute proper instruments
acknowledging confirmation of and discharge under this Indenture and the release
of the Collateral under the Collateral Agreements. However, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 4.01, 4.04, 7.07, 7.08 and
8.04 and the Trustee's and Paying Agent's obligations in Section 8.03 shall
survive until the Securities are no longer outstanding. Thereafter, only the
Company's obligations in Section 7.07 and the Company's and the Trustee's and
Paying Agent's obligations in Section 8.03 shall survive.
After such irrevocable deposit made pursuant to this Section 8.01 and
satisfaction of the other conditions set forth herein, the Trustee and the
Collateral Agent, as applicable, upon request shall acknowledge in writing the
discharge of the Company's obligations under this Indenture and the Collateral
Agreements except for those surviving obligations specified above.
In order to have money available on a payment date to pay principal or
interest on the Securities, the U.S. Government Obligations shall be payable as
to principal or interest on or before such payment date in such amounts as will
provide the necessary money. U.S. Government Obligations shall not be callable
at the issuer's option.
"U.S. Government Obligations" means direct obligations of the United States
of America, or any agency or instrumentality thereof, for the payment of which
the full faith and credit of the United States of America is pledged.
SECTION 8.02. APPLICATION OF TRUST MONEY.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal and interest on the
Securities.
SECTION 8.03. REPAYMENT TO COMPANY.
The Trustee and the Paying Agent shall promptly pay to the Company upon
request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon request any
money held by them for the payment of principal or interest that remains
unclaimed for two years after the date upon which such payment shall have become
due; provided, however, that the Company shall have first caused notice of such
payment to the Company to be mailed to each Securityholder entitled thereto no
less than 30 days prior to such payment. After payment to the Company,
Securityholders entitled to the money must look to the Company for payment as
general creditors unless an applicable abandoned property law designates another
person.
<PAGE> 109
SECTION 8.04. REINSTATEMENT.
If (i) the Trustee or Paying Agent is unable to apply any money in
accordance with Section 8.02 by reason of any order or judgment of any court or
governmental authority enjoining restraining or otherwise prohibiting such
application and (ii) the Holders of at least a majority in principal amount of
the then outstanding Securities so request by written notice to the Trustee, the
Company's obligations under this Indenture, the Securities and the Collateral
Agreements shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.01 until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02; provided,
however, that if the Company makes any payment of interest on or principal of
any Security following the reinstatement of its obligations, the Company shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENTS
SECTION 9.01. WITHOUT CONSENT OF HOLDERS.
The Company and the Trustee may amend this Indenture, the Securities or the
Collateral Agreements without the consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency,
(2) to comply with Section 5.01;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(4) to make any change that does not adversely affect the legal rights
hereunder of any Securityholder; or
(5) to comply with any requirement of the SEC in connection with the
qualification of this Indenture under the TIA.
SECTION 9.02. WITH CONSENT OF HOLDERS.
Subject to Section 6.07, the Company and the Trustee may amend this
Indenture, the Securities or the Collateral Agreements with the written consent
of the Holders of at least a majority in principal amount of the then
outstanding Securities. Subject to Sections 6.04 and 6.07, the Holders of a
majority in principal amount of the Securities then outstanding may also waive
compliance in a particular instance by the Company with any provision of this
Indenture, the Securities or the Collateral Agreements. However, without the
consent of each Securityholder affected, an amendment or waiver under this
Section may not (with respect to any Securities held by nonconsenting Holders):
<PAGE> 110
(1) reduce the amount of Securities whose Holders must consent to an
amendment or waiver;
(2) reduce the rate of or change the time for payments of interest on
any Security;
(3) reduce the principal of or change the fixed maturity of any
Security or alter the redemption provisions of Section 3.07 hereof or of
paragraph 5 of the Securities with respect thereto;
(4) make any Security payable in money other than that stated in the
Security;
(5) make any change in Section 6.04, 6.07 or 9.02 (this sentence); or
(6) waive a Default in the payment of the principal of, or interest
on, any Security.
To secure a consent of the Holders under this Security, it shall not be
necessary for the Holders to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment or waiver under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing the amendment
or waiver. Any failure of the Company to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such amended or supplemental Indenture or waiver.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment to this Indenture or the Securities shall be set forth in a
supplemental indenture that complies with the TIA as then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment or waiver becomes effective, a consent to it by a Holder
of a Security is a continuing consent by the Holder and every subsequent Holder
of a Security or portion of a Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. However, any such Holder or subsequent Holder may revoke the consent
as to his Security or portion of a Security if the Trustee receives the notice
of revocation before the date on which the Trustee receives an Officer's
Certificate certifying that the Holders of the requisite principal amount of
Securities have consented to the amendment or waiver, but in any event before
the effective date thereof.
The Company may, but shall not be obligated to fix a record date for the
purpose of determining the Holders entitled to consent to any amendment or
waiver. If a record date is fixed, then notwithstanding the provisions of the
immediately preceding paragraph, those persons who were Holders at such record
date (or their duly designated proxies), and only those persons shall be
entitled to consent to such amendment or waiver or to revoke any consent
previously given, whether or not such persons continue to be Holders after such
record date. No consent shall be valid or effective for more than 90 days after
such record date unless consents from
<PAGE> 111
Holders of the principal amount of Securities required hereunder for such
amendment or waiver to be effective shall have also been given and not revoked
within such 90-day period.
After an amendment or waiver becomes effective it shall bind every
Securityholder, unless it is of the type described in any of clauses (1) through
(6) of Section 9.02. In such case, the amendment or waiver shall bind each
Holder of a Security who has consented to it and every subsequent Holder or a
Security that evidences the same debt as the consenting Holder's Security.
SECTION 9.05. NOTATION ON OR EXCHANGE OF SECURITIES.
The Trustee may place an appropriate notion about an amendment or waiver on
any Security thereafter authenticated. The Company in exchange for all
Securities may issue and the Trustee shall authenticate new Security that
reflect the amendment or waiver.
SECTION 9.06. TRUSTEE PROTECTED.
The Trustee shall sign all supplemental Indentures, except that the Trustee
need not sign any supplemental indenture that adversely affects its rights.
ARTICLE 10
SECURITY
SECTION 10.01. COLLATERAL AGREEMENTS.
(a) The Company hereby agrees to grant to the Collateral Agent for the
benefit of the Collateral Agent (it being understood that, except as expressly
stated otherwise, throughout this Indenture and the Collateral Agreements and in
this Article 10 specifically, references to the Collateral Agent are to it
solely as Collateral Agreements and not in its individual capacity), the Trustee
and Securityholders a Security Interest in the Collateral, all as more
particularly set forth in this Indenture and the Collateral Agreements.
(b) After the original issuance of the Securities, if the Company shall
from time to time acquire any asset or property (including real property) (i)
which, in the case of any asset or property other than real property,
constitutes or, but for any release provide pursuant to Section 10.04, would
constitute "Collateral" under the Security Agreement or the Intellectual
Property Security Agreements or "Pledged Collateral" under the Pledge Agreement,
(ii) which, at any time after acquisition by the Company, is not subject to any
Purchase Money Lien permitted by this Indenture for a period of 180 consecutive
days or more, and (iii) which is not a Specified Asset, then within thirty (30)
days of the expiration of the applicable 180 day period, the Company agrees to
grant to the Collateral Agent (provided such asset or property is not already
subject to, or which will not upon acquisition by the Company, become subject
to, a perfected Security Interest) for the benefit of the Trustee, the
Collateral Agent and the Holders a Lien in such asset or property and shall from
time to time execute, acknowledge, deliver and cause to be recorded all further
agreements, instruments and documents, and take all further action that may be
necessary or desirable, or that the Trustee, the Collateral Agent or the Holders
may reasonably request, to grant, perfect, protect and preserve such security
interest and Lien in favor of the
<PAGE> 112
Collateral Agent, for the benefit of itself, the Trustee and the Holders in such
asset or property (provided such asset or property is not already subject to, or
which will not, upon acquisition by the Company, become subject to, a perfected
Security Interest) as security for the Obligations of the Company under this
Indenture. "Specified Asset" means any asset or property of the Company which
(i) with respect to any real property, is acquired after the date of this
Indenture and (ii) (A) has a fair market value of $50,000 or less or (B) is an
interest in real property the encumbrance of which is prohibited by the
agreement, document or instrument governing such interest in real property or
(C) constitutes a fixture which is located on real property leased by the
Company under an operating lease or (D) is personal property the encumbrance of
which is prohibited by a lease or other agreement governing or evidencing that
particular property or (E) is personal property the encumbrance of which is
prohibited by applicable law; provided, that (i) Capital Stock of a Subsidiary,
(ii) Intellectual Property, (iii) any new lease of any significant manufacturing
facility(ies) of the Company and (iv) any asset or property already subject to,
or which will, upon acquisition by the Company, become subject to, a perfected
Security Interest (whether or not it has a fair market value of $50,000 or less)
shall be excluded from this definition and shall not under any circumstance
constitute Specified Assets.
(c) Notwithstanding anything to the contrary in this Indenture (except
Section 10.1(d)) or the Collateral Agreements, the Holders acknowledge that
neither the Trustee, the Collateral Agent nor any other security trustee is or
will be perfecting Liens under the laws of jurisdictions other than the United
States and states and territories (including local jurisdictions) thereof,
taking possession of any instrument or document of title (other than
certificated securities in a Subsidiary), complying with the Assignment of
Claims Act, or perfecting or making effective Liens other than pursuant to (i)
the applicable Uniform Commercial Code (including any successor statute), (ii)
laws of the United States and states and territories (including local
jurisdictions) thereof pertaining to patents, trademarks, copyrights or other
Intellectual Property, (iii) laws of the United States and states and
territories (including local jurisdictions) thereof governing interests in real
property, and (iv) laws of the United States and states and territories
(including local jurisdictions) thereof governing Liens and security interests
in aircraft, ships, motor vehicles, trailers and similar personal property.
(d) Notwithstanding anything to the contrary in this Indenture or the
Collateral Agreements, (i) under no circumstance will the Company be required to
or will be deemed to (A) grant or perfect any Lien with respect to any Specified
Asset except to the extent granted under the Security Agreement, (B) continue
the perfection of any Security Interest in any Specified Asset having a fair
market value of $50,000 or less, or (C) grant or perfect any Lien against (1)
cash, "deposit accounts" (as such term is defined in Section 9105 of Uniform
Commercial Code as in effect in the State of New York), or Cash Equivalents, or
(2) "accounts" or "inventory" (as such terms are defined in the Uniform
Commercial Code as in effect in the State of New York), including receivables
and other rights to the payment of money arising out of the sale or other
disposition of inventory, contractual obligations of account debtors relating to
accounts owing to the Company, and the Company's rights under purchase orders
for inventory or proceeds thereof or (3) books, records and information of the
Company pertaining to accounts or inventory, or proceeds thereof, including
without limitation, all documents, books, records and other media for the
storage of information (including without limitation, computer programs, tapes,
disks, punch cards, data processing software and related property and rights)
maintained by the Company or any of its agents or representatives with respect
to accounts or inventory,
<PAGE> 113
suppliers or purchasers of inventory or persons or entities obligated under
accounts, or (4) general intangibles and any other intangible personal property
(other than Intellectual Property) relating or pertaining to accounts or
inventory and (ii) no property set forth in the foregoing clause (C) shall be
included in the definition of "Collateral" or be deemed to constitute collateral
under the Indenture or any Collateral Agreement, and (iii) no Security Interest
or Lien against the property set forth in the foregoing clause (C) shall be
deemed to have been granted or to exist under the Indenture or under any
Collateral Agreement.
(e) Each Securityholder, by accepting a Security, agrees to all of the
terms and provisions of the Collateral Agreements as the same may be in effect
or may be amended from time to time. The due and punctual payment of the
principal, and premium, if any, of, and interest on the Securities when and as
the same shall be due an payable, whether on an interest payment date, at
maturity, by acceleration, call for redemption or otherwise, and interest on the
overdue principal, premium, if any, and interest, if any, of the Securities and
payment and performance of all other Obligations of the Company to the Holders,
the Collateral Agent or the Trustee under this Indenture and the Securities,
according to the terms hereunder or thereunder, shall be secured as provided
hereunder and in the Collateral Agreements.
(f) The Securityholders acknowledge that the Company has granted a prior
perfected security interest in the Collateral to a collateral agent under the
Old Indenture (the "Old Collateral Agent") for the benefit of the holders of the
Company's Series A and Series B 10 3/4% Senior Secured Notes, due 2000
(collectively, the "Old Notes"). The Trustee and the Collateral Agent hereby
agree to enter into an intercreditor agreement with the Old Trustee and the Old
Collateral Agent, pursuant to which the benefit of the Collateral will be shared
by the Old Trustee, the Old Collateral Agent, the holders of the Old Notes, the
Trustee, the Collateral Agent, and the Holders of the Securities, such sharing
to be ratable based on the aggregate principal amount outstanding of Securities
and Old Notes.
SECTION 10.02. RECORDING, ETC.
The Company will cause the applicable Collateral Agreements including the
Deed of Trust, the Security Agreement, the Intellectual Property Security
Agreements, the Pledge Agreement, any financing statement and any fixture
filing, all amendments or supplements to each of the foregoing and any other
similar security documents as necessary to be registered, recorded and filed
and/or rerecorded, re-filed and renewed in such manner and in such place or
places, if any, as may be required by law or reasonably requested by the Trustee
in order to fully preserve and protect the Security Interests and to effectuate
and preserve the security therein of the Securityholders and all rights of the
Trustee.
The Company shall furnish to the Trustee:
(a) promptly after the execution and delivery of this Indenture, and
promptly after the execution and delivery of any other instrument of further
assurance or amendment granting, perfecting, protecting, preserving or making
effective a Security Interest pursuant to any Collateral Agreement, an Opinion
of Counsel either (i) stating that, in the opinion of such counsel, subject to
Sections 10.01(b), (c) and (d), this Indenture and the Collateral Agreements,
financing statements and fixture filings then executed and delivered, as
applicable, and all other instruments of further assurance or amendment then
executed and delivered have been properly
<PAGE> 114
recorded, registered and filed to the extent necessary to perfect the Security
Interests created by this Indenture and the Collateral Agreements and reciting
the details of such action or referring to prior Opinions of Counsel in which
such details are given, and stating that as to such Collateral Agreements and
such other instruments, such recording, registering and filing are the only
recordings, registerings and filings necessary to perfect such Security
Interests and that no re-recordings, re-registerings or re- filings are then
necessary to maintain such perfection, and further stating that all financing
statements and continuation statements have been executed and filed that are
then necessary to perfect such Security Interests or (ii) stating that, in the
opinion of such counsel, subject to Sections 10.01(b), (c) and (d), no such
action is necessary to perfect any Security Interest created under this
Indenture or any of the Collateral Agreements as intended by this Indenture and
such Collateral Agreements; and
(b) within 30 days after January 1, in each year beginning with the year
1998, an Opinion of Counsel, dated as of such date, either (i) stating that, in
the opinion of such counsel, such action has been taken with respect to the
recording, registering, filing, re-recording, re-registering and refiling of
this Indenture, all Collateral Agreements, financing statements, continuation
statements or other instruments of further assurance as are then necessary to
perfect or continue the perfection of the Security Interests created thereunder
and reciting the details of such action or referring to prior Opinions of
Counsel in which such details are given, and stating that, subject to Section
10.01(b), (c) and (d), all financing statements and continuation statements have
been executed and filed that are then necessary to perfect or continue the
perfection of such Security Interests or (ii) stating that, in the opinion of
such counsel, subject to Sections 10.01(b), (c) and (d), no such action is then
necessary to perfect or continue the perfection of such Security Interests.
SECTION 10.03. AUTHORIZATION OF ACTIONS TO BE TAKEN BY THE COLLATERAL
AGENT UNDER THE COLLATERAL AGREEMENTS.
The Collateral Agent upon the direction of the Trustee may, in its sole
discretion and without the consent of the Securityholders (but shall have no
obligation to), take all actions it deems necessary or appropriate in order to
(a) enforce any of the terms of the Collateral Agreements and (b) collect and
receive any and all amounts payable in respect of the Obligations of the Company
hereunder. Subject to the provisions of the Collateral Agreements, the
Collateral Agent upon the direction of the Trustee shall have power (but no
obligation) to institute and to maintain such suits and proceedings as it may
deem expedient to prevent any impairment of the Collateral by any acts which may
be unlawful or in violation of the Collateral Agreements or this Indenture, and
such suits and proceedings as the Trustee may deem expedient to preserve or
protect its interests and the interests of the Securityholders in the Collateral
(including power to institute and maintain suits or proceedings to restrain the
enforcement of or compliance with any legislative or other governmental
enactment, rule or order that may be unconstitutional or otherwise invalid if
the enforcement of, or compliance with, such enactment, rule or order would
impair the security hereunder or be prejudicial to the interests of the
Securityholders or of the Trustee).
<PAGE> 115
SECTION 10.04. RELEASE OF LIEN.
(a) All or any part of the Collateral may be released from the Security
Interests at any time or from time to time in accordance with the provisions of
the Collateral Agreements and as provided hereby.
(b) So long as no Default or Event of Default exists, upon the request of
the Company and the furnishing of an Officers' Certificate and Opinion of
counsel certifying that all conditions precedent to the release of the
Collateral have been met and any report, appraisal or other document required by
the TIA (including, without limitation, under TIA ss.ss. 314(b) and (d), to the
extent applicable) in connection with such release have been delivered, the
Collateral Agent upon the direction of the Trustee shall release (i) Collateral
or any part thereof or interest therein which is proposed to be sold by the
Company, and (ii) Collateral which is subject to a Purchase Money Lien permitted
by this Indenture; provided that, in the case of Section 10.04(b)(ii), the
Trustee shall have received an Officers' Certificate of the Company (x) stating
that (A) the property or assets constituting such Collateral has been subjected
to a Purchase Money Lien permitted by this Indenture and (B) the release is
requested by a Purchase Money Lienholder and (y) describing in reasonable detail
the property or asset subject to such Purchase Money Lien and setting forth the
name and address of such Purchase Money Lienholder.
(c) Upon receipt of such Officers' Certificates and Opinion of Counsel (and
other documents if applicable), the Collateral Agent upon the direction of the
Trustee shall execute, deliver or acknowledge any necessary or proper
instruments of termination, satisfaction or release to evidence the release of
any Collateral permitted to be released pursuant to this Indenture and the
Collateral Agreements, all without recourse or warranty and at the expense of
the Company.
(d) The release of any Collateral from the terms hereof and of the
Collateral Agreements will not be deemed to impair the security under this
Indenture in contravention of the provisions hereof if and to the extent the
Collateral is released pursuant to the applicable terms hereof and of the
Collateral Agreements. The Trustee, the Collateral Agent and each of the Holders
acknowledge that a release of the Collateral in accordance with the terms hereof
and of the Collateral Agreements will not be deemed for any purpose to be an
impairment of security under this Indenture.
(e) Notwithstanding the foregoing, the Company may, without requesting the
release or consent of the Trustee, sell, assign, transfer, or otherwise dispose
of, free from the Security Interests, any machinery, equipment, or other
personal property constituting Collateral that has become worn out, obsolete, or
unserviceable.
SECTION 10.05. LIEN SUBORDINATION.
(a) Purchase Money Liens permitted by this Indenture shall be automatically
senior and prior in right to the Security Interests. The Trustee, the Collateral
Agent and each Holder acknowledge that the rights of any Purchase Money
Lienholders to receive proceeds from the disposition of Collateral subject to a
Purchase Money Lien permitted by this Indenture is senior to the rights of the
Holders, the Collateral Agent and those of the Trustee to receive proceeds from
the disposition of such Collateral.
<PAGE> 116
(b) The priorities set forth in Section 10.05(a) are applicable
irrespective of the order of creation, attachment or perfection of any Purchase
Money Liens permitted by this Indenture or the Security Interests or any
priority that might otherwise be available to the Holders, the Trustee, or any
Purchase Money Lienholder under the applicable law.
(c) The priorities set forth in Section 10.05(a) are premised upon the
assumption that Purchase Money Liens permitted by this Indenture are duly and
properly created and perfected and are not avoidable for any reason.
Accordingly, to the extent that (but only for so long as) any Purchase Money
Liens permitted by this Indenture are not duly and properly created an perfected
or are avoidable for any reason, then the subordinations provided for in this
Section 10.05 or as requested by a Purchase Money Lienholder as evidence of such
subordination shall not be effective as to the particular Collateral subject to
such Purchase Money Liens; provided, however, that the Trustee, the Collateral
Agent and each Holder, by accepting a Security, agree not to contest, or to
bring (or voluntarily join in) any action or proceeding for the purpose of
contesting, the validity, perfection or priority (as herein provided) of, or
seeking to avoid, any Purchase Money Liens permitted by this Indenture, and
provided further, that nothing herein shall be deemed or construed to prevent
any Purchase Money Lienholder from commencing an action or proceeding to assert
any right or claim it may have arising in connection with this Indenture or any
documents evidencing Purchase Money Liens permitted by this Indenture.
(d) If requested by a Purchase Money Lienholder to confirm that the rights
of Purchase Money Lienholders are prior to those of the Collateral Agent, the
Holders and the Trustee in any Collateral, the Collateral Agent upon the
direction of the Trustee shall execute such reasonable documents as such
Purchase Money Lienholder requests to evidence such prior rights upon delivery
to the Trustee of (i) such documents and (ii) an Officers' Certificate of the
Company (A) stating that (1) the property or assets constituting such Collateral
are subject to a Purchase Money Lien permitted by this Indenture and (2) the
execution of the documents is necessary to make effective the subordination of
the Security Interests to such Purchase Money Lien intended to be created by
this Section 10.05 or is requested by such Purchase Money Lienholder as evidence
of such subordination and (B) describing in reasonable detail the property
subject to such Purchase Money Lien and setting forth the name and address of
such Purchase Money Lienholder.
SECTION 10.06. RELIANCE ON OPINION OF COUNSEL.
The Trustee and the Collateral Agent shall, before taking any action under
this Article 10, be entitled to receive an Opinion of Counsel, stating the legal
effect of such action, and that such action will not be in contravention of the
provisions hereof, and such opinion shall be full protection to the Trustee and
the Collateral Agent for any action taken or omitted to be taken in reliance
thereon; provided, that the Trustee's action under this Article 10 shall at all
times be and remain subject to its duties to determine whether or not the
evidence required to be provided by this Indenture and by the Collateral
Agreements conforms to the requirements of this Indenture and the Collateral
Agreements, as the case may be.
<PAGE> 117
SECTION 10.07. PURCHASER MAY RELY.
A purchaser in good faith of the Collateral or any part thereof or interest
therein which is purported to be transferred, granted or released by the
Collateral Agent as provided in this Article 10 shall not be bound (i) to
ascertain, and may rely on, the authority of the Collateral Agent to execute
such transfer, grant or release, or (ii) to inquire as to the satisfaction of
any conditions precedent to the exercise of such authority, or (iii) to
determine whether the application of the purchase price therefor complies with
the terms hereof.
SECTION 10.08. PAYMENT OF EXPENSES.
On demand of the Trustee, the Company forthwith shall pay or satisfactorily
provide for all reasonable expenditures incurred by Trustee or the Collateral
Agent under this Article 10 including the reasonable fees and expenses of
counsel and all such sums shall be a Lien upon the Collateral and shall be
secured thereby.
SECTION 10.09. TRUSTEE'S AND COLLATERAL AGENT'S DUTIES.
The powers and duties conferred upon the Trustee and the Collateral Agent
by this Article 10 are solely to protect the Security Interests and shall not
impose any duty upon the Trustee or the Collateral Agent to exercise any such
powers and duties except as expressly provided in this Indenture. The Trustee
and the Collateral Agent shall be under no duty to the Company whatsoever to
make or given any presentment, demand for performance, notice of nonperformance,
protest, notice of protest, notice of dishonor, or other notice or demand in
connection with any Collateral, or to take any steps necessary to preserve any
rights against prior parties except as expressly provided in this Indenture. The
Trustee and the Collateral Agent shall not be liable to the Company for failure
to collect or realize upon any or all of the Collateral, or for any delay in so
doing, nor shall the Trustee or the Collateral Agent be under any duty to the
Company to take any action whatsoever with regard thereto. Except for the
exercise of reasonable care in the custody of any Collateral in its possession
and the accounting for any monies actually received by it hereunder or under the
Collateral Agreements, the Trustee and the Collateral Agent shall have no duty
as to any Collateral or as to the taking of any Collateral. The Trustee and the
Collateral Agent shall be deemed to have exercised reasonable care in the
custody of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which the Trustee or the Collateral Agent
accords its own property of like tenor.
SECTION 10.10. AUTHORIZATION OF RECEIPT OF FUNDS BY THE TRUSTEE AND
THE COLLATERAL AGENT UNDER THE COLLATERAL AGREEMENTS.
The Collateral Agent is authorized to receive any funds for the benefit of
the Trustee distributed under the Collateral Agreements, and upon receipt
thereof, immediately will distribute such funds to the Trustee for further
distributions of such funds to the Holders according to the provisions of this
Indenture.
SECTION 10.11. TERMINATION OF SECURITY INTERESTS.
Upon the payment in full of all Obligations of the Company under this
Indenture and the Securities, the Security Interests shall terminate and all
rights to the Collateral shall revert to the Company. Upon such termination of
the Security Interests, the Trustee and the Collateral Agent
<PAGE> 118
will reassign and redeliver to the Company all of the Collateral which has not
been sold, disposed of, retained or applied by the Trustee or the Collateral
Agent in accordance with the terms hereof and the Collateral Agreements, and
shall execute and deliver to the Company such documents as the Company shall
reasonably request to evidence the termination of the Security Interests, all
without recourse to or warranty by the Trustee, the Collateral Agent or the
Holders and at the expense of the Company.
SECTION 10.12. CERTIFICATES AND OPINIONS.
To the extent applicable, the Company shall cause (a) TIA ss. 314(b),
relating to Opinions of Counsel regarding the Security Interest and (b) TIA ss.
314(d), relating to the release of Collateral from the Security Interests and
Officers' Certificates or other documents regarding fair value of the
Collateral, to be complied with. Any certificate or opinion required by TIA ss.
314(d) may be made by an Officer or the Company to the extent permitted by TIA
ss. 314(d).
ARTICLE 11
MISCELLANEOUS
SECTION 11.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies, or conflicts with
another provision which is required to be included in this Indenture by the TIA,
the required provision shall control.
SECTION 11.02. NOTICES.
Any notice or communication by the Company or the Trustee to the other is
duly given if in writing and delivered in person or mailed by certified or
registered mail, return receipt requested, to the other's address stated in
Section 11.10. The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications. If a
notice or communication is mailed in the manner so provided, it is duly given
when received.
Any notice or communication to a Securityholder shall be mailed by
first-class mail to his address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Securityholder or any defect in
it shall not affect its sufficiency with respect to other Securityholders.
If a notice or communication is mailed to a Securityholder in the manner
provided above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If the Company mails a notice or communication to Securityholders, it shall
mail a copy to the Trustee and each Agent at the same time.
All other notices or communications shall be in writing.
<PAGE> 119
SECTION 11.03. COMMUNICATION BY HOLDERS WITH OTHER HOLDERS.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA ss. 312(c).
SECTION 11.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officer's Certificate stating that, in the opinion of the
signers, all conditions precedent, if any provided for in this
Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 11.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
SECTION 11.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 11.07. LEGAL HOLIDAYS.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions are not required to be open. If a payment date is a Legal Holiday
at a place of payment, payments may be made at that place on the next succeeding
day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. Notwithstanding anything to the contrary contained in this
Section 11.07, if the principal amount of a Transfer Restricted Security is
payable on a Legal
<PAGE> 120
Holiday, and is paid on the next succeeding day which is not a Legal Holiday,
interest shall accrue on such principal amount until the date on which such
principal amount is paid and payment of such accrued interest shall be made
concurrently with the payment of such principal amount.
SECTION 11.08. NO RECOURSE AGAINST OTHERS.
A director, officer, employee, incorporator or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Securityholder by excepting a
Security waives and releases all such liability. The waiver and release are part
of the consideration for the issue of the Securities.
SECTION 11.09. COUNTERPARTS.
This Indenture may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
SECTION 11.10. VARIABLE PROVISIONS.
The Company initially appoints the Trustee as Paying Agent, Registrar and
authenticating agent.
The first certificate pursuant to Section 4.03 shall be for the fiscal year
ending on December 31, 1997.
The reporting date for Section 7.06 is May 15 of each year. The first
reporting date is May 15, 1998.
<PAGE> 121
The Company's address is:
Wright Medical Technology, Inc.
5677 Airline Road
Arlington, Tennessee 38002
Attn: Treasurer
The Trustee's address is:
State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, MA 02110
ATTN: Corporate Trust Department
(Wright Medical Technology, Inc.
11 3/4% Senior Secured Step-Up Notes)
The Collateral Agent's address is:
State Street Bank and Trust Company, N.A.
61 Broadway
Corporate Trust Window
New York, NY 10006
ATTN: Corporate Trust Department
(Wright Medical Technology, Inc.
11 3/4% Senior Secured Step-Up Notes)
Until such time as the Indenture shall have been qualified under the TIA
and one or more Securities shall be registered pursuant to a registration
statement filed under the Securities Act, and said Securities shall be
transferred pursuant to the terms of an effective registration statement, or
such earlier time as transfer of the Securities is no longer subject to the
legend requirements imposed by Section (e) of the Letter of Transmittal, the
Securities to the extent not so registered shall bear a legend to that effect,
and except as otherwise provided in Section (e) of the Letter of Transmittal,
transfer of such legended Securities shall be subject to the requirement that
the Company and the Trustee receive a Certificate of Transfer and to the
Company's right to require an Opinion of Counsel, reasonably satisfactory in
form and substance to the Company and to the Trustee, that an exemption from
registration under such Act is available.
SECTION 11.11. GOVERNING LAW.
THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE AND
THE SECURITIES, WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS THEREOF.
SECTION 11.12. NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or a Subsidiary of the Company. Any such indenture,
loan or debt agreement may
<PAGE> 122
not be used to interpret this Indenture. In the event of any inconsistency
between the Indenture and the Collateral Documents, the Indenture shall govern.
SECTION 11.13. SUCCESSORS.
All agreements of the Company in this Indenture and the Securities shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
SECTION 11.14. SEVERABILITY.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 11.15. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table, and headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
SECTION 11.16. QUALIFICATION OF INDENTURE.
The Company shall qualify this Indenture under the TIA in accordance with
the terms and conditions of the Registration Rights Agreement and shall pay all
costs and expenses (including attorneys' fees and expenses for the Company, the
Trustee and the Holders of the Securities) incurred in connection therewith,
including, but not limited to, costs and expenses of qualification of the
Indenture and the Securities and printing this Indenture and the Securities. The
Trustee shall be entitled to receive from the Company any such Officers'
Certificates, Opinions of Counsel or other documentation as it may reasonably
request in connection with any such qualification of this Indenture under the
TIA. The Trustee shall always have a combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of
condition.
SECTION 11.17. AMENDMENTS TO COLLATERAL AGREEMENTS.
Unless the context otherwise requires, any reference to any of the
Collateral Agreements shall be deemed to be a reference to such Collateral
Agreement as it may be amended, supplemented or otherwise modified from time to
time as permitted by this Indenture.
<PAGE> 123
SECTION 11.18. REGISTRATION RIGHTS.
Certain Holders of Restricted Securities are entitled to certain
Registration Rights with respect to such Securities pursuant to, and subject to
the terms of, the Registration Rights Agreement.
SIGNATURES
Dated: as of _____________ WRIGHT MEDICAL TECHNOLOGY, INC.
By:_________________________
Attest:____________________
___________________________ Title:_______________________
Dated: as of ______________ STATE STREET BANK AND TRUST
COMPANY, AS TRUSTEE
By:__________________________
Title:_______________________
(SEAL)
Agreement to Act and Acknowledgment
We agree to act as Collateral Agent as contemplated by Section 7.12 hereof,
acknowledge the provisions of this Indenture and agree to the terms hereof
including, in particular, the provisions of Section 7.12 hereof.
Dated: as of ________________
Dated: as of ________________ STATE STREET BANK AND TRUST
COMPANY, N.A., AS COLLATERAL
AGENT
By:____________________________
Title:_________________________
(Face of Security)
Form of
11 3/4% Series D SENIOR SECURED STEP-UP NOTE
DUE JULY 1, 2000
No. $______________
WRIGHT MEDICAL TECHNOLOGY, INC.
promises to pay to
or registered assigns
the principal sum of __________________________________ Dollars on July 1, 2000.
Interest Payment Dates: July 1, and January 1
commencing January 1, 1998
Record Dates: June 15 and December 15
Authenticated: Dated:________________________
STATE STREET BANK and TRUST WRIGHT MEDICAL TECHNOLOGY,
COMPANY, as Trustee INC.
By:___________________________ By:_________________________________
Authorized Officer Officer of the Company
Attest:_____________________________
Officer of the Company
(SEAL)
Cusip No. _______________
<PAGE> 125
(Back of Security)
-----------
11 3/4% Series D Senior Secured Step-Up Note due July 1, 2000
[Unless and until it is exchanged in whole or in part for Securities in
definitive form, this Security may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository or by the Depository or any
such nominee to a successor Depository of a nominee of such successor
Depository. Unless this certificate is presented by an authorized representative
of the Depository Trust Company (55 Water Street, New York, New York) ("DTC"),
to the issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as requested by an authorized representative of DTC (and any payment is
made to Cede & Co. of such other entity as is requested by an authorized
representative of DTC). ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]1
Capitalized terms used herein shall have the meanings ascribed to them in
the Indenture dated as of August 7, 1997, between the Company and the Trustee
(the "Indenture"), unless otherwise indicated.
1. Interest. Wright Medical Technology, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this 11 3/4%
Series D Senior Secured Step-Up Note (the "Series D Note") at 11 3/4% per annum
from the date of issuance until maturity provided that the interest rate will be
12 1/4% on August 7, 1998 if a Sale (as defined in the Indenture), including a
sale of all or substantially all of the assets of the Company or a transaction
whereby an unrelated person acquires a direct or an indirect majority interest
in the voting power of the Company by way of merger, consolidation or similar
transaction, has not occurred. The Company will pay interest semiannually on
July 1, and January 1 of each year, or if any such day is not a Business Day, on
the next succeeding Business Day (each an "Interest Payment Date").
Interest on the Series D Notes will accrue from the most recent date on
which interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Series D Note is authenticated between a record date
referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such next succeeding Interest Payment Date, provided,
further, that the first Interest Payment Date shall be January 1, 1998. The
Company shall pay interest (including post-petition interest in any proceeding
under Bankruptcy Law) on overdue principal and premium, if any, from time to
time on demand at the same rate per annum on the Series D notes then in
- --------
1 This paragraph is to be included only if the Security is in global form.
<PAGE> 126
effect; it shall pay interest (including post-petition interest in any
proceeding under Bankruptcy Law) on overdue installments of interest (without
regard to any applicable grace periods) from time to time on demand at the same
rate to the extent lawful. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
2. Method of Payment. The Company will pay interest on the Series B Notes
(except defaulted interest) by check or wire transfer to the Person who are
registered Holders of Series D Notes at the close of business on the record date
next preceding the Interest Payment Date, even if such Series B Notes are
cancelled after such record date and on or before such interest Payment Date.
The Series D Notes will be payable both as to principal and interest at the
office of the Paying Agent maintained for such purpose within the City and State
of New York.
3. Paying Agent and Registrar. Initially, the Trustee under the Indenture,
will act as Paying Agent and Registrar. The Company may change any Paying Agent
or Registrar without notice to any Holder. The Company or any of its
subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Series D Notes under the Indenture.
The terms of the Series D Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code ss.ss. 77aaa-77bbbb). The Series D Notes are subject to
all such terms, and Holders are referred to the Indenture and such Act for a
statement of such terms. The Series D Notes are limited to $85 million in
aggregate principal amount, plus amounts, if any, sufficient to pay interest and
premium, if any, on outstanding Series D Notes as set forth in Paragraph 2
hereof.
5. Optional Redemption.
The Company may redeem all or any of the Securities, in whole or in part,
at any time on or after July 1, 1997, at a redemption price equal to the
percentages of the principal amount thereof set forth below, plus accrued and
unpaid interest to the redemption date if redeemed during the twelve months
commencing on or after July 1, in the years set forth below:
Year Percentage
---- ----------
1997...................................... 103%
1998 and thereafter....................... 100%
Notwithstanding the foregoing, prior to July 1, 1996, the Company may redeem up
to $21.25 million in aggregate principal amount of Securities, at a redemption
price of 110% of the principal amount of the Securities plus accrued and unpaid
interest to the applicable redemption date, with the net proceeds of a public
offering of common stock of the Company; provided that (i) such public offering
of common stock of the Company results in net proceeds to the Company of at
least $20 million and (ii) such redemption shall occur within 30 days of the
date of the closing of such public offering of common stock of the Company.
6. Mandatory Offers to Repurchase.
<PAGE> 127
(a) Following the occurrence of any Change of Control, the Company
will be required to offer (a "Change of Control Offer") to purchase all
outstanding Securities at a purchase price equal to 101% of the aggregate
principal amount of such Securities, plus accrued and unpaid interest, if any,
to the date of purchase (the "Change of Control Payment"), in each case in
accordance with and to the extent provided in the Indenture. The Change of
Control Offer shall remain open for a period of 20 Business Days after its
commencement unless a longer offering period is required by law. No earlier than
30 days nor later than 40 days after the notice of the Change of Control Offer
has been mailed (the "Change of Control Payment Date"), the Company shall
deposit, to the extent lawful, with the Paying Agent an amount equal to the
change of Control Payment in respect of all Securities or portions thereof
tendered by Holders. The Paying Agent shall promptly mail or deliver payment for
all Securities tendered in the Change of Control Offer.
A Holder of Series D Notes may tender or refrain from tendering all or
any portion of his Series D Notes at his discretion by completing the form
entitled "OPTION OF HOLDER TO ELECT PURCHASE" appearing below on this Series D
Note. Any portion of Series D Notes tendered must be in integral multiples of
$1,000.
(b) If the Company consummates any Asset Sale (as such term is defined
in the Indenture), the Company may be required to utilize a certain portion of
the Net Proceeds received from such Asset Sale to offer to redeem Securities at
par. Holders of Series D Notes which are the subject of an offer to redeem will
receive an offer to redeem from the Company prior to any related redemption
date, and may elect to have such Series D Notes redeemed by completing the form
entitled "OPTION OF HOLDER TO ELECT PURCHASE" appearing below on this Series D
Note.
7. Notice of Redemption. Subject to Section 3.09 of the Indenture relating
to repurchases in connection with Asset Sales, notice of redemption will be
mailed at least 30 days but not more than 60 days before the redemption date to
each Holder whose Series B Notes are to be redeemed at such Holder's registered
address. Series D Notes in denominations larger than $1,000 may be redeemed in
part but only in whole multiples of $1,000, unless all of the Series D Notes
held by a Holder are to be redeemed. On and after the redemption date interest
ceases to accrue on Series D Notes or portions thereof called for redemption.
8. Determinations, Transfer, Exchange. The Series D Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Series D Notes may be registered and Series D Notes may
be exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements,
transfer documents and opinions and the Company may require a Holder to pay any
taxes and fees required by law or permitted by the Indenture. The Company need
not exchange or register the transfer of any Series D Note or portion of a
Series D Note selected for redemption, except for the unredeemed portion of any
Series D Note being redeemed in part. Also, it need not exchange or register the
transfer of any Series D Notes for a period of 15 days before a selection of
Series D Notes to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
<PAGE> 128
9. Persons Deemed Owners. The registered Holder of a Series D note may be
treated as its owner for all purposes.
10. Amendments and Waivers. Subject to certain exceptions, the Indenture or
the Securities may be amended or supplemented and any existing Default under, or
compliance with any provision of, the Indenture may be waived with the written
consent of the Holders of at least majority in principal amount of the
Securities then outstanding (including consents obtained in connection with a
tender offer or exchange offer for Securities). Without the consent of any
Holder, the Company and the Trustee may amend or supplement the Indenture or the
Securities to cure any ambiguity, defect or inconsistency; to provide for
uncertificated Securities in addition to or in place of certificated Securities;
to comply with Section 5.01 of the Indenture; to make any change that would
provide any additional rights or benefits to the Holders or that does not
adversely affect the rights under the Indenture of any Holder; or to comply with
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the TIA.
11. Defaults and Remedies. An Event of Default is: default for 30 days in
payment of interest on the Securities; default in payment of principal on them;
failure by the Company for 30 days after notice to it to comply with any of its
other agreements in the Indenture, the Securities, the Registration Rights
Agreement or the Collateral Agreements or, in the case of failure of the Company
to maintain its corporate existence or its consolidated net worth, or to comply
with the restrictions on restricted payments, incurrence of indebtedness, asset
sales, changes of control or on consolidation, merger or transfer or sale of
substantially all its assets, without such notice or passage of time; certain
defaults under and acceleration prior to maturity of other indebtedness; certain
final judgments which remain undischarged; and certain events of bankruptcy or
insolvency. If an Event of Default occurs and is continuing, the Trustee or the
holders of at least 25% in principal amount of the then outstanding Securities
may declare all the Securities to be due and payable immediately, except that in
the case of an Event of Default arising from certain events of bankruptcy or
insolvency, all outstanding Securities become due and payable immediately
without further action or notice. Holders of Securities may not enforce the
Indenture or the Securities except as provided in the Indenture. The Trustee may
require indemnity satisfactory to it before it enforces the Indenture or the
Securities. Subject to certain limitations, Holders of a majority in principal
amount of the then outstanding Securities may direct the Trustee in its exercise
of any trust or power. The Trustee may withhold from Securityholders notice of
any continuing default (except a default in payment of principal or interest) if
it determines that withholding notice is in their interests. The Company must
furnish an annual compliance certificate to the Trustee.
12. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not Trustee.
13. No Recourse Against Others. A director, officer, employee, incorporator
or stockholder, of the Company, as such, shall not have any liability for any
obligations of the Company under the Series D Notes or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Series D Note
<PAGE> 129
waives and releases all such liability. The waiver and release are part of the
consideration for the issuance of the Series D Notes.
14. Authentication. This Series D Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
15. Collateral Agreements; Etc. Each Holder of Series D Note, by accepting
a Series D Note, agrees to be bound to all of the terms and provisions of the
Collateral Agreements (as defined in the Indenture), as such Collateral
Agreements may be amended from time to time.
16. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
WRIGHT MEDICAL TECHNOLOGY, INC.
5677 Airline Road
Arlington, Tennessee 38002
Attn: Treasurer
<PAGE> 130
ASSIGNMENT FORM
To assign this Series D Note, fill in the form below: (I) or (we)
assign and transfer this Series D Note to
- ------------------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
- ------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint ____________________________________________________ to
transfer this Series D Note on the books of the Company. The agent may
substitute another to act for him.
- ------------------------------------------------------------------------
Date: _________________________
Your Signature: ________________________________
(Sign exactly as your name appears on the face of this Series D Note)
Signature Guarantee.
<PAGE> 131
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Series D Note purchased by the Company
pursuant to Section 4.11 or 4.12 of the Indenture, check the appropriate box
below:
o Section 4.11 (Asset Sales)
o Section 4.12 (Change of Control)
If you want to elect to have only part of the Series D Note purchased by
the Company pursuant to Section 4.11 or 4.12 of the Indenture, state the amount
you elect to have purchased: $_________
Date:__________________
Your Signature:___________________________
(Sign exactly as your name appears on the Series D Note.)
Tax Identification No.:______________
Signature Guarantee.
<PAGE> 132
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES2
The following exchanges of a part of this Global Series D Note
for Definitive Securities have been made:
Principal
Amount of Amount of Amount of Signature
decrease increase this Global of authorized
in Principal in Principal Series D Note officer of
Date Amount Amount following such Trustee or
of of this Global of this Global decrease Securities
Exchange Series D Note Series D Note (or increase) Custodian
- -------- -------------- -------------- --------------- ------------
- --------
2 This should be included only if the Security is issued in global form.
Registration Rights Agreement
Dated As of August 7, 1997
among
Wright Medical Technology, Inc.
and
the Initial Holders
of its
11 3/4 % Series C Senior Secured Step-Up Notes,
due July 1, 2000
<PAGE> 134
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of August 7, 1997, among WRIGHT MEDICAL TECHNOLOGY, INC., a
Delaware corporation (the "Company"), and the INITIAL HOLDERS of the Company's
11 3/4 % Series C Senior Secured Step-Up Notes due July 1, 2000 signatory hereto
(collectively, the "Initial Holders").
This Agreement is made in connection with the Company's offer to
the holders of the Company's $85 million principal amount Series B Senior
Secured Notes due July 1, 2000 (the "Old Notes") to exchange the Old Notes for
$85 million principal amount Series D Senior Secured Step- Up Notes due July 1,
2000 (the "New Notes"). The terms of this offer (the "Exchange Offer") are set
forth in an Exchange of Offer and Exit Consent Solicitation dated July 9, 1997.
To induce the Initial Holders to participate in the Exchange Offer, the Company
has agreed to provide to the Initial Holders and their direct and indirect
transferees the registration rights set forth in this Agreement. The execution
of this Agreement is a condition to the consummation of the Exchange Offer.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions.
As used in this Agreement, the following capitalized defined
terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended from
time to time, and the rules and regulations of the SEC promulgated
thereunder.
"1934 Act" shall mean the Securities Exchange Act of l934, as
amended from time to time, and the rules and regulations of the SEC
promulgated thereunder.
"Business Days" shall mean any day other than (i) Saturday or
Sunday, or (ii) a day on which banking institutions in the State of
New York are authorized or obligated by law or executive order to be
closed.
"Closing Date" shall mean August 7, 1997.
<PAGE> 135
"Company" shall have the meaning set forth in the preamble and
shall also include the Company's successors.
"Delay Period" shall have the meaning set forth in Section 3(k).
"Depository" shall mean The Depository Trust Company, or any
other depository appointed by the Company, provided, however, that
such depository must have an address in the Borough of Manhattan, in
the City of New York.
"Event Date" shall have the meaning set forth in Section 2.4(a).
"Exchange Offer Registration" shall mean a registration under the
1933 Act effected pursuant to Section 2.1 hereof.
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on
another appropriate form), and all amendments and supplements to such
registration statement, including the Prospectus contained therein,
all exhibits thereto and all documents incorporated by reference
therein.
"Exchange Period" shall have the meaning set forth in Section 2.1
hereof.
"Holder" shall mean an Initial Holder, for so long as it owns any
Registrable New Notes, and each of its successors, assigns and direct
and indirect transferees who become registered owners of Registrable
New Notes under the Indenture.
"Indenture" shall mean the Indenture relating to the New Notes,
dated as of the date hereof, between the Company and State Street Bank
and Trust Company, as trustee, as the same may be amended,
supplemented, waived or otherwise modified from time to time in
accordance with the terms thereof.
"Initial Holder" shall have the meaning set forth in the
preamble.
"Liquidated Damages Amount" shall have the meaning set forth in
Section 2.4(a).
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable New Notes; provided
that whenever the consent or approval of Holders of a specified percentage
of Registrable New Notes is required hereunder, Registrable New Notes held
by the Company and
<PAGE> 136
other obligors on the New Notes or any Affiliate (as defined in the
Indenture) of the Company shall be disregarded in determining whether such
consent or approval was given by the Holders of such required percentage
amount.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Participating Broker-Dealer" shall mean any broker-dealer which makes
a market in the New Notes and exchanges Registrable New Notes in the
Exchange Offer for Registered New Notes.
"Person" shall mean an individual, trustee, joint stock company, joint
venture, partnership, corporation, trust or unincorporated organization, or
a government or agency or political subdivision thereof, union, business
association, firm or other entity.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an
effective registration statement in reliance upon Rule 430A promulgated
under the 1933 Act, as amended or supplemented by any prospectus
supplement, including any such prospectus supplement with respect to the
terms of the offering of any portion of the Registrable New Notes covered
by a Shelf Registration Statement, and by all other amendments and
supplements to a prospectus, including post-effective amendments, and in
each case including all material incorporated by reference therein or
deemed to be incorporated by reference in the prospectus.
"Registered Exchange Offer" shall mean the exchange offer by the
Company of Registered Exchange New Notes for Registrable New Notes pursuant
to Section 2.1 hereof.
"Registered New Notes" shall mean the 11 3/4 % Series D Senior Secured
Step-Up Notes due 2000 issued by the Company under the Indenture containing
terms identical to the New Notes in all material respects (except for
references to certain interest rate provisions, restrictions on transfers
and restrictive legends), to be offered to Holders of in exchange for
Registrable New Notes pursuant to the Registered Exchange Offer.
"Registrable New Notes" shall mean the New Notes; provided, however,
that New Notes shall cease to be Registrable New Notes when (i) a
Registration Statement with respect to such New Notes shall have been
declared effective under the 1933 Act and such New Notes shall have been
disposed of pursuant to such
<PAGE> 137
Registration Statement, (ii) such New Notes have been sold to the public
pursuant to Rule l44 (or any similar provision then in force, but not Rule
144A) under the 1933 Act, (iii) such New Notes shall have ceased to be
outstanding or (iv) the Registered Exchange Offer is consummated (except in
the case of New Notes purchased from the Company and continued to be held
by the Holders described in Section 2.2(iii)).
"Registration Default" shall have the meaning set forth in Section
2.4(a).
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including
without limitation: (i) all SEC, stock exchange or NASD registration and
filing fees (but not including, if applicable, the fees and expenses of any
"qualified independent underwriter" (and its counsel) that is required to
be retained by any holder of Registrable New Notes in accordance with the
rules and regulations of the NASD), (ii) all fees and expenses incurred in
connection with compliance with state securities or blue sky laws and
compliance with the rules of the NASD (including reasonable fees and
disbursements of counsel for any underwriters or Holders in connection with
blue sky qualification of any of the Registered New Notes or Registrable
New Notes and any filings with the NASD), (iii) all expenses of any Persons
in preparing or assisting in preparing, word processing, printing and
distributing any Registration Statement, any Prospectus, any amendments or
supplements thereto, any underwriting agreements, securities sales
agreements and other documents relating to the performance of and
compliance with this Agreement, (iv) all fees and expenses incurred in
connection with the listing, if any, of any of the Registrable New Notes on
any securities exchange or exchanges, (v) all rating agency fees, (vi) the
fees and disbursements of counsel for the Company and of the independent
public accountants of the Company, including the expenses of any special
audits or "cold comfort" letters required by or incident to such
performance and compliance, (vii) the fees and expenses of the Trustee, and
any escrow agent or custodian, (viii) the reasonable fees and disbursements
of one special counsel representing the Holders of Registrable New Notes in
connection with a Shelf Registration, such special counsel to be selected
by the Majority Holders and (ix) any fees and disbursements of the
underwriters customarily required to be paid by issuers or sellers of New
Notes and the fees and expenses of any special experts retained by the
Company in connection with any Registration Statement, but excluding
underwriting, brokerage, finder's or similar fees, discounts and
commissions and transfer taxes, if any, relating to the sale or disposition
of Registrable New Notes by a Holder.
<PAGE> 138
"Registration Statement" shall mean any registration statement of the
Company which covers any of the Registered New Notes or Registrable New
Notes pursuant to the provisions of this Agreement, and all amendments and
supplements to any such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein or
deemed to be incorporated by reference in such registration statement.
"Rule 144" shall mean Rule 144 under the 1933 Act, as such Rule may be
amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC.
"Rule 144A" shall mean Rule 144A under the 1933 Act, as such Rule may
be amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
"Rule 415" shall mean Rule 415 under the 1933 Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
"SEC" shall mean the Securities and Exchange Commission.
"Shelf Registration" shall mean a registration effected pursuant to
Section 2.2 hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2.2 of this
Agreement which covers all of the Registrable New Notes on an appropriate
form under Rule 415, or any similar rule that may be adopted by the SEC,
and all amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"TIA" shall mean the Trust Indenture Act of 1939, as amended.
"Trustee" shall mean the trustee with respect to the New Notes under
the Indenture.
"Underwritten Registration or Underwritten Offering" shall mean a
registration in which securities of the Company are sold to an underwriter
for reoffering to the public.
<PAGE> 139
2. Registration Under the 1933 Act.
2.1 Registered Exchange Offer. The Company shall (A) prepare and, as
soon as practicable but not later than 30 days following the Closing Date, file
with the SEC an Exchange Offer Registration Statement on an appropriate form
under the 1933 Act with respect to a proposed Registered Exchange Offer and the
issuance and delivery to the Holders, in exchange for the Registrable New Notes,
a like aggregate principal amount of Registered New Notes, (B) use its
reasonable best efforts to cause the Exchange Offer Registration Statement to be
declared effective under the 1933 Act within 90 days following the Closing Date,
(C) use its reasonable best efforts to keep the Exchange Offer Registration
Statement effective until consummation of the Registered Exchange Offer pursuant
to its terms and (D) unless the Registered Exchange Offer would not be permitted
by a policy of the SEC, use its reasonable best efforts to cause the Registered
Exchange Offer to be consummated not later than 120 days following the Closing
Date. The Registered New Notes will be issued under, and entitled to the
benefits of, the Indenture or a trust indenture that is identical to the
Indenture (other than such changes as are necessary to comply with any
requirements of the SEC to effect or maintain the qualification thereof under
the TIA). Upon the effectiveness of the Exchange Offer Registration Statement,
the Company shall promptly commence the Registered Exchange Offer, it being the
objective of such Registered Exchange Offer to enable each Holder eligible and
electing to exchange Registrable New Notes for Registered New Notes (assuming
that such Holder (a) is not an affiliate of the Company within the meaning of
Rule 405 under the 1933 Act, (b) is not a broker-dealer tendering Registrable
New Notes acquired directly from the Company for its own account, (c) acquired
the Registered New Notes in the ordinary course of such Holder's business and
(d) has no arrangements or understandings with any person to participate in the
Registered Exchange Offer for the purpose of distributing the Registered New
Notes) to transfer such Registered New Notes from and after their receipt
without any limitations or restrictions under the 1933 Act and without material
restrictions under the securities laws of a substantial proportion of the
several states of the United States.
In connection with the Registered Exchange Offer, the Company shall:
(a) mail to each Holder a copy of the Prospectus forming part of
the Exchange Offer Registration Statement, together with an appropriate letter
of transmittal that is an exhibit to the Exchange Offer Registration Statement
and related documents;
(b) keep the Registered Exchange Offer open for acceptance for a
period of not less than 30 calendar days after the date notice thereof is mailed
to the
<PAGE> 140
Holders (or longer if required by applicable law) (such period referred to
herein as the "Exchange Period");
(c) utilize the services of the Depository for the Registered
Exchange Offer;
(d) permit Holders to withdraw tendered Registrable New Notes at
any time prior to 5:00 p.m. (Eastern Standard Time), on the last Business Day of
the Exchange Period, by sending to the institution specified in the notice, a
telegram, telex, facsimile transmission or letter setting forth the name of such
Holder, the principal amount of Registrable New Notes delivered for exchange,
and a statement that such Holder is withdrawing his election to have such New
Notes exchanged;
(e) notify each Holder that any Registrable New Note not tendered
will remain outstanding and continue to accrue interest, but will not retain any
rights under this Agreement (except in the case of the Initial Holders and
Participating Broker-Dealers as provided herein); and
(f) otherwise comply in all respects with all applicable laws
relating to the Registered Exchange Offer.
As soon as practicable after the close of the egistered Exchange Offer,
the Company shall:
(i) accept for exchange all Registrable New Notes validly
tendered and not validly withdrawn pursuant to the Registered Exchange Offer in
accordance with the terms of the Exchange Offer Registration Statement and the
letter of transmittal which shall be an exhibit thereto;
(ii) deliver to the Trustee for cancellation all Registrable New
Notes so accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver
Registered New Notes to each Holder of Registrable New Notes so accepted for
exchange in a principal amount equal to the aggregate principal amount of the
Registrable New Notes of such Holder so accepted for exchange.
Interest on each Registered Exchange New Note will accrue from the
last date on which interest was paid on the Registrable New Notes surrendered in
exchange therefor or, if no interest has been paid on the Registrable New Notes,
from the date of
<PAGE> 141
original issuance. Each Registered Exchange New Note shall bear interest at the
rate set forth thereon; provided, that interest with respect to the period prior
to the issuance thereof shall accrue at the rate or rates borne by the
Registrable New Notes from time to time during such period. The Registered
Exchange Offer shall not be subject to any conditions, other than (i) that the
Registered Exchange Offer, or the making of any exchange by a Holder, does not
violate applicable law or any applicable interpretation of the staff of the SEC,
(ii) the due tendering of Registrable New Notes in accordance with the Exchange
Offer, (iii) that each Holder of Registrable New Notes exchanged in the
Registered Exchange Offer shall have represented that all Registered New Notes
to be received by it shall be acquired in the ordinary course of its business
and that at the time of the consummation of the Registered Exchange Offer it
shall have no arrangement or understanding with any Person to participate in the
distribution (within the meaning of the 1933 Act) of the Registered New Notes
and shall have made such other representations as may be reasonably necessary
under applicable SEC rules, regulations or interpretations to render the use of
Form S-4 or other appropriate form under the 1933 Act available, (iv) if such
Holder is not a broker-dealer, that it is not engaged in and does not intend to
engage in, the distribution of the Registered New Notes, (v) if such Holder is a
broker-dealer that will receive Registered New Notes that were acquired as a
result of market-making or other trading activities and that it will deliver a
prospectus, as required by law, in connection with any resale of such Registered
New Notes, and (vi) if such Holder is an affiliate of the Company, that it will
comply with the registration and prospectus delivery requirements of the 1933
Act applicable to it and (vii) that no action or proceeding shall have been
instituted or threatened in any court or by or before any governmental agency
with respect to the Registered Exchange Offer which, in the Company's judgment,
would reasonably be expected to impair the ability of the Company to proceed
with the Exchange Offer.
2.2 Shelf Registration. (i) If, because of any changes in law, SEC
rules or regulations or applicable interpretations thereof by the staff of the
SEC, the Company is not permitted to effect the Registered Exchange Offer as
contemplated by Section 2.1 hereof, (ii) if for any other reason the Exchange
Offer Registration Statement is not declared effective within 90 days following
the original issue of the Registrable New Notes or the Registered Exchange Offer
is not consummated prior to 120 days after the original issue of the Registrable
New Notes, or (iii) if a Holder is not permitted by applicable law to
participate in the Registered Exchange Offer based upon written advice to
counsel to the effect that such Holder may not legally be able to participate in
the Registered Exchange Offer or if a Holder elects to participate in the
Registered Exchange Offer but does not receive fully tradable Registered New
Notes pursuant to the Registered Exchange Offer, the Company shall, at its cost:
<PAGE> 142
(a) As promptly as practicable, file with the SEC, and thereafter
shall use its reasonable best efforts to cause to be declared effective as
promptly as practicable, a Shelf Registration Statement relating to the offer
and sale of the Registrable New Notes by the Holders from time to time in
accordance with the methods of distribution elected by the Majority Holders
participating in the Shelf Registration and set forth in such Shelf Registration
Statement.
(b) Use its reasonable best efforts to keep the Shelf Registration
Statement continuously effective in order to permit the prospectus forming part
thereof to be usable by Holders for a period of two years from the date the
Shelf Registration Statement is declared effective by the SEC, or for such
shorter period that will terminate when all Registrable New Notes covered by the
Shelf Registration Statement have been sold pursuant to the Shelf Registration
Statement or cease to be outstanding or otherwise to be Registrable New Notes.
(c) Notwithstanding any other provisions hereof, use its reasonable
best efforts to ensure that (i) any Shelf Registration Statement and any
amendment thereto and any Prospectus forming part thereof and any supplement
thereto complies in all material respects with the 1933 Act and the rules and
regulations thereunder, (ii) any Shelf Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any Prospectus
forming part of any Shelf Registration Statement, and any supplement to such
Prospectus (as amended or supplemented from time to time), does not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements, in light of the circumstances under which they
were made, not misleading.
The Company further agrees, if necessary, to supplement or amend the
Shelf Registration Statement, as required by Section 3(b) below, and to furnish
to the Holders of Registrable New Notes copies of any such supplement or
amendment promptly after its being used or filed with the SEC.
The Company agrees (i) not to effect any public or private offer, sale or
distribution of its debt securities, or any other security convertible into or
exchangeable or exercisable for such debt securities, including a sale pursuant
Regulation D under the 1933 Act, during the 10-day period prior to, and during
the 90-day period beginning on, the closing date of each underwritten offering
made pursuant to the Shelf Registration Statement, to the extent timely notified
in writing by the underwriter(s) (except as part of such registration, if
permitted, or pursuant to registration on Forms S-4 or S-8 or any successor form
to such Forms) and (ii) to cause each holder of its privately placed debt
<PAGE> 143
securities, or any other security convertible into or exchangeable or
exercisable for such debt securities purchased from the Company at any time on
or after the date of this Agreement to agree not to effect any public sale or
distribution of any such securities during such period, including a sale
pursuant to Rule 144 under the 1933 Act (except as part of such underwritten
offering, if permitted).
2.3 Expenses. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2.1 or 2.2. Each Holder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holders Registrable New Notes
pursuant to the Shelf Registration Statement.
2.4 Liquidated Damages.
(a) The Company acknowledges and agrees that the holders of
Registrable New Notes will suffer damages, and that it would not be feasible to
ascertain the extent of such damages with precision, if the Company fails to
fulfill its obligations hereunder. Accordingly, in the event of such failure,
the Company agrees to pay liquidated damages to each Holder under the
circumstances and to the extent set forth below:
(i) if the Exchange Offer Registration Statement has
not been filed with the SEC on or prior to 30 days after the date hereof; or
(ii) if the Exchange Offer Registration Statement is
not declared effective by the SEC on or prior to 90 days after the date hereof;
or
(iii) if the Company has not accepted for exchange
Registered New Notes for all New Notes validly tendered in accordance with the
terms of the Exchange Offer within 30 days after the date on which an Exchange
Offer Registration Statement is declared effective by the SEC; or
(iv) if a Shelf Registration is filed and declared
effective by the SEC but thereafter ceases to be effective without being
succeeded within 30 days by a subsequent Shelf Registration filed and declared
effective;
(each of the foregoing a "Registration Default," and the date on which the
Registration Default occurs being referred to herein as an "Event Date").
<PAGE> 144
Upon the occurrence of any Registration Default, the Company shall pay, or
cause to be paid, in addition to amounts otherwise due under the Indenture and
the Registrable New Notes, as liquidated damages, and not as a penalty, to each
holder of a Registrable New Note, an additional amount (the "Liquidated Damages
Amount") equal to, during the first 90-day period immediately following the
Event Date, .50% per annum on the principal amount of Registrable New Notes held
by such holder, increasing by an additional .50% per annum at the beginning of
each subsequent 90- day period up to a maximum of 2.0% per annum; provided that
such liquidated damages will, in each case, cease to accrue (subject to the
occurrence of another Registration Default) on the date on which all
Registration Defaults have been cured. A Registration Default under clause (i)
above shall be cured on the date that the Exchange Offer Registration Statement
is filed with the SEC; a Registration Default under clause (ii) above shall be
cured on the date that the Exchange Offer Registration Statement is declared
effective by the SEC; a Registration Default under clause (iii) above shall be
cured on the earlier of the date (A) the Exchange Offer is consummated with
respect to all Old Notes validly tendered or (B) the Company delivers notice of
the consummation of the Exchange Offer to the Holders; and a Registration
Default under clause (iv) above shall be cured on the earlier of (A) the date on
which the applicable Shelf Registration is no longer subject to an order
suspending the effectiveness thereof or proceedings relating thereto or (B) a
subsequent Shelf Registration is declared effective.
(b) The Company shall notify the Trustee within five Business
Days after each Event Date. The Company shall pay the liquidated damages due on
the Registrable New Notes by depositing with the Trustee, in trust, for the
benefit of the Holders thereof, by 12:00 noon, New York City time, on or before
the applicable semi-annual interest payment date for the Registrable New Notes,
immediately available funds in sums sufficient to pay the liquidated damages
then due. The liquidated damages amount due shall be payable on each interest
payment date to the Holder entitled to receive the interest payment to be made
on such date as set forth in the Indenture.
2.5 Effectiveness.
(a) Subject to the following Section 2.5(b), the Company will be
deemed not to have used its reasonable best efforts to cause the Exchange Offer
Registration Statement or the Shelf Registration Statement, as the case may be,
to become, or to remain, effective during the requisite period if the Company
voluntarily takes any action that would result in any such Registration
Statement not being declared effective or in the holders of Registrable New
Notes covered thereby not being able to
<PAGE> 145
exchange or offer and sell such Registrable New Notes during that period as and
to the extent contemplated hereby, unless such action is required by applicable
law.
(b) Notwithstanding the foregoing Section 2.5(a), subject to the
Holders rights under Section 2.4, if the Board of Directors of the Company, in
its good faith judgment, determines that the Registered Exchange Offer should
not be made or continued because it would materially interfere with any material
financing, acquisition, corporate reorganization or merger or other material
transaction involving the Company or any of its subsidiaries (a "Valid Business
Reason"), (x) the Company may postpone filing a registration statement relating
to the Registered Exchange Offer until such Valid Business Reason no longer
exists, but in no event for more than three months, and (y) in case a
registration statement has been filed relating to the Registered Exchange Offer,
the Company may cause registration statement to be withdrawn and its
effectiveness terminated or may postpone amending or supplementing such
registration statement until such Valid Business Reason no longer exists, but in
no event for more than three months (such period of postponement or withdrawal
under sub clause (x) or (y) of this Section 2.5(b), the "Postponement Period");
and the Company shall give the Trustee and the Holders written notice of its
determination to postpone or withdraw the Registered Exchange Offer and of the
fact that the Valid Business Reason for such postponement or withdrawal no
longer exists, in each case, promptly after the occurrence thereof provided,
however, that any such postponement or withdrawal shall be subject to the
payment by the Company of liquidated damages pursuant to Section 2.4 hereof.
The Holders agree that, upon receipt of any notice from the Company that
the Company has determined to withdraw any registration statement pursuant to
clause (y) above, the Holders will discontinue any disposition of Registrable
New Notes pursuant to such registration statement and, if so directed by the
Company, will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in such Holders possession of the
prospectus covering such Registrable New Notes that was in effect at the time of
receipt of such notice. If the Company shall give any notice of withdrawal or
postponement of a registration statement, the Company shall, at such time as the
Valid Business Reason that caused such withdrawal or postponement no longer
exists (but in no event later than three months after the date of the
postponement or withdrawal), use its best efforts to effect the registration
under the Securities Act of Registrable New Notes covered by the withdrawn or
postponed registration statement.
(c) An Exchange Offer Registration Statement pursuant to Section
2.1 hereof or a Shelf Registration Statement pursuant to Section 2.2 hereof will
not be deemed to have become effective unless it has been declared effective by
the SEC; provided, however, that if, after it has been declared effective, the
Exchange Offer, the Exchange Offer Registration Statement or offering of
Registrable New Notes
<PAGE> 146
pursuant to a Shelf Registration Statement is interfered with by any stop order,
injunction or other order or requirement of the SEC or any other governmental
agency or court, such Registration Statement will be deemed not to have become
effective during the period of such interference, until the offering of
Registrable New Notes pursuant to such Registration Statement may legally
resume.
3. Registration Procedures.
In connection with the obligations of the Company with respect to
Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company
shall:
(a) prepare and file with the SEC a Registration Statement, within the
relevant time period specified in Section 2, on the appropriate form under the
1933 Act, which form (i) shall be selected by the Company, (ii) shall, in the
case of a Shelf Registration, be available for the sale of the Registrable New
Notes by the selling Holders thereof and (iii) shall comply as to form in all
material respects with the requirements of the applicable form and include or
incorporate by reference all financial statements required by the SEC to be
filed therewith or incorporated by reference therein, and use its best efforts
to cause such Registration Statement to become effective and remain effective in
accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary under applicable
law to keep such Registration Statement continuously effective for the time
periods required hereby; and cause each Prospectus to be supplemented by any
prospectus supplement required by applicable law, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force) under the
1933 Act and comply with the provisions of the 1933 Act and the 1934 Act
applicable to them with respect to the disposition of all New Notes covered by
such Registration Statement, as so amended, or in such Prospectus, as so
supplemented, in accordance with the intended methods of distribution by the
selling Holders set forth in such Registration Statement or Prospectus as so
amended;
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable New Notes, at least five business days prior to filing, that a Shelf
Registration Statement with respect to the Registrable New Notes is being filed
and advising such Holders that the distribution of Registrable New Notes will be
made in accordance with the method selected by the Majority Holders
participating in the Shelf Registration; (ii) furnish to each Holder of
Registrable New Notes and to each underwriter of an underwritten offering of
Registrable New Notes, if any, without charge, as many copies of each
Registration Statement, Prospectus, including each
<PAGE> 147
preliminary Prospectus, and any amendment or supplement thereto and such other
documents as such Holder or underwriter may reasonably request, including
financial statements and schedules and, if the Holder so requests, all exhibits
in order to facilitate the public sale or other disposition of the Registrable
New Notes; and (iii) hereby consent to the use of the Prospectus or any
amendment or supplement thereto by each of the selling Holders of Registrable
New Notes in connection with the offering and sale of the Registrable New Notes
covered by the Prospectus or any amendment or supplement thereto;
(d) use its reasonable best efforts to register or qualify the
Registrable New Notes under all applicable state securities or "blue sky" laws
of such jurisdictions as any Holder of Registrable New Notes covered by a
Registration Statement and each underwriter of an underwritten offering of
Registrable New Notes shall reasonably request by the time the applicable
Registration Statement is declared effective by the SEC, and do any and all
other acts and things which may be reasonably necessary or advisable to enable
each such Holder and underwriter to consummate the disposition in each such
jurisdiction of such Registrable New Notes owned by such Holder; provided,
however, that the Company shall not be required to (i) qualify as a foreign
corporation or as a dealer in securities in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), or (ii) take any
action which would subject it to general service of process or taxation in any
such jurisdiction where it is not then so subject;
(e) notify promptly each Holder of Registrable New Notes under a Shelf
Registration or any Participating Broker-Dealer who has notified the Company
that it is utilizing the Exchange Offer Registration Statement as provided in
paragraph (f) below and, if requested by such Holder or Participating
Broker-Dealer, confirm such advice in writing promptly (i) when a Registration
Statement has become effective and when any post-effective amendments and
supplements thereto become effective, (ii) of any request by the SEC or any
state securities authority for post-effective amendments and supplements to a
Registration Statement and Prospectus or for additional information after the
Registration Statement has become effective, (iii) of the issuance by the SEC or
any state securities authority of any stop order suspending the effectiveness of
a Registration Statement or the initiation of any proceedings for that purpose,
(iv) in the case of a Shelf Registration, if, between the effective date of a
Registration Statement and the closing of any sale of Registrable New Notes
covered thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and correct in all
material respects, (v) of the happening of any event or the discovery of any
facts during the period a Shelf Registration Statement is effective which makes
any statement made in such Registration Statement or the related
<PAGE> 148
Prospectus or any document incorporated or deemed to be incorporated by
reference untrue in any material respect or which requires the making of any
changes in such Registration Statement, Prospectus or document in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading and (vi) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable New Notes
or the Registered New Notes, as the case may be, for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose;
(f) (A) in the case of the Exchange Offer Registration Statement (i)
include in the Exchange Offer Registration Statement a section entitled "Plan of
Distribution" which shall contain a summary statement of the positions taken or
policies made by the staff of the SEC with respect to the potential
"underwriter" status of any Participating Broker-Dealer that will be the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Registered
New Notes to be received by such Participating Broker-Dealer in the Registered
Exchange Offer, whether such positions or policies have been publicly
disseminated by the staff of the SEC or such positions or policies, in the
reasonable judgment of the Company and its counsel, represent the prevailing
views of the staff of the SEC, including a statement that any such Participating
Broker-Dealer who receives Registered New Notes for Registrable New Notes
pursuant to the Registered Exchange Offer may be deemed a statutory underwriter
and must deliver a prospectus meeting the requirements of the 1933 Act in
connection with any resale of such Registered New Notes, (ii) furnish to each
Participating Broker-Dealer who has delivered to the Company the notice referred
to in Section 3(e), without charge, as many copies of each Prospectus included
in the Exchange Offer Registration Statement, including any preliminary
prospectus, and any amendment or supplement thereto, as such Participating
Broker-Dealer may reasonably request, (iii) hereby consent to the use of the
Prospectus forming part of the Exchange Offer Registration Statement or any
amendment or supplement thereto, by any person subject to the prospectus
delivery requirements of the SEC, including all Participating Broker-Dealers, in
connection with the sale or transfer of the Registered New Notes covered by the
Prospectus or any amendment or supplement thereto, and (iv) include in the
transmittal letter or similar documentation to be executed by an exchange
offeree in order to participate in the Registered Exchange Offer (x) the
following provision:
"If the exchange offeree is a broker-dealer holding Registrable New
Notes acquired for its own account as a result of market-making
activities or other trading activities, it will deliver a prospectus
meeting the requirements of the 1933 Act in connection with any resale
of Registered New Notes received in respect of such Registrable New
Notes pursuant to the Registered Exchange Offer;" and
<PAGE> 149
(y) a statement to the effect that by a broker-dealer making the acknowledgment
described in clause (x) and by delivering a Prospectus in connection with the
exchange of Registrable New Notes, the broker-dealer will not be deemed to admit
that it is an underwriter within the meaning of the 1933 Act; and
(B) in the case of any Exchange Offer Registration Statement or
Shelf Registration, the Company agrees to deliver to the Holders upon the
effectiveness of the Registered Exchange Offer Registration Statement or Shelf
Registration (i) an opinion of counsel substantially in the form attached hereto
as Exhibit A, (ii) an officers' certificate substantially in the form
customarily delivered in a public offering of debt securities and (iii) a
comfort letter in customary form if permitted by Statement on Auditing Standards
No. 72 of the American Institute of Certified Public Accountants (or if such a
comfort letter is not permitted, an agreed upon procedures letter in customary
form);
(g) (i) in the case of a Registered Exchange Offer, furnish counsel
for the Holders and (ii) in the case of a Shelf Registration, furnish counsel
for the Holders of Registrable New Notes copies of any request by the SEC or any
state securities authority for amendments or supplements to a Registration
Statement and Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(i) in the case of a Shelf Registration, furnish to each Holder of
Registrable New Notes, and each underwriter, if any, without charge, at least
one conformed copy of each Registration Statement and any post-effective
amendment thereto, including financial statements and schedules (without
documents incorporated therein by reference and all exhibits thereto, unless
requested);
(j) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable New Notes to facilitate the timely preparation and
delivery of certificates representing Registrable New Notes to be sold and not
bearing any restrictive legends; and enable such Registrable New Notes to be in
such denominations (consistent with the provisions of the Indenture) and
registered in such names as the selling Holders or the underwriters, if any, may
reasonably request at least three business days prior to the closing of any sale
of Registrable New Notes;
(k) in the case of a Shelf Registration, upon the occurrence of any
event or the discovery of any facts, each as contemplated by Sections 3(e)(v)
and 3(e)(vi)
<PAGE> 150
hereof, use its best efforts to prepare a supplement or post-effective amendment
to the Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required document so that,
as thereafter delivered to the purchasers of the Registrable New Notes or
Participating Broker-Dealers, such Prospectus will not contain at the time of
such delivery any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that once the Shelf Registration Statement has been declared effective the
Company may delay effecting or causing to be effected a supplement or
post-effective amendment to the Registration Statement or the related
Prospectus, for a period (the "Delay Period") (i) not to exceed 30 days during
the period beginning 121 days after the original issue of the New Notes and
ending 365 days after the original issue of the New Notes, (ii) not to exceed 90
days during the 365-day period beginning after the first anniversary of the
original issue of the New Notes and (iii) not to exceed 90 days during the
365-day period beginning after the second anniversary of the original issue of
the New Notes; provided, further, that the Company shall notify the Holders in
writing both of its intention to effect such delay and of the date on which such
supplement or post-effective amendment has been filed with the SEC or declared
effective, as the case may be and the Company shall extend the period during
which the Shelf Registration Statement shall be maintained effective pursuant to
this Agreement by the number of days in any Delay Period;
(l) in the case of a Shelf Registration, a reasonable time prior to
the filing of any Registration Statement, any Prospectus, any amendment to a
Registration Statement or amendment or supplement to a Prospectus or any
document which is to be incorporated by reference into a Registration Statement
or a Prospectus after initial filing of a Registration Statement, provide copies
of such document to the Holders; and make representatives of the Company as
shall be reasonably requested by the Holders of Registrable New Notes, available
for discussion of such document;
(m) obtain a CUSIP number for all Registered New Notes or Registrable
New Notes, as the case may be, not later than the effective date of a
Registration Statement, and provide the Trustee with printed certificates for
the Registered New Notes or the Registrable New Notes, as the case may be, in a
form eligible for deposit with the Depositary;
(n) (i) provide an indenture trustee for the Registered New Notes or
the Registrable New Notes, as the case may be, and cause the Indenture (or other
indenture relating to the Registrable New Notes) to be qualified under the TIA
not later than the effective date of the first Registration Statement, (ii)
cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to
<PAGE> 151
be so qualified in accordance with the terms of the TIA and (iii) execute, and
use its best efforts to cause the Trustee to execute, all documents as may be
required to effect such changes, and all other forms and documents required to
be filed with the SEC to enable the Indenture to be so qualified in a timely
manner;
(o) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and appropriate
actions in order to expedite or facilitate the disposition of such Registrable
New Notes and in such connection whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration:
(i) make such representations and warranties to the Holders of
such Registrable New Notes and the underwriters, if any, in form,
substance and scope as are customarily made by issuers to underwriters
in similar underwritten offerings as may be reasonably requested by
them;
(ii) obtain opinions of counsel to the Company and updates
thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the managing underwriters, if any,
and the holders of a majority in principal amount of the Registrable
New Notes being sold) addressed to each selling Holder and the
underwriters, if any, covering the matters customarily covered in
opinions requested in sales of New Notes or underwritten offerings and
such other matters as may be reasonably requested by such Holders and
underwriters;
(iii) obtain "cold comfort" letters and updates thereof from the
Company's independent certified public accountants addressed to the
underwriters, if any, and use reasonable efforts to have such letter
addressed to the selling Holders of Registrable New Notes (to the
extent consistent with Statement on Auditing Standards No. 72 of the
American Institute of Certified Public Accounts), such letters to be
in customary form and covering matters of the type customarily covered
in "cold comfort" letters to underwriters in connection with similar
underwritten offerings;
(iv) enter into a securities sales agreement with the Holders and
an agent of the Holders providing for, among other things, the
appointment of such agent for the selling Holders for the purpose of
soliciting purchases of Registrable New Notes, which agreement shall
be in form, substance and scope customary for similar offerings;
(v) if an underwriting agreement is entered into, cause the same
to set forth indemnification provisions and procedures substantially
equivalent to the indemnification provisions and procedures set forth
in Section 4 hereof with respect to the underwriters and all other
parties to be indemnified pursuant to said Section or, at the request
of any underwriters, in the form customarily provided to such
underwriters in similar types of transactions;
(vi) deliver such documents and certificates as may be reasonably
requested and as are customarily delivered in similar offerings to the
Holders of a majority in principal amount of the Registrable New Notes
being sold and the managing underwriters, if any, to evidence the
continued validity of the representations and warranties of the
Company and its subsidiaries made pursuant to clause (i) above and to
evidence compliance with any conditions contained in the underwriting
agreement or other similar agreement entered into by the Company; and
(vii) use its reasonable best efforts to prevent the issuance of
any order suspending the effectiveness of a Registration Statement or
of any order preventing or suspending the use of a Prospectus or
suspending the qualification (or exemption from qualification) of any
of the New Notes for sale in any jurisdiction, and, if any such order
is issued, to use its reasonable best efforts to obtain the withdrawal
of any such order at the earliest possible time.
The above shall be done at (i) the effectiveness of such Registration Statement
(and each post-effective amendment thereto) and (ii) each closing under any
underwriting or similar agreement as and to the extent required thereunder;
(p) in the case of a Shelf Registration, make available for inspection
by representatives of the Holders of the Registrable New Notes and any
underwriters participating in any disposition pursuant to a Shelf Registration
Statement and any counsel or accountant retained by such Holders or underwriters
(collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company reasonably requested by any
such persons, and cause the respective officers, directors, employees, and any
other agents of the Company to supply all information reasonably requested by
any such representative, underwriter, special counsel or accountant in
connection with a Registration Statement, and make such representatives of the
Company available for discussion of such documents as shall be reasonably
requested by the Inspectors;
<PAGE> 152
(q) in the case of a Shelf Registration, a reasonable time prior to
filing any Shelf Registration Statement, any Prospectus forming a part thereof,
any amendment to such Shelf Registration Statement or amendment or supplement to
such Prospectus, provide copies of such document to the Holders of Registrable
New Notes, to the Initial Holders, to counsel on behalf of the Holders and to
the underwriter or underwriters of an underwritten offering of Registrable New
Notes, if any, and make the representatives of the Company available for
discussion of such document as shall be reasonably requested by the Holders of
Registrable New Notes, or any underwriter;
(r) in the case of a Shelf Registration, use its best efforts to cause
all Registrable New Notes to be listed on any Securities exchange on which
similar debt securities issued by the Company are then listed if requested by
the Majority Holders, or if requested by the underwriter or underwriters of an
underwritten offering of Registrable New Notes, if any;
(s) in the case of a Shelf Registration, use its reasonable best
efforts to cause the Registrable New Notes to be rated by the appropriate rating
agencies, if so requested by the Majority Holders, or if requested by the
underwriter or underwriters of an underwritten offering of Registrable New
Notes, if any;
(t) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering at
least 12 months which shall satisfy the provisions of Section 11(a) of the 1933
Act and Rule 158 thereunder or any similar rule promulgated under the 1934 Act;
(u) cooperate and assist in any filings required to be made with the
NASD and, in the case of a Shelf Registration, in the performance of any due
diligence investigation by any underwriter and its counsel (including any
"qualified independent underwriter" that is required to be retained in
accordance with the rules and regulations of the NASD); and
(v) upon consummation of a Registered Exchange Offer, obtain a
customary opinion of counsel to the Company addressed to the Trustee for the
benefit of all Holders of Registrable New Notes participating in the Registered
Exchange Offer, and which includes an opinion that (i) the Company has duly
authorized, executed and delivered the Registered New Notes and the related
indenture, and (ii) each of the Registered New Notes and related indenture
constitute a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its respective terms (with customary
exceptions).
<PAGE> 153
In the case of a Shelf Registration Statement, the Company may (as a
condition to such Holder's participation in the Shelf Registration) require each
Holder of Registrable New Notes to furnish to the Company such information
regarding the Holder and the proposed distribution by such Holder of such
Registrable New Notes as the Company may from time to time reasonably request in
writing.
In the case of a Shelf Registration Statement, each Holder and each
Participating Broker-Dealer agrees that, upon receipt of any notice from the
Company of the happening of any event or the discovery of any facts, each of the
kind described in Section 3(e)(v) hereof, such Holder will forthwith discontinue
disposition of Registrable New Notes pursuant to a Registration Statement until
such Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 3(k) hereof, and, if so directed by the Company, such
Holder will deliver to the Company (at its expense) all copies in such Holders
possession, other than permanent file copies then in such Holder's possession,
of the Prospectus covering such Registrable New Notes current at the time of
receipt of such notice. If the Company shall give any such notice to suspend the
disposition of Registrable New Notes pursuant to a Shelf Registration Statement
as a result of the happening of any event or the discovery of any facts, each of
the kind described in Section 3(e)(v) hereof, the Company shall be deemed to
have used its reasonable best efforts to keep the Shelf Registration Statement
effective during such period of suspension provided that the Company shall use
its reasonable best efforts to file and have declared effective (if an
amendment) as soon as practicable an amendment or supplement to the Shelf
Registration Statement and shall extend the period during which the Shelf
Registration Statement shall be maintained effective pursuant to this Agreement
by the number of days during the period from and including the date of the
giving of such notice to and including the date when the Holders shall have
received copies of the supplemented or amended Prospectus necessary to resume
such dispositions.
In the event that the Company fails to effect the Registered Exchange
Offer or file any Shelf Registration Statement and maintain the effectiveness of
any Shelf Registration Statement as provided herein, the Company shall not file
any Registration Statement with respect to any debt securities of the Company
other than Registrable New Notes and debt securities issued or issuable by the
Company and registered pursuant to Form S-4 under the 1933 Act or issuable under
an employee benefit plan of the Company and registered pursuant to Form S-8
under the 1933 Act.
If any of the Registrable New Notes covered by any Shelf Registration
Statement are to be sold in an underwritten offering, the underwriter or
underwriters and manager or managers that will manage such offering will be
selected by the Majority Holders of such Registrable New Notes included in such
offering and shall be
<PAGE> 154
reasonably acceptable to the Company. No Holder of Registrable New Notes may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Registrable New Notes on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
(w) As a condition to its participation in a Registered Exchange Offer
pursuant to the terms of this Agreement, each Holder of Registrable New Notes
shall furnish, upon the request of the Company, prior to the consummation
thereof, a written representation to the Company that it is not engaged in, does
not intend to engage in, and has no arrangement or understanding with any person
to participate in, a distribution of the Registered Exchange Notes to be issued
in the Exchange Offer and that it is acquiring the Registered Exchange Notes in
its ordinary course of business and shall otherwise cooperate in the Company's
preparations for the Exchange Offer. Each Holder hereby acknowledges and agrees
that any such Holder using the Exchange Offer to participate in a distribution
of the securities to be acquired in the Exchange Offer (x) could not rely on the
position of the Commission enunciated in Morgan Stanley and Co., Inc. (available
June 5, 1991), Exxon Capital Holdings Corporation (available April 13, 1989) and
similar no-action letters (including any no-action letter by the Company in
connection with the transactions contemplated hereby), (y) must comply with
registration and prospectus delivery requirements of the 1933 Act in connection
with a secondary resale transaction, and (z) that such a secondary resale
transaction should be covered by an effective registration statement containing
the selling security holder information required by Item 507 of Regulation S-K.
4. Indemnification; Contribution.
(a) The Company agrees to indemnify and hold harmless each Holder,
each Participating Broker-Dealer, each Person who participates as an underwriter
(any such Person being an "Underwriter") and each Person, if any, who controls
any Holder or Underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act and the officers, directors, partners, employees,
representatives of each such Holder, Participating Broker-Dealer and Underwriter
to the fullest extent lawful, as follows:
(i) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, arising out of any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement (or any
amendment or supplement thereto) pursuant to which Registered New Notes or
<PAGE> 155
Registrable New Notes were registered under the 1933 Act, including all
documents incorporated therein by reference, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary to make
the statements therein not misleading, or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus or form
of prospectus (or any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading;
(ii) against any and all loss, liability, claim, damage and expense
whatsoever, as incurred, to the extent of the aggregate amount paid in
settlement of any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any claim whatsoever
based upon any such untrue statement or omission, or any such alleged untrue
statement or omission; provided that (subject to Section 4(d) below) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred (including
the fees and disbursements of counsel chosen by any indemnified party),
reasonably incurred in investigating, preparing, pursuing or defending against
any litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under subparagraph (i) or (ii)
above; provided, however, that this indemnity agreement shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by such Holder or Underwriter expressly for use in a Registration
Statement (or any amendment thereto) or any Prospectus (or any amendment or
supplement thereto).
(b) Each Holder severally, but not jointly, agrees to indemnify
and hold harmless the Company, the other Holders and any Underwriter and the
other selling Holders, and each of their respective directors and officers
(including each officer of the Company who signed the Registration Statement),
agents and employees and each Person, if any, who controls the Company, the
other Holders or any Underwriter within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act, and the directors, officers, agents or
employees of such controlling persons, to the fullest extent lawful, against any
and all loss, liability, claim, damage and expense described in the indemnity
contained in Section 4(a) hereof, as incurred, but only with respect to untrue
<PAGE> 156
statements or omissions, or alleged untrue statements or omissions, made in the
Shelf Registration Statement (or any amendment thereto) or any Prospectus or
form of prospectus included therein (or any amendment or supplement thereto) or
in any preliminary prospectus in reliance upon and in conformity with written
information relating to such Holder furnished by such Holder to the Company
expressly for use in the Shelf Registration Statement (or any amendment thereto)
or such Prospectus or form of prospectus (or any amendment or supplement
thereto) or in any preliminary prospectus; provided, however, that no such
Holder shall be liable for any claims hereunder in excess of the amount of net
proceeds received by such Holder from the sale of Registrable New Notes pursuant
to such Shelf Registration Statement.
(c) Each indemnified party shall give notice as promptly as reasonably
practicable to each indemnifying party of any action or proceeding commenced
against it in respect of which indemnity may be sought hereunder, but failure so
to notify an indemnifying party shall not relieve such indemnifying party from
any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which it
may have otherwise than on account of this indemnity agreement. An indemnifying
party may participate at its own expense in the defense of such action;
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying party or parties be liable for the fees and
expenses of more than one counsel (in addition to any local counsel) separate
from their own counsel for all indemnified parties in connection with any one
action or separate but similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances. No indemnifying
party shall, without the prior written consent of the indemnified parties,
settle or compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 4 (whether or
not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 4(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the
<PAGE> 157
terms of such settlement at least 30 days prior to such settlement being entered
into and (iii) such indemnifying party shall not have reimbursed such
indemnified party in accordance with such request prior to the date of such
settlement.
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this Section 4 is
for any reason held to be unenforceable by the indemnified parties although
applicable in accordance with its terms, the Company and the Holders shall have
a joint and several obligation to contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement incurred by the Company and the Holders; provided, however,
that no Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation. As between the Company
and the Holders, the Company and the applicable Holders shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement in such proportions as shall be
appropriate to reflect the relative benefits received by the Company and the
Holders, from the offering of the New Notes, the Registered New Notes and the
Registrable New Notes (taken together) included in such offering as well as any
other relevant equitable considerations. The Company and the Holders of the
Registrable New Notes agree that it would not be just and equitable if
contribution pursuant to this Section 4 were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the relevant equitable considerations. In no event shall a Holder be required to
contribute any amount in excess of the amount by which proceeds received by such
Holder from sales of Registrable New Notes exceeds the amount of damages that
such Holder has otherwise been required to pay or has paid by reason of such
untrue statements or omissions, or alleged untrue statements or omissions. For
purposes of this Section 4, each Person, if any, who controls a Holder within
the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such Holder, and each director of the Company, each officer of
the Company who signed the Registration Statement, and each Person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act shall have
the same rights to contribution as the Company, as the case may be.
5. Miscellaneous.
5.1 Rule 144 and Rule 144A. For so long as the Company is subject to
the reporting requirements of Section 13 or 15 of the 1934 Act, the Company
covenants that it will file the reports required to be filed by it under the
1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and
regulations adopted by the SEC thereunder. If the Company ceases to be so
required to file such reports, it will upon the request of any
<PAGE> 158
Holder of Registrable New Notes (a) make publicly available such information as
is necessary to permit sales pursuant to Rule 144 under the 1933 Act, (b)
deliver such information to a prospective purchaser as is necessary to permit
sales pursuant to Rule 144A under the 1933 Act and it will take such further
action as any Holder of Registrable New Notes may reasonably request, and (c)
take such further action that is reasonable in the circumstances, in each case,
to the extent required from time to time to enable such Holder to sell its
Registrable New Notes without registration under the 1933 Act within the
limitation of the exemptions provided by (i) Rule 144 under the 1933 Act, as
such Rule may be amended from time to time, (ii) Rule 144A under the 1933 Act,
as such Rule may be amended from time to time, or (iii) any similar rules or
regulations hereafter adopted by the SEC. Upon the request of any Holder of
Registrable New Notes, the Company will deliver to such Holder a written
statement as to whether it has complied with such requirements.
5.2 Underwritten Registrations. If any of the Registrable New Notes
covered by any Shelf Registration are to be sold in an Underwritten Offering,
the investment banker or investment bankers and manager or managers that will
manage the offering will be selected by the Majority Holders and shall be
reasonably acceptable to the Company.
No Holder may participate in any Underwritten Registration hereunder
unless such Holder (a) agrees to sell such Holders Registrable New Notes on the
basis provided in any underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and executes all
questionnaires, underwriting agreements and other documents reasonably required
under the terms of such underwriting arrangements.
5.3 Remedies. In the event of a breach by the Company of any of its
obligations under this Agreement, each Holder, in addition to being entitled to
exercise all rights provided herein, in the Indenture or granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further agrees that, in the
event of any action for specific performance in respect of such breach, it shall
waive the defense that a remedy at law would be adequate.
5.4 No Inconsistent Agreements. The Company has not entered into and
the Company will not after the date of this Agreement enter into any agreement
which is inconsistent with the rights granted to the Holders of Registrable New
Notes in this Agreement or otherwise conflicts with the provisions hereof. The
rights granted to the
<PAGE> 159
Holders hereunder do not in any way conflict with the rights granted to the
holders of the Company's other issued and outstanding securities under any such
agreements.
5.5 Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable New Notes affected by such amendment, modification, supplement,
waiver or departure, excluding Registrable New Notes held by the Company and
other obligors on the New Notes and any Affiliate (as defined in the Indenture)
of the Company. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively to
the rights of Holders whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of other
Holders may be given by Holders of at least a majority in aggregate principal
amount of the Registrable New Notes being sold by such Holders pursuant to such
Registration Statement, provided that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence.
5.6 Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (a) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 5.4, which address initially is the address set forth on the signature
pages hereof with respect to the Initial Holders; and (b) if to the Company,
initially at the Company's address set forth on the signature pages hereof, and
thereafter at such other address of which notice is given in accordance with the
provisions of this Section 5.4.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the person giving the same to the Trustee under the
Indenture, at the address specified in such Indenture.
<PAGE> 160
5.7 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors, assigns and transferees of each of the
parties, including, without limitation and without the need for an express
assignment, subsequent Holders. If any transferee of any Holder shall acquire
Registrable New Notes, in any manner, whether by operation of law or otherwise,
such Registrable New Notes shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable New Notes such person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement, and such person shall be entitled to
receive the benefits hereof.
5.8 Third Party Beneficiaries. Each Holder of Registrable New Notes
not a party hereto shall be a third party beneficiary to the agreements made
hereunder and shall have the right to enforce such agreements directly to the
extent it deems such enforcement necessary or advisable to protect its rights
hereunder.
5.9 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
5.10 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
5.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICT OF LAWS THEREOF.
5.12 Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
<PAGE> 161
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
WRIGHT MEDICAL TECHNOLOGY, INC.
------------------------------------
By:
Name:
Title:
Confirmed and accepted as
of the date first above
written:
- -------------------------------------
[Type or print name of Initial Holder]
- -------------------------------------
By:
Name:
Title:
Address:
<PAGE> 162
Exhibit A
Form of Opinion of Counsel
Ladies and Gentlemen:
We are acting as special counsel for Wright Medical Technology, Inc., a
Delaware corporation (the "Company"), in connection with the issuance by the
Company to the Initial Holders (as defined below) of $85,000,000 aggregate
principal amount of Series D 11 3/4% Senior Secured Step-Up Notes Due 2000 (the
"New Notes") of the Company pursuant to an exchange offer effected pursuant to
the Registration Rights Agreement (the "Registration Rights Agreement"), dated
August __, 1997, between the Company and the institutions set forth on Annex I
(the "Initial Holders"). This opinion is furnished to you pursuant to Section
3(v) of the Registration Rights Agreement. Capitalized terms used herein and not
otherwise defined have the meaning set forth in the Registration Rights
Agreement.
In connection with this opinion, we have (i) investigated such
questions of law, (ii) examined originals or certified, conformed or
reproduction copies of such agreements, instruments, documents and records of
the Company, (iii) examined such certificates of public officials, officers or
other representatives of the Company, and other persons, and such other
documents, and (iv) reviewed such information from officers and representatives
of the Company and others, as we have deemed necessary or appropriate for the
purposes of this opinion.
In all such examinations, we have assumed the legal capacity of all
natural persons executing documents (other than the capacity of officers of the
Company executing documents in such capacity), the genuineness of all signatures
on original or certified copies, and the conformity to original or certified
documents of all copies submitted to us as conformed or reproduction copies. As
to various questions of fact relevant to the opinions expressed herein, we have
relied upon, and assumed the accuracy, of the representations and warranties
contained in the Registration Rights Agreement and certificates and oral or
written statements and other information of or from public officials, officers
or other representatives of the Company, and other persons, and assumed
compliance on the part of all parties to the Registration Rights Agreement with
their covenants and agreements contained therein (except to the extent that we
have actual knowledge of the failure by the Company to comply with a covenant or
agreement contained therein).
<PAGE> 163
To the extent it may be relevant to the opinions expressed herein, we
have assumed that the parties to the Registration Rights Agreement, other than
the Company, have the power to enter into and perform such agreement and that
such agreement has been duly authorized, executed and delivered by, and
constitute the valid and binding obligation of, such parties. Capitalized terms
not defined herein shall have the meanings given to them in the Registration
Statement.
Based upon the foregoing, and subject to the limitations,
qualifications and assumptions set forth herein, we are of the opinion that the
Registration Statement and the Prospectus (other than the financial statements,
notes or schedules thereto and other financial data and supplemental schedules
included or incorporated by reference therein or omitted therefrom and the Form
T-1, as to which we express no opinion), comply as to form in all material
respects with the requirements of the 1933 Act and the applicable rules and
regulations promulgated under the 1933 Act.
In addition, in the course of the preparation by the Company of the
Registration Statement and the Prospectus, we participated in conferences with
certain of the officers and representatives of, and the independent public
accountants for, the Company, at which the Registration Statement and the
Prospectus were discussed. Between the date of effectiveness of the Registration
Statement and the time of delivery of this letter, we attended additional
conferences with certain of the officers and representatives of, and the
independent public accountants for, the Company, at which the contents of the
Prospectus were discussed to a limited extent. Given the limitations inherent in
the independent verification of factual matters and the character of
determinations involved in the registration process, we are not passing upon or
assuming any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus, except
insofar as such statements relate to us and except to the extent set forth in
the opinion in the preceding paragraph. Subject to the foregoing and on the
basis of the information gained in the performance of the services referred to
above, including information obtained from officers and other representatives
of, and the independent public accountants for, the Company, no facts have come
to our attention that cause us to believe that the Registration Statement, as of
its effective date, contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading or that the Prospectus as of its date
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. We express no view or belief, however, with respect to financial
statements, schedules or notes thereto or other financial data included in or
omitted from the Registration Statement or Prospectus. Also, subject to the
foregoing, no facts have come to our attention in the course of proceedings
described in the second sentence of this
<PAGE> 164
paragraph that cause us to believe that the Prospectus, as of the date and time
of delivery of this letter contains an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading. We express no view or belief, however, with
respect to financial statements, schedules or notes thereto or other financial
and statistical data included in or omitted from the Registration Statement or
Prospectus.
The opinions expressed herein are limited to the federal laws of the
United States of America. We assume no obligations to supplement this letter if
any applicable laws change after the date hereof or if we become aware of any
facts that might change the opinions expressed herein after the date hereof.
The opinions expressed herein are solely for your benefit in connection
with the transactions contemplated by the Registration Rights Agreement and may
not be relied upon in any manner or for any purpose by any other person and may
not be quoted in whole or in part without our prior written consent.
Very truly yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: ___________________________________
Stephen I. Glover
September 3, 1997
Board of Directors
Wright Medical Technology, Inc.
5677 Arline Road
Arlington, TN 38002
Ladies and Gentlemen:
We are acting as special counsel to Wright Medical Technology, Inc., a
Delaware corporation (the "Company"), in connection with its offer to exchange
$1,000 principal amount of its 11 3/4% Series D Senior Secured Step-Up Notes due
2000 (the "Registered Notes") for each $1,000 principal amount of its
outstanding 11 3/4% Series C Senior Secured Step-Up Notes due 2000 (the "Old
Notes") (the "Exchange Offer") pursuant to a Registration Statement on Form S-4,
as amended (the "Registration Statement").
In connection with this opinion, we have (i) investigated such questions of
law, (ii) examined originals or certified, conformed or reproduced copies of
such agreements, instruments, documents and records of the Company and its
subsidiaries, such certificates of public officials and such other documents and
(iii) reviewed such information from officers and representatives of the Company
and its subsidiaries and others as we have deemed necessary or appropriate for
the purposes of this opinion. In particular, we examined certain certificates
signed by officers of the Company, a copy of the Company's certificate of
incorporation, as amended and restated and certified as a true copy by the
Delaware Secretary of State, and the Company's bylaws. We also examined a
long-form good-standing certificate issued by the Delaware Secretary of State as
well as the form of Registered Notes, the Old Notes, the Registration Statement
and certain agreements related to the Exchange Offer.
In all such examinations, we have assumed the legal capacity of all natural
persons executing documents (other than the capacity of officers of the Company
executing documents in such capacity), the genuineness of all signatures on
original or certified copies, and the conformity to original or certified
documents of all copies submitted to us as conformed or reproduction copies. As
to various questions of fact relevant to the opinions expressed herein, we have
relied upon, and assumed the accuracy of, certificates and oral or written
statements and other information of or from public officials, officers or other
representatives of the Company,
<PAGE> 166
and other persons and assume compliance on the part of all parties to the
terms of the Exchange Offer, including covenants and agreements contained in the
Registration Statement, the Registered Notes and the letter of transmittal by
which the Exchange Offer will be effected and attached to the Registration
Statement as Exhibit 99. We also expressly assume that on the date of the
closing of the Exchange Offer, the Trustee and the other parties to the
Registered Notes (i) will have the power and authority to enter into and perform
the obligations under such agreement to which they are a party, (ii) that each
agreement will have been duly authorized, executed and delivered by the relevant
parties concerned, and (iii) that each agreement will constitute a valid and
binding obligation upon the relevant parties concerned and will be enforceable
against each.
Based upon the foregoing, and subject to the limitations, qualifications
and assumptions set forth herein, we are of the opinion that: (i) the Registered
Notes to be offered by the Company, when issued, delivered and paid for in
accordance with the terms of the Registration Statement, will be legally issued
and (ii) will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms.
The opinion set forth above is subject to:
(i) applicable bankruptcy, insolvency, reorganization, moratorium or other
laws now or hereafter in effect affecting creditors' rights generally;
(ii) general principles of equity (including, without limitation, standards
of materiality, good faith, fair dealing and reasonableness) whether such
principles are considered in a proceeding in equity or at law; and
(iii) the application of any applicable fraudulent conveyance, fraudulent
transfer, fraudulent obligation, or preferential transfer law or any law
governing the distribution of assets of any person.
The opinions expressed herein are limited to the federal laws of the United
States and the laws of the State of New York and, to the extent relevant hereto,
the General Corporation Law of the State of Delaware. We assume no obligations
to supplement this letter if any applicable laws change after the date hereof or
if we become aware of any facts that might change the opinions expressed herein
after the date hereof.
The opinions expressed herein are solely for your benefit and may not be
relied upon in any manner or for any purpose by any other person and may not be
quoted in whole or in part without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Matters" in the Prospectus forming a
<PAGE> 167
part of the Registration Statement. In giving this consent, we do not
hereby admit that we are in the category of persons whose consent is required
under Section 7 of the Act.
Very Truly Yours,
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
By: /s/Stephen I. Glover
Stephen I. Glover
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
X EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from to
Commission file number 33-69286
WRIGHT MEDICAL TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 62-1532765
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
5677 Airline Road, Arlington, Tennessee 38002
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (901) 867-9971
Securities registered pursuant to Section 12(b) of the Securities Exchange
Act of 1934: None
Securities registered pursuant to Section 12(g) of the Securities Exchange
Act of 1934: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
The registrant has no publicly traded equity securities, no market
quotations are available and accordingly, information is not provided with
respect to the aggregate market value of voting stock held by non-affiliates of
the registrant.
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of March 18, 1997 the registrant had 9,199,025 shares outstanding of
Class A Common Stock, $0.001 par value per share.
DOCUMENTS INCORPORATED BY REFERENCE. None
<PAGE> 169
TABLE OF CONTENTS
Page
PART I
Item 1. Business
Overview..................................3
Market Overview...........................4
Principal Products........................6
Biologic Product Opportunities...........10
Marketing and Distribution...............12
Competition..............................13
Manufacturing and Quality Control........14
Government Regulations...................14
Research and Product Development.........16
Principal Customers......................17
Raw Materials............................18
Environmental............................18
Insurance................................18
Patents and Trademarks...................19
Royalty and Other Payments...............19
Seasonality..............................19
Employees................................19
Item 2. Properties........................................19
Item 3. Legal Proceedings.................................20
Item 4. Submission of Matters to a Vote of Security
Holders...........................................21
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters...............................22
Item 6. Selected Financial Data...........................23
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...............24
Item 8. Financial Statements and Supplementary Data.......31
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...............31
PART III
Item 10. Directors and Executive Officers of the
Registrant........................................32
Item 11. Executive Compensation............................35
Item 12. Security Ownership of Certain Beneficial Owners
and Management ...................................41
Item 13. Certain Relationships and Related Transactions....44
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K...............................48
<PAGE> 170
PART I.
ITEM 1. BUSINESS.
Overview
Wright Medical Technology, Inc., a Delaware corporation (collectively
with its subsidiaries, the "Company") is a designer, manufacturer and worldwide
distributor of orthopaedic implant devices and instrumentation for
reconstruction and fixation. Reconstructive devices are for joint arthroplasty
that involve the replacement with mechanical substitutes of impaired skeletal
joints such as knees, hips, shoulders, and the small joints of the elbow, hands
and feet. The Company also offers devices for 1) fracture fixation due to trauma
2) arthroscopic surgery of the knee, shoulder and extremities, and 3) the spine
to aid in correction of deformity and instability. In addition, the Company is
developing a wide range of new biological products that are designed to solve
orthopaedic problems by, in some cases, delaying or obviating the need for
traditional orthopaedic solutions. The Company's business strategy is to design
and develop unique and innovative products to solve clinical orthopaedic
problems. The Company was founded to acquire, in July 1993, substantially all
the assets of the large joint orthopaedic implant business of Dow Corning Wright
Corporation, a subsidiary of Dow Corning Corporation (collectively "DCW")(the
"Acquisition").
In furtherance of its commitment to find innovative solutions to
orthopaedic problems, the Company 1) entered into a joint venture agreement in
mid 1996 with Tissue Engineering, Inc. ("TE Inc.") a Boston, Massachusetts
company that develops collagen-based scaffolds for ligament and tendon
reconstruction and other orthopaedic applications and 2) purchased the
biomaterials business of the Industrial Division of United States Gypsum Company
("USG"), a subsidiary of USG Corporation, which had manufactured and licensed to
the Company its OSTEOSET(TM) medical grade calcium sulfate product. With
OSTEOSET(TM) bone void filler now approved by the U. S. Food and Drug
Administration ("FDA"), the Company can offer the medical community a specially
formulated medical grade calcium sulfate, that surgeons may use to treat defects
in long bones caused by surgery, tumors, trauma, implant revisions and
infections without questions of biological transfer of viruses and diseases.
Biological skeletal repair is a new area of orthopaedics that offers the
possibility of novel treatments for musculoskeletal injuries and defects using
the body's own healing responses.
The Company's headquarters, manufacturing and distribution facilities
are located in Arlington, Tennessee. Products are distributed throughout the
world through a combination of distributors and wholly owned subsidiaries.
Principal markets include the United States, Canada, Japan, France, and
Australia.
Unless the context otherwise requires, the term "Company" as used
herein refers to Wright Medical Technology, Inc. and its subsidiaries.
Throughout this document, products are discussed that are currently
under development or, for which clearance by the FDA (or applicable foreign
regulatory clearance) has not been received. The Company can give no
<PAGE> 171
assurance that any of these products will in fact be successfully developed,
that the necessary FDA or foreign approvals will be received or that, if
developed and approved, a market for these products will exist.
This document contains forecasts and projections that are forward-
looking statements and are based on management's current expectations of the
Company's near term results, based on current information available pertaining
to the Company. Actual future results and trends may differ materially depending
on a variety of factors, including competition in the marketplace, demographic
trends, product research and development, and other factors. Results of
operations in the industry generally show a seasonal pattern, as customers
reduce shipments during the warm weather months.
Market Overview
Demographic Trends. The United States population over 65 years of age
continues to grow as a percentage of the total population. The aging of the
population is significant in that approximately 70% of all joint implants are
for patients over 65 years of age. Osteoarthritis (degenerative joint disease)
affects over 15 million people in the United States and is the primary
indication for orthopaedic implants. Management believes that as the population
ages, the incidence of osteoarthritis and other ailments will increase and, as a
consequence, the demand for orthopaedic implants and new solutions for medical
problems requiring orthopaedic applications should rise. The incidence of
rheumatoid arthritis, another major disease leading to the need for implants
that currently affects over two million people, may also increase with the aging
of the population. Management believes that another factor affecting growth of
implant use is the increasingly active lifestyle of many older Americans. A more
active lifestyle not only accelerates the joint degeneration process, but also
increases the expectations that people have of their bodies. Joint degeneration
leads to pain and decreased mobility, while active lifestyles also may result in
more sports-related traumatic injuries. As a result, the Company believes that
the need for new and innovative orthopaedic solutions will continue to grow.
Large Joint Orthopaedic Implant Market. Since its introduction in the
early 1960's, total large joint replacement (knees, hips and shoulders)
utilizing orthopaedic implants has grown rapidly to become the largest segment
of the global orthopaedic implant market. Over the last ten years, the number of
total joint procedures performed to replace arthritic or damaged joints has
increased steadily. As a result of managed care, the industry has experienced
pricing pressures over the past few years which has stabilized or reduced the
average price of an implant per procedure. Nevertheless, the Company believes
that the number of knee and hip replacement procedures performed in the United
States will continue to increase. Management expects that revision procedures,
in which new implants replace existing knee and hip implants, will contribute to
future industry growth. Management believes that the Company is well positioned
in the expanding primary and revision knee markets with its ADVANTIM(R) Knee
System, AXIOM(R) Knee System and its new ADVANCE(TM) Knee System. While the
market for hip procedures is growing at a smaller rate, management believes the
Company is positioned to increase market share in that segment especially with
its PERFECTA(R) Hip System acquired in the acquisition of Orthomet, Inc.
("Orthomet") and with its new product offerings for surface
<PAGE> 172
replacement and alternative bearing surfaces such as metal-on-metal and
ceramic-on-ceramic.
Small Joint Orthopaedic Implant Market. The small joint orthopaedic
implant market includes implants for hands, feet, elbow, and wrists. The Company
believes that the annual number of finger and toe joints implanted in the United
States dropped significantly in 1993 (at the height of market concerns related
to silicone products), but has subsequently rebounded. Sales and marketing of
small joint implants involves targeted efforts to specific groups of physicians.
Approximately 1,000 orthopaedic hand specialists and 600 plastic surgeons employ
hand and wrist implants and approximately 500 orthopaedic foot specialists and
7,000 podiatric surgeons perform foot procedures. The Company anticipates that
the market for small joint orthopaedic implants will grow in the near term as
the elderly population continues to grow.
Trauma. Devices for trauma applications are one of the largest segments
of the orthopaedic market. Current market estimates place domestic revenue for
1996 in excess of $711 million. Management believes that a number of its
fracture fixation products, such as the CONCISE(TM) Compression Hip Screw
System, the Medoff Sliding Plate, the TYLOK(TM) High Tension Cerclage Cabling
System and the CANNULATED PLUS(TM) Screw System, are innovative and will enable
the Company to gain market share in one of orthopaedics' most stable markets. In
addition, the Company has plans to introduce in 1997 its innovative and patented
Magellan(TM) Intramedullary Nailing System which will provide access to the
lucrative long bone trauma fixation market, and an external fixation system.
Arthroscopy. The desire for less invasive surgical procedures that
results in shortened hospital stays, quicker recovery times, and less patient
discomfort has also resulted in arthroscopic procedures becoming one of the
fastest growing segments of the orthopaedic market. The current arthroscopy
market in the United States is estimated to be in excess of $131 million with a
growth rate of approximately 8% over prior year. Today's typical arthroscopy
procedure requires minimal operating room time and little or no hospitalization,
with approximately 65 percent of such procedures occurring outside the hospital
setting. As a result, third party payors, patients and their physicians have
embraced the use of minimally invasive procedures with significant growth
expected to continue. The Company's introduction into this market came in 1995
with the sale of the QUESTUS(TM) LEADING EDGE(TM) Sheathed Knives and Grasper
Cutter, and its patented ANCHORLOK(TM) soft tissue anchor. In addition, the
Company is developing what it believes will be a novel system of instrumentation
for repair of the anterior cruciate ligament, the injury which is the most
common orthopaedic injury in younger patients.
Spine. Current estimates are that approximately 80% of the population
will experience back pain at some point in their adult lives. Back pain is the
second most frequent reason that people visit their physician and is the leading
cause of missed work days. Although a majority of patients are treated with a
combination of non-surgical treatments, over 700,000 surgical back procedures
are performed in the U.S. each year. In 1996, this market grew approximately 20%
over prior year. Historically, the spinal implant market has increased at
approximately 15% since the late 1980's making it
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one of the highest growth areas in orthopaedics. With the introduction in late
1995 of the WRIGHTLOCK(TM) posterior fixation system and introduction of the
VERSALOK(TM) low back system, currently underway, the Company believes it has a
superior system for correcting scoliosis and certain types of spinal
instability. The Company expects to introduce an innovative anterior cervical
plating system later in 1997.
Principal Products
The Company's revenues are derived primarily from the sale of
orthopaedic implant devices for reconstruction and fixation.
Reconstructive Knee Products
The Company currently markets several reconstructive knee systems
including the AXIOM(TM) Total Knee System (the "Axiom Knee"), the ADVANTIM(R)
Total Knee System (the "Advantim Knee"), and the ADVANCE(TM) Total Knee System
(the "ADVANCE Knee"). Each of these systems is designed to duplicate the
anatomical function of the patient's knee, thereby improving its range of motion
and stability. In a typical knee replacement, the surgeon may replace the
articulating surfaces of the knee: the knee cap (patella), top of the shin bone
(tibia) and bottom of the thigh bone (femur). In a total knee replacement the
surgeon can choose to leave the posterior cruciate ligament intact
(necessitating a PCL sparing knee component) or remove that ligament
(necessitating a posterior stabilized knee component).
In early 1995, the Company entered into a product licensing agreement
with the Hospital for Special Surgery ("HSS") to develop a new standard for
primary posterior stabilized total knee arthroplasty. With over 20 years
experience in designing total knee replacements, the HSS team of surgeons and
engineers working with the Company developed the ADVANCE Knee. The design
reduces stress and enhances implant survivorship while still maintaining
rotational freedom. Further, the biomechanics of the ADVANCE Knee design allow
for a greater range of motion than traditional posterior stabilized knees. There
are many key design advantages. The Company believes that the ADVANCE Knee is
one of the most advanced posterior stabilized knee systems on the market. The
Company anticipates introducing the PCL sparing components of the ADVANCE Knee
in late 1997.
Since its formation, the Company has been committed to ultrahigh
molecular weight polyethylene research and development. As a result, the Company
developed DURAMER(TM) EtO Sterilized polyethylene which eliminates the incidence
of gamma-induced oxidation and associated poly wear in the joint. There are
essentially no levels of EtO left in the Company's products after sterilization.
Products are aerated until the EtO is dissipated and any amounts remaining are
at least ten times lower than what is considered safe by the FDA.
The Company's primary knee product is the Advantim Knee, designed to
address the needs of the high demand patient. It has almost 15 years of clinical
success.
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Reconstructive Hip Products
The Company currently markets a wide choice of hip products including
those with brand names of PERFECTA(R), EXTEND(TM), INFINITY(R), NEXUS(R) II,
BRIDGE(R), and the INTERSEAL(R) Acetabular System. These systems are designed
to replace the natural hip joint. The Company's hip implants consist of the same
basic parts as the natural hip, including a femoral stem inserted into the femur
(thigh bone) with a spherical femoral head (ball) and an acetabular cup (socket)
on which the femoral head articulates. The Company's hip systems include several
different femoral stem designs and several acetabular cup designs. Each design
is produced in a variety of sizes for either low- demand or high-demand
patients. Surgeons have the option of interchanging stem, head and acetabular
cup designs to meet their own preferences and individual patient requirements.
The Company also has products to address hemi-arthroplasties where only the
femoral component of the hip is replaced. The femoral stems currently marketed
by the Company are made of a titanium or cobalt chrome alloy. Acetabular cups
are comprised of ultra high molecular weight polyethylene available with or
without a metal backed shell with different surfaces to enhance fixation to the
pelvis.
The Company's femoral stems are offered in a variety of geometric
designs and in smooth, porous-coated and textured surfaces including
hydroxylapatite. These products allow for bone on-growth, bone in-growth,
press-fit or cemented applications.
The INTERSEAL(R) Acetabular Cup is a system of titanium porous-coated
metal shells and modular liners providing the surgeon with extensive
intraoperative flexibility. This product was introduced in 1995 and continues to
do well. The hemispherical design provides rigid fixation at the rim with a
secure lock at the shell/liner interface. An apical hole in the shell allows the
surgeon to confirm that the shell is bottomed out in the pelvis, and a plug
seals the hole from the invasion of particulate. The system also features a
quadrant style shell featuring optional screw fixation and lateralized liners
for revision cases. In 1996 a multiple hole cup for difficult revision cases and
liners with additional inner-diameter choices were commercialized. The Company
believes that the superior characteristics of the INTERSEAL(R) System will also
benefit the sales of its existing and newly released hip stems.
The S.O.S.(TM), or Segmented Orthopaedic System, was created to offer
limb salvage to the patient who suffers bone loss due to cancer, trauma or
failed implants. The Company believes that the present system, which consists of
the Proximal Femur System and the Distal Femur System, is the only FDA cleared
product of its kind on the market. The Company is in the process of expanding
this system to include a proximal tibia, total femur and total humerus.
The Company has also developed three new innovative hip designs which
it plans to commercialize in 1997 under various FDA approval processes. First,
the CONSERVE(TM) Hip System is a product developed to replace only the surface
of the femoral head thereby obviating the need for a full femoral stem
prosthesis which requires the removal of a great deal of the patient's healthy
bone. Second, the Company has developed the TRANSCEND(TM) metal-on- metal and
ceramic-on-ceramic articulating surface systems (both products are awaiting FDA
approvals which may require clinical studies). The Company
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believes that these systems, which eliminate the use of a polyethylene bearing
surface in the acetabular component, will provide advantages over conventional
hip systems due to anticipated reductions in wear debris.
These product lines should place the Company in an excellent position
to sustain rapid growth in primary and revision hip surgery, as well as limb
salvage cases. The products allow the orthopaedic surgeon a wide range of
material and design choices to solve the varied medical problems of individual
patients.
Small Joint and Upper Extremity Products. Small joint orthopaedic
implants have a long clinical history and over one million devices have been
implanted during their 25-year history. Many of the Company's small joint
orthopaedic implants were developed initially and patented by surgeon- inventor
Dr. Alfred Swanson. The Company has the exclusive rights to use the surgeon's
name and patents.
Most of the small joint orthopaedic implants being distributed by the
Company are manufactured using solid silicone elastomers (known for their
fatigue strength, tear-resistance and biocompatibility), and titanium that is
used to manufacture protective sleeves (grommets) for some of these implants.
The balance of such small joint orthopaedic implants are manufactured primarily
from titanium and are commonly used in more active patients. Key small joint
products include:
Hand Implants. Flexible one-piece hand implants are designed to
help restore function to damaged or diseased small joints within
the hand. Key hand implants include the Swanson Flexible Hinge
Finger Joint with grommets, the Swanson Titanium Basal Thumb
Implant and the Swanson Trapezium Implant.
Wrist Implants. Wrist implants are designed to restore the
anatomical relationship of the joint connecting the wrist and the
hand. Wrist implants include the Swanson Wrist Joint Implant
with grommets, the Titanium Lunate Implant and the Titanium
Scaphoid Implant.
Foot Implants. Foot implants are designed to replace damaged or
diseased small joints found within the foot. Principal products
include the Swanson Titanium Great Toe Implant, the Hammertoe
Implant, the Swanson Flexible Hinge Toe Implant with grommets and
the Smith STA-Peg.
Elbow Implants. The Company recently introduced the Sorbie- Questor(R)
Total Elbow System. The elbow's design promotes accurate joint
tracking, proportionate distribution of load forces between the
humerus, ulna and radius and the replication of the elbow's natural
anatomic structure. The unique instrumentation enhances results. This
device was developed in cooperation with Charles Sorbie, M.D., a
well-known Canadian orthopaedic surgeon and inventor.
The Company also introduced the Swanson Titanium Radial Head implant,
an alternative to its silicone elastomer radial head implant. The
implant is manufactured from commercially pure titanium that features
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nitrogen ion implantation for increased surface hardness. The overall
profile of the implant head is unchanged from the silicone radial head
implant design.
Shoulder Implants. Shoulder implants are designed to replace the
articulating surfaces of the shoulder joint damaged principally as a result of
osteoarthritis and trauma. The Company distributes the Neer II and Modular
shoulder prostheses manufactured by the 3M Corporation.
Trauma. Trauma implants encompass a wide variety of screws, plates,
rods, wires, cables and pins all utilized to fix or support bone that has been
fractured due to accidental or surgically induced trauma. These devices serve to
orient and stabilize bone until healing can occur. The CONCISE(TM) Compression
Hip Screw System and the companion Medoff Sliding Plate enable the orthopaedic
surgeon to treat most types of proximal and supracondylar femoral fractures. The
TYLOK(TM) High Tension Cerclage Cabling System is used for fixation and
stabilization of long bone fractures and offers distinct advantages over the
competitive devices. The stainless steel CANNULATED PLUS(TM) Screw System is
used for stabilization of fracture fragments. The Company expects to introduce
in the third quarter of 1997, the first components (a femoral nail) of its
Magellan(TM) Intramedullary Nailing System, a unique modular nailing system
which allows for significant inventory reduction compared to other nailing
systems and a unique targeting device for placement of distal screws which
obviates the need for extended x-ray exposure for both physician and patient
in locating the distal screw holes in the nail.
Arthroscopy. Arthroscopic products are a combination of both implants
and instrumentation that are utilized through small incisions in conjunction
with visualization (miniature cameras) to repair damaged muscles, tendons,
ligaments or other connective or joint tissues. The Company does not offer and
has no plans to offer the cameras and visualization systems that are routinely
used in arthroscopic procedures. Rather, it has determined to concentrate on a
limited line of innovative instrumentation to address problems in arthroscopy.
The Company entered the arthroscopy market in 1995 and has since introduced
several new products. The QUESTUS(TM) LEADING EDGE(TM) Sheathed Knives including
the unique Grasper Cutter Knife, are a system of disposable sheathed knives that
allow precise resection of damaged tissues while greatly reducing the chance for
injury to normal structures.
The ANCHORLOK(TM) Soft Tissue Anchors are used in a variety of joints
for reattaching ligaments and tendons (or other soft tissue) to bone where
tearing or separation has occurred. The Company's anchors have a patented
self-tapping thread, superior holding strength and can be removed easily giving
the surgeon more surgical options. The Company plans to introduce in 1997 the
ANCHORLOK(TM) RL Soft Tissue Anchor, a lower cost version of the device which is
not prethreaded with sutures.
The Company will also commence clinical evaluation in 1997 of a unique
instrumentation system for repair of the anterior cruciate ligament damage for
which is the most common orthopaedic injury to younger patients.
Spine. The Company entered the spine instrumentation market in 1995
with the domestic and international introduction of the WRIGHTLOCK(TM)
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posterior fixation system. The patented system, under license from Zimmer, Inc.,
is indicated for scoliosis and spinal instability, and is based on a high
strength, stainless steel rod technology with Morse-taper locking mechanisms
that provide a low-profile system. The profile (i.e. the height of the implant)
can be important in the scoliosis market that principally affects teenaged and
preteenaged girls.
The Company has also received FDA clearance for its VERSALOK(TM) low
back fixation system and began marketing the product on a limited basis. Working
with a select group of spine surgeons, including innovators such as John R.
Johnson, M.D. and David Selby, M.D., the Company developed this surgeon friendly
low back fixation system that features a revolutionary polyaxial screw with a
locking design with no set screws and no locking nuts. The Company plans a full
introduction of its VERSALOK(TM) low back fixation system in 1997.
In late 1996 the Company entered into an exclusive agreement with Gary
K. Michelson, M.D. to develop an anterior cervical plating system. Michelson, an
innovative spinal surgeon and inventor, is well known as a developer of many
successful spine products. Michelson's plates, used to help fuse the cervical
vertebrae, are designed to be more anatomically correct than current plate
options. The system will utilize self tapping screws, eliminating the need for
drilling or tapping. The Company plans to commercially introduce the Michelson
plating system, pending FDA clearance, in 1997 - entering the Company into an
$87 million dollar worldwide cervical spine plate market.
Biologic Product Opportunities
Because the Company's business strategy is to identify and develop
unique solutions to orthopaedic problems, the Company continues to spend
substantial resources in the development of biologic products.
Calcium Sulfate Bone Void Filler. In late 1996 the Company acquired the
biomaterials business of USG. The business includes patents, technologies and
proprietary processes related to the use of medical grade calcium sulfate
(gypsum) in the human body. Prior to the acquisition, the Company worked closely
with USG as a licensee and exclusive orthopaedic distributor of their
bioresorbable calcium sulfate materials. Under the terms of the acquisition, the
Company will continue to purchase the medical grade calcium sulfate raw material
from USG, but will now own the proprietary process and technology necessary to
create calcium sulfate products for biomedical applications. USG spent twelve
years researching and developing gypsum opportunities in the biomedical market.
While they are a world leader in the gypsum industry, the Company believes it
has better capabilities to fully commercialize this unique technology for
biomedical applications. The Company recently received FDA clearance to begin
selling OSTEOSET(TM) bone void filler, its first calcium sulfate-based product.
OSTEOSET(TM) is the Company's first entry into the bone graft market,
which is approaching one-half billion dollars annually. The Company plans to
offer other biological skeletal repair products in the near future. OSTEOSET(TM)
is currently offered in an "off the shelf" sterile pellet form.
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Other configurations are currently under development and should soon be
available to the market.
Bone is the second most implanted material in the body (after blood
transfusions) and more than 300,000 bone graft procedures are completed annually
in the United States. Bone grafts are used to repair bone defects caused by
surgery, tumors, trauma, implant revisions and infections, and also for joint
fusion.
The preferred method of treating bone voids involves the use of any
autologous graft, in which bone is taken directly from the patient. This graft
usually achieves good results, yet often requires a second surgery site to
retrieve the graft. This second harvesting site is not only costly and time
consuming, but can also be more painful to the patient than the primary
procedure.
Currently, the second most common bone graft alternative is an
allograft from a human bone bank which generally achieves favorable results.
This tissue has limited applications because of availability and, unless it is
demineralized, it does little to induce new bone growth. The possibility of
viral disease transmission is also a concern even though the risk has been
reduced by sophisticated testing.
The third alternative for a bone graft procedure is the use of
artificial substitutes. The two types of substitutes currently on the U.S.
market are a coral-based product and a bovine collagen-based product. These
substitutes provide a matrix in which bone can grow, but these types of implants
may remain unchanged within the patient's body for an extended period of time
and in some cases may result in tissue irritation.
Compared to the current alternatives, OSTEOSET(TM) products provide an
ideal bone void filler for many bone grafting procedures because they are
biocompatible and bioresorbable. As a bioresorbable material, the body will
resorb this natural substance and will do so at a rate comparable to the
patient's new bone growth, which takes an average of four to eight weeks.
OSTEOSET(TM) material has also been shown to have osteoconductive properties.
This means that this material allows or encourages cells to generate bone in and
on its surfaces, thus furthering the effectiveness of this material as a bone
void filler. Another benefit is that the pellets can be seen on the x-ray and
become their own radiographic marker to follow the course of resorption and
replacement of the graft by new bone.
The properties of OSTEOSET(TM) bone void filler make it attractive for
use in children and for infected sites. Because children do not have as much
available bone stock as adults, the surgeon may not be able to harvest enough
bone from the child and may need to add a substitute. Medical grade calcium
sulfate pellets are ideal for this purpose. Patients who have bone infections
will also benefit from OSTEOSET(TM)'s ability to be resorbed by the body. Other
bone graft substitutes which remain in the body for an extended period may serve
as agents or hosts to prolong the infection. Since OSTEOSET(TM) pellets totally
resorb in four to eight weeks post-operation, there is nothing on which the
infectious agents may reside or bind.
The Company is also developing additional applications for its
OSTEOSET(TM) products. Pending longer-term FDA approvals and approval in
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foreign countries, OSTEOSET(TM) products may be mixed prior to implantation with
the appropriate drugs (which would then be delivered locally as the product
resorbs) such as antibiotics to be used to treat deep bone infections
(osteomyelitis), anti-neoplastic drugs to treat bone tumors or simply to deliver
medication to control pain. Presently, bone infections are treated by mixing
antibiotics with beads of polymethylmethacrylate bone cement that are then
implanted inside the bone at the site of the bone infection. This is not an
ideal treatment method, both because the bone cement ceases to release
antibiotics in therapeutic doses within 72 hours after implantation (whereas
treatment of a bone infection often requires six or more weeks of antibiotic
treatment), and because the bone cement must eventually be removed from the
infection site. The Company's research has shown that the calcium sulfate beads,
impregnated with antibiotics, release the antibiotics over a multi-week period,
in steady therapeutic doses, while the calcium sulfate is resorbed.
OsteoBiologics Implants. OsteoBiologics, Inc., a San Antonio, Texas
based company in which the Company has an ownership interest as well as
distribution rights to certain orthopaedic products, is developing a series of
bioabsorbable, polylactate and polyglycolic acid implants that, pending FDA
approvals, may be effective in a variety of uses including: as a bone growth
stimulant to aid spinal fusion; as a bone void filler; as a method to induce the
repair of articular cartilage defects (both focal defects and for resurfacing)
by growing articular cartilage in vivo; as a treatment for delayed unions and
non-unions in fractures; and the repair of bone voids resulting from tumor and
cyst removal and from thinning bone. OsteoBiologics intends to seek regulatory
approval for its first commercial products, the bone void fillers, in 1997.
OsteoBiologics also has a unique patented electronic instrument for measuring
the physical characteristics of soft tissue such as cartilage which employees a
reusable, sterilizable electronic hand piece and disposable probes. This product
is expected to be available for commercial distribution by the Company late in
1997.
Collagen based Tissue Engineering. The Company entered into a joint
venture agreement in mid 1996 with Tissue Engineering, Inc. ("TE Inc.") a
Boston, Massachusetts company that develops collagen-based scaffolds used for
ligament and tendon reconstruction and for cartilage regeneration. The Company
is also developing a calcium phosphate based bone cement which offers great
strength for fracture fixation and anchoring certain implants. The joint venture
company, Orthopaedic Tissue Technology, L.L.C., a Delaware limited liability
company, will develop and distribute biological products for musculoskeletal
applications. The initial technology is designed to reproduce the events of
tissue formation. Applications will include the treatment of medical conditions
involving disease, injury or deterioration of ligaments, tendons, cartilage or
bone and sports related injuries. Bioskeletal repair is a new segment of
orthopaedics that offers less invasive treatments for musculoskeletal injuries
and defects. Orthopaedic Tissue Technology expects to begin trials of its first
products, a biologically engineered ligament and a resorbable bone cement, in
1997.
Marketing and Distribution
Overview and U.S. Marketing and Distribution. The Company markets its
products in the United States through a network of 188 sales personnel,
including 47 distributors (the "Distributors") and 141 commissioned sales
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representatives (collectively, the "Sales Organization"), serving every state in
the country. The Distributors, who are mostly independent contractors, and the
sales representatives sell the Company's orthopaedic implants at commission
rates that the Company believes are competitive with those paid by other
orthopaedic manufacturers.
In early 1997, the Company purchased the assets of one of its
distributors, Outcome Medical, Inc., and its related companies ("OMI"). Those
related companies included two of the largest distributors of spinal devices for
one of the Company's competitors in the spinal device market, Sofamor-Danek. The
Company agreed to pay OMI for its assets over a three year period based in part,
and contingent upon, the achievement of certain sales goals in the territory. In
addition, the Company contracted with all of OMI's salespeople and has provided
them with guaranteed commissions based upon sales goals. The Company believes
that this transaction will give further support to the Company's expected growth
in sales of its spinal devices.
Management believes that the Distributors and their surgeon
relationships are a critical component of the Company's success. For
distribution purposes, the Company divides the domestic market geographically
into 46 territories, each of which is controlled by a Distributor or
Distributors authorized to sell the Company's products.
The success of these sales professionals depends primarily upon
high-quality service levels, technical proficiency and strong surgeon
relationships. As such, the Company's Sales Organization undergoes significant
product and sales training with courses conducted throughout the year.
The Company historically has focused its marketing efforts in the
United States, with approximately 75% of the Company's revenue derived
domestically over the past three years.
International Marketing and Distribution. The Company's international
sales revenue represented approximately 25% of the Company's overall sales for
1996. Management intends to continue to expand its international distribution
and marketing capabilities. The Company's international marketing and
distribution is accomplished primarily through independent distributors engaged
in distribution in Japan, South and Central America, Australia, Europe and Asia,
with the Company distributing products in France and Canada through wholly owned
subsidiaries. Depending on the market size and conditions, the foreign
independent distributors are granted either exclusive or non-exclusive rights to
distribute the Company's products, with a majority being exclusive distributors.
Competition
The orthopaedic implant industry is highly competitive and dominated by
a number of large companies with more resources than the Company. Competitive
factors include service, product design, depth of product offering, physician
recognition and price. The Company believes its future success will depend upon
its ability to be responsive to the needs of its customers and on continued
improvement and development of novel products designed not only to create better
solutions to orthopaedic problems, but
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also to solve previously unaddressed orthopaedic problems. The Company
believes the majority of the market share for the Company's products are
held by Biomet, Inc., Zimmer, Inc. (a subsidiary of Bristol-Myers Squibb
Company), Johnson & Johnson Professional, Inc. (a subsidiary of Johnson &
Johnson), Howmedica, Inc. (a subsidiary of Pfizer Inc.), DePuy (a subsidiary
of Corange), Smith & Nephew Orthopaedics, Inc. (a subsidiary of Smith &
Nephew Ltd.), Osteonics, Inc. (a subsidiary of Stryker Corporation), Sofamor
Danek Group, Inc. and Sulzer Orthopaedics, Inc. (a subsidiary of
Sulzermedica).
With respect to large joint implants (hips and knees) the competitors
listed above represent approximately 94% of the hip implant market and 92% of
the knee implant market. In addition, there are several manufacturers that
compete only in the global small joint orthopaedic implant market. The Company's
most significant competitor in this market has less than a 10% market share.
Manufacturing and Quality Control
Almost all of the Company's orthopaedic implants and instruments are
manufactured at its headquarters in Arlington, Tennessee, and through a select
group of qualified contract manufacturers. The Company's manufacturing
operations are subject to Good Manufacturing Practices ("GMP") and other
regulations stipulated by the FDA and other relevant regulatory organizations,
such as the Environmental Protection Agency ("EPA") and Occupational Safety and
Health Agency ("OSHA"), and similar state and foreign agencies and authorities.
In early 1997, the Company's facilities were inspected and cleared for GMP
compliance by the FDA.
In December of 1995, the Company's research and development,
manufacturing, and distribution operations became certified to the standards
established by the International Standards Organization ("ISO"). This "ISO 9000"
certification and process assures a level of product quality by regulating the
processes of product development and manufacturing. Approximately 80 countries
have currently adopted ISO 9000 for medical products, thereby enabling ISO 9000
registered companies to sell their products in these countries without the
additional burden of individual country regulation. Manufacturers so certified
are recognized by the European Economic Community as maintaining high levels of
quality in products and service and their products are granted the CE mark which
permits their importation into and sale within the European Economic Community.
The renewal of ISO certification occurs annually via an on-site inspection by an
authority of the European Economic Community. The Company retained ISO
certification after the 1996 audit and has applied CE marks to many key
products.
The Company utilizes comprehensive, integrated systems for
manufacturing, planning, scheduling, in-process testing, inspection and
measuring of all implants and components. The Company's current facilities have
sufficient capacity to meet its projected, near-term growth of its orthopaedic
implant and instrument business.
Government Regulations
The Company and substantially all of its products are subject to the
provisions of the Federal Food, Drug and Cosmetic Act of 1976, as amended by
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the Medical Device Amendments of 1976 and the Safe Medical Device Act of 1990,
as amended in 1992 (the "Safe Medical Device Act"). The Company also is subject
to various foreign laws governing medical devices. All of these regulations are
designed to ensure the safety and effectiveness of medical devices. In addition,
certain of these regulations require the Company to maintain certain standards
and procedures with respect to the manufacturing and labeling of products. All
of the Company's records and manufacturing facilities are subject to inspection
on a regular basis by the FDA. The Company's facilities were inspected by the
FDA in early 1997. The different levels of FDA compliance include: Official
Action Indicated (OAI), Voluntary Action Indicated (VAI), and No Action
Indicated (NAI). Companies that receive an OAI may have official action taken
against them including product approval delays, products taken off the market,
seizing of their products, heavy fines or imprisonment. Companies that receive
VAI have voluntarily agreed to correct any problems the FDA has found. The
Company fit into the NAI category which means that the FDA inspectors had
confidence that the Company is manufacturing its products within GMP guidelines
and saw complete regulatory compliance within the Company.
The FDA classifies medical devices as Class I, II or III. Class I
devices generally do not require pre-marketing approval. In general, Class II
and III devices require pre-market FDA approval unless they are found to be
"substantially equivalent" to products already in the market. For "substantially
equivalent" products, the provisions of Section 510(k) of the Federal Food, Drug
and Cosmetic Act provide for an exemption to the pre- market approval process.
The Company's orthopaedic implants are generally Class II devices. All of the
Company's Class II devices being marketed are cleared for marketing under the
provisions of Section 510(k). The Company currently manufactures no approved
Class III devices, which require more extensive FDA approvals. However, as the
Company designs and develops more novel medical devices, the Company may have
difficulty in establishing that such device is "substantially equivalent" to
another legally marketed device and thereby may be unable to obtain 510(k)
clearance to market a new product. The Company intends to pursue the manufacture
of Class III devices, which would require extensive FDA pre-market approval
before commercial distribution. There can be no assurance that the Company would
be successful in obtaining regulatory approval of such Class III devices.
At any given time, the Company has a number of medical devices that are
in various stages of development, and therefore, subject to FDA clearance
procedures that may cause delays in the commercialization of these devices. Any
future devices developed by the Company are likely to be subject to FDA
registration, notification, pre-market approval, performance standards or other
FDA controls that could have an adverse effect on the commercialization of such
products. Additionally, any changes in FDA or foreign medical device laws could
impose new regulatory burdens on medical device sales.
During 1996 the Company received 510(k) clearance on 14 new products.
In addition, the Company received regulatory approval (SHONINS) in Japan to
distribute key products. The Company also enhanced its quality control process
by establishing a pre-production quality assurance program. The Company
converted to the new GMP standards and to the new Medical Device Reposring
regulations. No product recalls were experienced during 1996.
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The Safe Medical Device Act grants the FDA the authority to require
manufacturers to conduct post-market surveillance on most permanent implants and
devices that potentially present a serious risk to human health. The FDA is also
given the authority to require manufacturers of certain devices to adopt device
tracking methods to enable patients to receive required notices pertaining to
the devices they receive. Such tracking requirements may increase the Company's
administrative procedures relating to the sale of many of the Company's implants
should the FDA require post-market surveillance of the Company's products.
Despite the fact that the FDA has not yet promulgated all of the regulations
needed to fully implement the Safe Medical Device Act, the Company does not
believe compliance with that act will have a material adverse affect on the
Company or its operations.
Research and Product Development
The Company's research and development activities and capabilities are
located primarily in Arlington, Tennessee. There is a small development activity
for arthroscopy products at Questus Technologies, Inc. in Marblehead,
Massachusetts and a small development activity for the medical grade calcium
sulfate products in Libertyville, Illinois. Both are in leased space. Over 78
employees are active in the areas of Applied Research, Biomechanical
Engineering, Materials Testing and Analysis, Advanced Manufacturing Technology,
Implants and Instrument Development Techniques, Research, Product Development
and New Technology Exploration. The Company's applied technology group maintains
laboratories capable of performing materials characterization, product testing
and evaluation in simulated clinical use environments, including fatigue
testing, wear testing and materials analysis.
In addition to classic laboratory testing and evaluation of new
products and technologies, the Company conducts pre-clinical studies at a number
of university and medical center locations, as well as clinical research to
evaluate the success and outcome of new products and technologies. The Company
maintains consulting relationships with over 40 individuals and has active
testing or evaluation programs at 10 research institutions.
The Company believes that custom implants built to prescription from a
surgeon, serve as a specific treatment for a patient, but also help to explore
new and innovative products for general use. For example, initially designed as
a custom implant for limb salvage, the Company's S.O.S.(R) (Segmented
Orthopaedic System) now has wide spread application for oncology patients and
severe revision cases. During 1996 the Company shipped approximately 250
individual patient devices, with an average time of manufacture of less than 20
days. In addition to custom implants, the Company provided surgeons with many
options for custom instrumentation to facilitate their surgical techniques.
In 1996 the Company created a biological products development group
within its research and development area to focus on biological products.
Major products that the Company believes will be introduced in 1997
are:
The MAGELLAN(TM) Femoral Nail which has both an innovative product
<PAGE> 184
design, including proximal modularity, and a breakthrough targeting
device for the distal interlocking screws that does not require an
x-ray or C-arm fluoroscope procedure. Tibial and Humeral nails for the
system are expected to be launched late in 1997.
The Orthomatrix(TM) External Fixator for the distal radius and
hand area, with a fracture alignment table to facilitate reduction of
the fractures and assist in alignment of the bones.
A tri-modular shoulder that will allow broader based
indications in trauma and revision shoulders and greater flexibility
for the surgeon to match the implant to the patients needs.
The TRANSCEND(TM) Hip System incorporating alternative bearing
surfaces in the total hip area including metal-on-metal and ceramic-on-
ceramic combinations. An IDE study on ceramic-on-ceramic is anticipated
to commence in 1997. Clinical study of the metal-on-metal total hip
product is also expected.
The CONSERVE(R) Hip System for resurfacing the femoral head of
patients thereby delaying the time when a total hip arthroplasty is
required.
A new PCL Sparing ADVANCE(TM) Knee, a Medial Pivot ADVANCE(TM)
Knee and the development for evaluation of a Mobile Bearing Knee.
An Anterior Cervical Plate System and the Intervertebral Spacer.
The Actalon(R) Probe soft tissue measuring device.
Osteoset T(R) bone void filler pre-mixed with tobramycin.
The Company's commitment to research and development is evidenced by
the expenditures it makes each year. Research and development expenses were
approximately $15.1 million in 1994, approximately $12.7 million in 1995, and
approximately $13.2 million in 1996, which the Company believes represents a
commitment which is significantly higher as a percentage of sales than all of
its major competitors.
Principal Customers
The Company currently markets its products to health care professionals
and hospitals in the United States and in many major countries outside of the
United States. Key customers include orthopaedic surgeons specializing in total
joint replacement, sports medicine, spinal surgery and traumatology. The Company
has approximately 4,800 active hospital and physician customers, with no single
customer representing more than two and one-half percent of the Company's
consolidated sales. The Company currently does not conduct any business directly
with foreign governments, with such sales being made through the Company's
established distribution network of independent contractors.
<PAGE> 185
Raw Materials
The majority of the Company's raw material purchases are comprised of
four principal materials that are generally available, in implant grade, from a
variety of sources with various lead times. Cobalt chrome is purchased in ingot
form and cast into implants and trials. Titanium, both commercially pure and
alloy grade, is purchased in bar stock form and machined into implants and
instruments. Ultra high molecular weight polyethylene, also purchased in bar
stock form, is machined into implants for weight bearing and articulating
surfaces. Stainless Steel 17-4 precipitation hardened is purchased in both ingot
and bar form and is cast or machined into instruments, and stainless steel
22-13-5, 22-13-10, and 316L is purchased in wrought bar form that is machined
into implants. In addition, the Company's small joint implants require silicone
that is purchased as processed extruded elastomer blocks.
The Company has not experienced a shortage of raw materials and does
not anticipate a shortage in the future. In light of certain business'
increasing reluctance to offer raw materials intended for medical devices
because of product liability concerns, there can be no assurance of continued
supply or that finding an alternative source would not cause a delay in the
Company's manufacturing process.
Environmental
The Company believes it is operating in material compliance with
applicable regulations required by the State of Tennessee and the EPA. The
Company's objective is to operate in a clean and safe environment, minimize the
generation of hazardous and non-hazardous waste and promote environmentally
sound recycling, reuse and reclamation of waste. As part of the Company's
recognition of resource protection, its level of recycling has been increased.
The Company does not expect to incur a material amount of capital expenditures
in order to maintain its environmental compliance. Furthermore, the Company
believes that compliance with these regulations will not materially impact
either the Company's earnings or competitive position.
Insurance
The Company maintains comprehensive and general liability insurance,
including product liability, with coverage up to $100,000,000 in the aggregate.
The Company maintains a $250,000 per incident and $750,000 aggregate self
insured retention. Although the Company has not experienced any significant
claims to date, there can be no assurance that the Company's insurance will be
adequate to cover any claims that may be asserted in the future. Although Dow
Corning Corporation has contractually agreed to indemnify the Company for all
products manufactured by Dow Corning prior to the Acquisition (other than
certain small joint implants purchased by the Company and sold after the
Acquisition), there can be no guarantee that such indemnity will continue in
light of Dow Corning's bankruptcy filing; the Company does not maintain
insurance for those claims.
The Company also maintains liability insurance covering directors and
officers with coverage up to $5,000,000. There is no deductible per officer or
director per event and a $100,000 deductible for the Company per event.
<PAGE> 186
The Company also carries insurance coverage for all real and personal property
including business interruption, and coverage for workers' compensation, crime
and fiduciary liability in amounts that management believes to be adequate.
Patents and Trademarks
As of March 10, 1997, the Company owned or held licenses for 151 issued
patents and had applications pending in the United States and major countries
throughout the world for eight additional inventions. The Company has purchased,
licensed or has distribution rights for the design, manufacture and distribution
of certain products. See "Business--Principal Products." The Company currently
has 29 registered trademarks and applications pending on 18 other marks in the
United States and major countries throughout the world. The Company uses its
patents and trademarks throughout the world in connection with its business
operations. As necessary, the Company vigorously protects its patents and
trademarks both domestically and internationally.
Royalty and Other Payments
The Company has various agreements with unaffiliated entities and
persons that provide the Company with certain rights to manufacture and market
certain orthopaedic products developed independently by such entities or persons
or jointly with the Company. The agreements provide for royalty payments ranging
from less than 1% to 10% of the net selling price (as defined in such
agreements) of those certain orthopaedic products. In addition, the Company has
a number of consulting agreements pursuant to which distinguished surgeons
evaluate the Company's new and existing products in exchange for a consulting
fee.
Seasonality
The Company's revenues are subject to some seasonality. Since the
majority of implant surgery is elective, the warm weather months traditionally
yield lower sales volumes than do the late fall and winter months.
Employees
As of March 10, 1997, the Company had 609 full-time employees,
including 571 at its Arlington operations, 8 in regional operations and 30
outside the United States. The Company's employees are not covered by any
collective bargaining agreements. The Company believes that its relationship
with its employees is good.
ITEM 2. PROPERTIES.
The Company's headquarters and manufacturing operations are located in
leased facilities in Arlington, Tennessee, which is located near Memphis. The
Company's facilities consist of an aggregate of approximately 168,000 square
feet, approximately 53,000 of which are utilized for manufacturing
<PAGE> 187
and approximately 45,000 of which are utilized as a distribution center with the
balance being utilized for office space.
The acquisition and construction by the lessor of the Company's
manufacturing facilities were financed through the issuance by the lessor of
industrial development bonds, which have been paid in full. The base rent
payable under the lease for the initial term was the amount required to meet the
debt service requirements of the bonds. Accordingly, no further base rent is
payable during the initial term of the lease. The initial term of the lease
expires in 1999. The Company has the option to renew the lease for five
additional ten year terms at a base rental of $6,000 per year. In addition, the
Company has the option to purchase the facilities at a price of $100 at any time
prior to the expiration of the lease in 1999.
The lease for the Company's office facilities provides for the payment
of annual rent of $5,000, plus the lessor's expenses. The term of the lease
expires in 2005. The Company has the option to purchase the facilities at a
price of $101,000 at any time prior to the expiration of the lease in 2005.
The acquisition and construction by the lessor of the Company's
distribution center was also financed through the issuance by the lessor of
industrial development bonds, which have also been paid in full. The base rental
under the lease was the amount required to meet the debt service requirements on
the bond. Accordingly, no further base rent is payable during the term of the
lease. The term of the lease expired on the original maturity date of the bonds.
The Company has the option to purchase the facilities at a price of $1,000 at
any time. The Company added 5,000 square feet as an extension to the original
distribution center structure during 1995.
The Company leases approximately 4,000 square feet in Marblehead,
Massachusetts for its Questus facility that provides for monthly rent of
$10,860. The initial term of the lease expires in October 1997 and the Company
expects to be able to renew said lease on favorable terms. The facility is used
for research and development and office space.
ITEM 3. LEGAL PROCEEDINGS
DCW, pursuant to the Acquisition agreements, retains liability for
matters arising from certain conduct of DCW prior to the Company's acquisition
on June 30, 1993, of substantially all the assets of the large joint orthopaedic
implant business of DCW. As such, DCW has agreed to indemnify the Company
against all liability for all products manufactured prior to the Acquisition
except for products provided under the Company's 1993 agreement with DCW
pursuant to which the Company purchased certain small joint orthopaedic implants
for worldwide distribution. However, the Company was notified in May 1995 that
DCW, which filed for reorganization under Chapter 11 of the U.S. Bankruptcy
Code, would no longer defend the Company in such matters until it received
further direction from the bankruptcy court. On December 2, 1996 DCW filed a
proposed plan of reorganization that provides that all commercial creditors will
be paid 100% of their claims, plus interest. The plan did not however indicate
whether DCW would affirm or reject the Acquisition agreements. Accordingly,
there
<PAGE> 188
can be no assurance that Dow Corning will indemnify the Company on any claims in
the future. Although the Company does not maintain insurance for claims arising
on products sold by DCW, management does not believe the outcome of any of these
matters will have a material adverse effect on the Company's financial position
or results of operations.
On October 25, 1996, the Company was notified that it had been sued by
Mitek Surgical Products, Inc., a subsidiary of Johnson & Johnson, in the United
States District Court for the Northern District of California seeking damages
for the alleged infringement of its patent by the Company's ANCHORLOK(TM) soft
tissue anchor. The Company has denied the allegations and is defending the
action.
On April 3, 1995, the Company (and Orthomet, Inc., a wholly owned
subsidiary at the time that has subsequently been merged with and into the
Company) was notified that it had been sued by Joint Medical Products
Corporation (which was purchased by Johnson & Johnson Professional, Inc.), in
the United States District Court for the District of Connecticut seeking damages
for the alleged infringement of its patent (U.S. Pat. No. 4,678,472, the "'472
Patent") by certain of the Company's acetabular cups and liners. Pending the
resolution of an interference proceeding in the U.S. Patent and Trademark Office
regarding the '472 Patent by British Technology Group Ltd. ("BTG"), such
complaint was dismissed without prejudice. In early November 1996, the Company
was notified that the interference proceeding was resolved, and that, the
complaint has been refiled (but not served). BTG has offered the Company a
license of the '472 Patent and a corresponding reissue patent. The Company
believes that it has valid defenses to claims of infringement of the '472 Patent
and to the reissue patent.
The Company is not involved in any other pending litigation of a
material nature that would have a material adverse effect on the Company's
financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS.
NONE
<PAGE> 189
PART II.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
The Company's Class A Common Stock currently is not publicly traded,
and, as such, market value quotations are unavailable. There were 400 registered
holders of Class A Common Stock as of March 19, 1997. The Company has never paid
dividends on its Class A Common Stock and does not expect to pay any cash
dividends in the foreseeable future. The Company currently intends to retain its
earnings, if any, for future operations and expansion of its business. Any
decisions as to the payments of dividends in the future will depend on the
earnings and financial position of the Company and such other factors as the
Board of Directors deems relevant. In addition, the Company's indenture with
State Street Bank and Trust Company, as successor to First National Bank of
Boston, on providing for the issuance of the Company's 10 3/4% Series B Senior
Secured Notes, due July 2000 (the "Indenture"), the Company's Restated
Certificate of Incorporation, the Company's Series B Preferred Stock Purchase
Agreement and Class A Common Stock Warrant Agreement dated as of July 29, 1994
with the California Public Employees Retirement System ("CalPERS"), as amended,
and the Class A Common Stock Warrant Agreement dated as of September 25, 1995
with CalPERS (collectively, the "CalPERS Agreement") and its Credit Agreement
dated September 13, 1996, by and between the Company and Sanwa Business Credit
Corporation (the "Credit Agreement"), substantially limit the payment of cash
dividends on the Company's capital stock.
<PAGE> 190
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected financial data of DCW medical device business
(the "Predecessor") and the Company and its subsidiaries (the "Successor")
should be read in conjunction with the financial statements and the notes
thereto included in Item 8.
(in thousands, except per share data and ratio)
<CAPTION>
Predecessor Successor
Year JAN 1, JUN 30, Year Year Year
Ended through through Ended Ended Ended
DEC 31, JUN 30, DEC 31, DEC 31, DEC 31, DEC 31,
1992 1993 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C>
Operating Data:
Net sales $71,598 $35,033 $ 43,027 $ 95,763 $123,196 $121,868
Net income (loss) 5,101 437 (2,572) (49,380) (6,492) (14,589)
Loss per common share -- -- (.41) (6.10) (2.24) (3.90)
Balance Sheet Data:
Total assets $71,747 $72,691 $113,497 $154,551 $174,371 $166,326
Long term debt 243 108 84,605 84,983 84,462 84,668
Mandatorily redeemable
Series B Preferred -- -- -- 47,658 46,757 59,959
Redeemable Convertible
Series C Preferred -- -- -- -- 20,548 24,995
Parent company
investment 64,543 68,029 -- -- --
Stockholders' equity -- -- 11,602 (25,502) (25,177) (58,506)
Ratio of earnings to
fixed charges and
preferred dividends -- -- (A) (A) (A) (A)
(A) Earnings were inadequate to cover fixed charges, preferred dividends
and accretion of preferred stock by approximately $3.6 million, $61.7
million, $26.3 million, and $35.3 million, respectively, for the period
from June 30, 1993 through December 31, 1993 and for the years ended
December 31, 1994, December 31, 1995, and December 31, 1996.
</TABLE>
<PAGE> 191
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Although sales declined slightly, 1996 was a year of promising
successes as the Company continued to introduce and develop new and innovative
products, upgrade its domestic distribution, improve its international
distribution, reduce administrative expenses, hold inventories steady despite
large inventory builds for new products, and generate cash from operations in
the last five months of the year.
The Company's largest disappointment was that the expected growth in
sales failed to materialize and the sales ended the year down $1.3 million or
(1.1%) to $121.9 million. International sales were up 8.6% while domestic sales
were down 3.9%. The Company believes that this overall decline led by the U.S.
market was not inconsistent with the orthopaedic device industry in general, and
the large joint business (the sales of knee and hip prostheses) in particular.
Throughout the industry, pricing pressures from buying groups reduced unit
prices despite continued increases in unit sales growth. In addition, the trends
created by managed care initiatives, which demand lower priced implants that are
affixed with cement rather than higher priced porous coated implants, further
reduced average unit pricing. The Company suffered particularly from this trend
because the more expensive porous coated implants historically have comprised a
high proportion of its knee implant sales (76% in 1994, 70% in 1995 and 64% in
1996). Demonstrating these overall trends, the sales of the Company's knee
prostheses were down $2.0 million from the prior year despite a 2.7% increase in
unit sales.
The Company was encouraged however by its quarter to quarter sales
trends as the sales declines were experienced in the first half of the year
while third and fourth quarter sales increased over the prior year's periods. In
addition, since September, 1995 through the third quarter of 1996, the Company
added or replaced 10 of its 47 domestic distributors. While a change in
distributors often results in a short term loss of business, the Company
believes that upgrading to new distributors will positively affect the Company's
sales in the longer term. Finally, the Company believes that the changes to both
the tenor and substance of its relationship with its domestic distributors will
also positively affect sales in the longer term.
The Company was pleased with its new product development as it
continues to seek penetration into segments of the orthopaedic marketplace that
are not yet governed by the pricing and managed care pressures experienced in
the large joint markets. The Company's sales of spinal, trauma, arthroscopy and
biologics products were $3.7 million, a growth of approximately 300% over prior
year. Late in the third quarter of 1996, the Company received regulatory
approval for, and began marketing its OSTEOSET(TM) Bone Void Filler. The product
is the Company's first commercial product from its biologics development
program, and is the industry's first FDA cleared bioresorbable bone void filler.
Other products launched in 1996 included the VERSALOCK(TM) Spinal Fixation
System for lumbar spine fusions, and a posterior stabilizing version ADVANCE(TM)
Knee System, developed in cooperation with the renowned Hospital for Special
Surgery in New York City. The Company expects to generate significant sales from
these three products
<PAGE> 192
in 1997. The Company also expects to introduce in 1997 additional products in
its OSTEOSET and ADVANCE product lines, the MAGELLAN(TM) Intramedullary Nail to
address complex femoral fractures, and a novel plating system for the cervical
spine to compliment its spinal device product line.
International sales were also encouraging, increasing $2.4 million to
$30.4 million. This gain comes despite a slight decrease in sales to Japan, the
Company's largest international market. In 1996, the Company consolidated its
Japanese distribution with a single distributor, Century Medical, Inc., and
expects sales to that market to increase significantly in 1997. International
sales excluding Japan were up 13.3% over prior year as the Company continues to
devote significant resources and personnel in an effort to penetrate those
markets faster. The Company also added distributors in Italy and Korea in 1996.
RESULTS OF OPERATIONS
Year Ended December 31, 1996 Compared With Year Ended December 31, 1995
Sales. In 1996, the Company posted sales of $121.9 million representing
a net sales decrease of approximately 1.1%, or $1.3 million, compared to its
1995 sales of $123.2 million. Although sales were lower than prior year, the
trend of the Company's sales quarter-by-quarter during 1996 compared to 1995
reflects an encouraging trend. Sales in 1996 were approximately 7.2% below prior
year in the first quarter, approximately 0.3% below prior year in the second
quarter, approximately 0.4% above prior year in the third quarter, and
approximately 3.7% above prior year in the fourth quarter.
Domestic sales for the year were $3.7 million or approximately 3.9%
below 1995 while the Company's international sales grew by approximately 8.6% or
$2.4 million over prior year. Sales in Europe, Latin America, Canada, and Asia
grew by $1.6 million (approximately 13.0%),$1.0 million (approximately 56.3%),
$0.5 million (approximately 17.2%), and $0.2 million (approximately 10.1%)
respectively, offset primarily by lower than prior years' sales in Japan which
were due to prolonged transition in the change of distribution channels that was
initiated by the Company in order to better serve this market over the long
term.
Although total sales for 1996 decreased as compared to 1995, new
product line sales increased compared to prior year sales for the period in
ADVANCE(TM) Knee ($2.6 million), trauma ($0.7) million), spine ($0.5 million),
arthroscopy products ($1.0 million) and biologics ($0.3 million). Those gains
were offset by decreased sales for the period in knees, other than ADVANCE(TM)
($4.7 million), hips ($0.9 million), and small joint products ($0.9 million).
Despite the decrease in sales dollars during 1996, unit sales of the Company's
large joint products increased during 1996 when compared to 1995. In large
joints, particularly hips and knees, the Company (and management believes the
entire orthopaedic industry) experienced a shift from higher priced porous
coated products to lower priced cemented products. While selling prices
increased slightly in both cemented and porous products, the mix of sales
towards cemented designs resulted in a lower average selling price per
procedure.
<PAGE> 193
Cost of Goods Sold. Cost of goods sold increased from $33.7 million in
1995 to $44.4 million in 1996, or approximately 32%. The $10.7 million net
increase is due to additional instrument reserving ($3.6 million) because of the
reclassification of surgical instruments to inventory as part of the Company's
revised instrument program designed to give the Company's independent
distributors better access to these instruments, increased variances charged to
cost of goods sold ($2.8 million), a reduction of the sales return reserve ($0.8
million), a higher level of sales of fully reserved products in 1995 resulting
in the reversal of inventory reserves during that year ($1.1 million),
additional product reserving in 1996 ($0.4 million) and increased manufacturing
costs ($1.8 million).
Selling. Selling expenses increased slightly in 1996 by $0.3 million
when compared to 1995. Although sales in 1996 were lower than 1995, commission
expenses, primarily guarantees, increased by $0.7 million in 1996 to $21.7
million. Royalties increased in 1996 to $2.0 million compared to 1995 royalties
of $1.4 million due largely to an increase on royalties being paid on the
Company's small joint orthopaedic products. Domestic marketing expenses
decreased in 1996 ($0.2 million) due primarily to lower literature, supplies
and advertising ($0.6 million) because of fewer new product launches in 1996
and lower travel and entertainment expense ($0.7 million) offset by increased
payments ($0.6 million) due to distributor replacements and territory
realignments and increased salaries and benefits ($0.8 million) due to
critical headcount adds. International marketing expenses decreased by $1.7
million in 1996 when compared to the same period in 1995. The reduced spending
in 1996 resulted primarily from shutdowns in Brazil ($0.5 million) and Australia
($0.2 million) along with lower salaries and benefits in France due to the
transition to a non-employee sales force ($0.5 million), and decreases in the
headquarters' expenses in salaries, benefits, and travel ($0.3 million) which
contributed to this favorable variance year over year.
The Managed Care division of the Company spent $1.3 million in 1996
which was $1.0 million more than was spent in 1995. This spending was
non-recurring as this division was closed in December, 1996.
General and Administrative. General and administrative costs decreased
from $23.4 million in 1995 to $19.4 million in 1996, or a decrease of $4.0
million (approximately 17%). This decrease was attributable in large part to
lower intangible amortization ($1.2 million), reduced travel and entertainment
expenses due to the sale of the corporate jet and reduced overall travel ($2.1
million), lower insurance costs ($0.4 million), decreased legal fees ($0.4
million) and lower outside services ($0.4 million) offset by higher salaries and
benefits due to payment of the 1996 management bonus ($1.0 million).
Additionally lower professional fees in 1996 ($0.2 million) and international
favorable variances for the period due to lower spending in France ($0.2
million) contributed to the favorable year-over-year variance.
Research & Development. Research and development expenses increased
$0.5 million from $12.7 million in 1995 to $13.2 million in 1996, or an increase
of approximately 4.0%. This increase reflects management's continuing belief
that these strategic expenditures are necessary to
<PAGE> 194
continue the flow of new and diverse products from the Company into the
marketplace.
Other. Equity in loss of investment ($0.5 million) represents the
Company's 50% share of the expenses incurred related to the joint venture with
Tissue Engineering, Inc. discussed further in Note 2 to the Consolidated
Financial Statements. Amortization of a certain license arrangement obtained
from Tissue Engineering, Inc. ($0.3 million) was the primary contributor to the
joint venture loss.
Other income for the year ended December 31, 1996 increased $0.3
million as compared to the same period in 1995 due primarily to favorable
currency conversion. Interest expense, net of interest income, increased from
$11.3 million in 1995 to $11.9 million in 1996, an increase of $0.6 million, or
approximately 5%. This increase in interest expense was primarily due to
financing costs associated with the private placement of the Company's Series C
Preferred Stock late in 1995.
For the year ended December 31, 1996 earnings before interest, taxes,
depreciation, and amortization ("EBITDA") is detailed in the table below. EBITDA
totals both before and after certain adjustments are shown:
December
31, 1996
---------------
Operating Income $(3,055)
Depreciation and Instrument Amortization 11,272
Amortization of Intangibles 3,266
Amortization of Other Assets 266
---------------
EBITDA before Certain Adjustments $11,749
Inventory Reserves and other Related
Inventory Adjustments 4,852
Orthomet Inventory Step-Up* 992
---------------
EBITDA after Certain Adjustments $17,593
===============
* Amount represents the flow through of the purchase
accounting adjustment in 1996 as it related to
acquired Orthomet inventory.
Year Ended December 31, 1995 Compared With Year Ended December 31, 1994
Sales. In 1995, the Company posted sales of $123.2 million representing
a net sales increase of approximately 28.6%, or $27.4 million, over its 1994
sales of $95.8 million. Of this growth, $25.8 million came from the Orthomet
product lines, either acquired or expanded by the Company over the course of the
year.
<PAGE> 195
Domestic sales increased $22.6 million, while international sales grew
$4.8 million. The Company experienced declines in the sales of its products in
Australia, Japan, and Asia as each of these regions experienced prolonged
transition in the change of distribution channels that were initiated by the
Company in order to better serve those markets over the long term. Outside of
those regions, the Company's international sales were up greatly.
The total sales increase of $27.4 million can be attributed to
increases in hip products of $13.7 million, knee products of $12.1 million,
shoulder products of $1.0 million, and the new trauma, spine, and arthroscopy
products of $1.2 million. Those gains were slightly offset by non-recurring 1994
sales of discontinued DCW products. While management believes that unit sales of
its large joint products have increased (using estimates for the full-year 1994
Orthomet performance), a clear shift to lower priced cemented products was
experienced in both its hip and knee business. While selling prices increased in
both cemented and porous coated products, the mix of sales towards cemented
designs resulted in a lower average selling price per procedure when compared
to prior year.
Cost of Sales. Cost of sales decreased from $43.6 million in 1994 to
$33.7 million in 1995, or approximately 22.7%. The $9.9 million net decrease is
a net result of a $7.8 million increase due to volume increases, 1994 inventory
reserve adjustments which increased 1994 Cost of Sales by $12.1 million which
did not occur in 1995, a $3.4 million decrease principally related to the 1995
sale of previously reserved inventory as well as $2.2 million of other
decreases. In 1994, reserves were established for certain products that the
Company did not expect to remain viable in 1995, because of the acquisition of
the Orthomet products and the decision to cease gamma radiation of implants in
favor of ethylene oxide gas technology. However, some of these products have
continued to be sold in 1995 resulting in the reversal of previously established
inventory reserves and thus favorable reserve adjustments.
Selling. Selling expenses increased $13.9 million from $33.2 million in
1994 to $47.1 million in 1995, or approximately 41.7%. Selling expense increases
associated with 1995 sales volume increases were estimated at $5.3 million, with
the Company spending approximately an additional $1.0 million in selling
expenses related to Orthomet-to-Wright transition costs and sales force
consolidation costs. In addition to these volume-driven or
transition/consolidation costs, selling expenses also increased domestically by
approximately $3.1 million due to staffing and other increases related to the
Company's initiatives into the new markets of trauma, spine, and arthroscopy.
International selling expense increased $2.7 million (excluding $0.6 million of
instrument amortization) led by increases at headquarters and in Europe as the
Company began to invest in infrastructure additions to service European markets
outside of France. Selling expenses are expected to decrease dramatically in
Australia in 1996, where early in the fourth quarter the Company began
distributing its products through a single third party distributor (Device
Technologies, Australia) and subsequently closed its sales office, and in Brazil
where the Company plans to similarly transition its distribution. Operating
expense savings from these actions will be realized in 1996. Also, global
instrument amortization expenses increased year-over-year by $1.8 million ($1.2
million domestic and $0.6 million international).
<PAGE> 196
General and Administrative. General and administrative costs increased
from $23.3 million in 1994 to $23.4 million in 1995, or an increase of
approximately 0.4%. Increases in 1995 occurred primarily in amortization of
intangibles (largely assets acquired from Orthomet) of $2.3 million, $0.5
million of Orthomet-to-Wright transition costs, and depreciation expense of $0.6
million. These were offset by non-recurring 1994 product liability costs ($0.7
million), no management bonus expense in 1995 (savings of $1.5 million)and
savings from 1995 downsizing moves in Australia and Brazil ($0.9 million).
Research & Development. Research and development expenses (exclusive of
1994 non-recurring adjustments of $7.1 million described below) increased $4.7
million from $8.0 million in 1994 to $12.7 million in 1995, or an increase of
approximately 59.4% reflecting managements view of these expenses as strategic
investments necessary to continue the flow of new and diverse ideas and products
into the Company. This increase was primarily due to an increased number of
development consulting agreements initiated by the Company with a number of
distinguished orthopaedic surgeons and scientists to develop a new generation of
knee and hip prostheses, spinal systems, upper extremity prostheses, and
arthroscopy products.
In 1994, the acquisitions of Orthomet and Questus resulted in a
one-time write off of $27.7 million for in-process research and development. The
in-process research and development was written off immediately following the
1994 acquisition because, in the opinion of management, the technological
feasibility of the in-process technology had not yet been established and the
technology had no alternative future use. Of the research and development
projects underway at Orthomet at the point of acquisition, two have been
completed and work on three continues, which management expects to become
commercially viable over the course of the next three years. Five additional
acquired projects or technologies either have been divested, canceled, or merged
into similar technology efforts underway at the Company.
An additional $7.1 million of contractually obligated costs associated
with product development efforts and contracts with ABI, U.S. Gypsum, and
OsteoBiologics were also recognized in research and development expense in 1994.
These costs did not recur in 1995.
Other. Non-operating expenses decreased $1.0 million from $0.9 million
in 1994 to $0.1 million (income) in 1995 due primarily to the write off in 1994
of certain non-operating receivables. Interest expense, net of interest income,
increased from $9.2 million in 1994 to $11.3 million in 1995, an increase of
$2.1 million, or approximately 23%. This increase in interest expense was due
primarily to interest charges associated with the Company's increased
utilization of its revolving line of credit as well as amortization of deferred
financing costs associated with the private placement of the Company's Series C
Preferred Stock.
LIQUIDITY AND CAPITAL RESOURCES
Since the Acquisition, the Company's growth strategy has been to
position itself for the future through new product development and the
acquisition of new technologies through license agreements, joint ventures
<PAGE> 197
and purchases of other companies in the orthopaedic field (see Note 2 to the
Financial Statements). The Company's needs for capital have been funded through
the sale of $85 million of senior debt securities and the contribution of
approximately $15 million of equity at the time of the Acquisition. Further, the
Company has obtained additional capital through the issuance of Series B
Preferred Stock in July 1994 to CalPERS ($60 million), through the issuance of
Series C Preferred Stock to Princes Gate Investors, L.P. and affiliates, in
September 1995 ($35 million) (see Note 8 to the Financial Statements), and
through the use of revolving lines of credit (see Note 7 to the Financial
Statements).
The Company had available to it a $30 million revolving line of credit
under the Heller Agreement that expired in September, 1996. The Company's
projected cash flow requirements for 1996 due to continued growth and
development of new products, indicated that a similar revolving credit agreement
was needed to fund the working capital needs of the Company going forward.
Management negotiated with several financial institutions and on September 13,
1996 finalized and closed an agreement for a loan and security agreement with
Sanwa Business Credit Corporation for a $25 million revolving line of credit
(which can increase to $30 million with the occurrence of certain events) that
expires in September, 1999. As of December 31, 1996 this agreement provided an
eligible borrowing base of $19.4 million. As of March 17, 1997 this agreement
provided an eligible borrowing base of $21.5 million and the Company had drawn
$16.3 million under this agreement. During 1996 borrowings under the Heller and
Sanwa Agreements averaged $12.5 million with a maximum amount borrowed of $16.1
million, as compared to 1995 when borrowing averaged $15.1 million and reached a
high of $29.0 million. The Company believes that the Sanwa Agreement will be
sufficient to meet its working capital needs for 1997.
The Company's capitalization includes senior debt securities of $84.4
million and Series A, B, and C of preferred stock with an aggregate liquidation
value of $140.6 million including accrued dividends of $18.0 million at December
31, 1996. These securities currently bear interest or dividend rates ranging
from 10.8% to 16.9% and, in certain circumstances, these rates can increase to
21.4%. As a result of the Company's obligations to establish a sinking fund for
its senior debt securities beginning in July, 1998 ($28.3 million) and its
obligation to issue additional warrants to acquire common stock in the event
that the Series C Preferred Stock is not redeemed or there has not otherwise
been a qualified initial public offering on or before March, 1999, management
believes that the Company will be required to effect a recapitalization plan to
satisfy these future obligations. In this regard, the Company has begun
discussions with a limited number of investment banks to discuss the various
alternatives available to the Company, including without limitation, refinancing
the Senior Secured Notes. Management believes that a successful plan of
recapitalization will be completed prior to the sinking fund payment becoming
due in July, 1998, however, there can be no assurance that such a refinancing or
recapitalization plan can be consummated.
At year end 1996, the Company had approximately $1.6 million in
outstanding capital commitments, and has budgeted approximately $4.3 million for
1997 expenditures for the purchase of machinery and related capital equipment.
<PAGE> 198
As of December 31, 1996 the Company had net working capital of $50.5
million, compared with $45.2 million as of December 31, 1995. Of this $5.3
million growth, $4.3 million was attributed to growth in inventory due primarily
to the reclass of surgical instruments to inventory from property, plant and
equipment, $3.6 million was due to the net change in deferred income taxes in
1996 and $1.7 million was due to decreases in accounts payable. Offsetting these
charges were increases to accrued expenses and other current liabilities ($0.9
million) primarily due to U.S. Gypsum (see Note 11 of Financial Statements) and
Orthopaedic Tissue Technology, L.L.C. obligations (see Note 2 of Financial
Statements) and increased short-term borrowings against the revolving line of
credit ($4.5 million).
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information called for by this item is set forth in the financial
statements contained in this report on Form 10-K and is incorporated herein by
this reference. An index to the financial statements is set forth on page 53 of
this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
<PAGE> 199
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Executive Officers and Directors
Directors of the Company are elected annually and hold office until the
next annual meeting of stockholders or until their successors are duly elected
and qualified. All officers of the Company are appointed by and serve at the
discretion of the Board of Directors of the Company. Election of directors is
governed in part by a Letter Agreement dated June 30, 1993, as amended on July
29, 1994 and as amended on November 21, 1995 between Mr. Korthoff and Kidd Kamm
Equity Partners, L.P. (the "Letter Agreement"). The following table sets forth
the executive officers and directors of the Company as of March 15, 1997.
NAME AGE POSITION WITH COMPANY
Richard D. Nikolaev 58 Director, President and
Chief Executive Officer
Lewis H. Ferguson, III 52 Director, Senior Vice President
and Secretary
George G. Griffin, CPA 49 Executive Vice President and
Chief Financial Officer
Jack E. Parr, Ph.D. 57 Executive Vice President,
Research and Development
Allen H. DeSatnick 56 President of Questus Division
Richard H. Mazza 50 Executive Vice President,
Operations
Herbert W. Korthoff 53 Chairman of the Board of
Directors
William J. Kidd 55 Director
Kurt L. Kamm 54 Director
Walter S. Henning 54 Director
Eric R. Hamburg 34 Director
Richard D. Nikolaev has been the President and Chief Executive Officer
of the Company since November 1995 and a Director of the Company since July,
1995. Prior to joining the Company, Mr. Nikolaev served as a consultant to
various medical device companies since December 1994. From January 1992 until
December 1994, Mr. Nikolaev was Chairman, President and Chief Executive Officer
of Orthomet, Inc., a NASDAQ company acquired by the Company in December 1994.
Prior to joining Orthomet, Inc., Mr. Nikolaev served as President of Orthopaedic
Synergy, an orthopaedic consulting company and as an executive officer of
various orthopaedic companies.
<PAGE> 200
Lewis H. Ferguson III has been a Director of the Company since August
1993. Mr. Ferguson became Senior Vice President in January 1994. Prior to
joining the Company, Mr. Ferguson had been a partner in the Washington, D.C.
law firm of Williams & Connolly since 1979. Mr. Ferguson is on an extended
leave of absence from Williams & Connolly. Mr. Ferguson is elected to serve
as a Director pursuant to the Letter Agreement. Mr. Ferguson is also a
director of OsteoBiologics, Inc., Orthopaedic Tissue Technology, LLC and
Tissue Engineering, Inc.
George G. Griffin, CPA has been Chief Financial Officer of the Company
since August 1993. He was elected Executive Vice President as of January 1994.
From 1979 until he joined the Company, Mr. Griffin was employed by Smith &
Nephew Richards Inc., a medical device manufacturer, and since January 1989 had
served as the Vice President of Finance of its orthopaedic business.
Jack E. Parr, Ph.D. was Vice President of Research and Development from
September 1993 until February 1994, when he was elected to Executive Vice
President of Research and Development. Prior to joining the Company and since
1980, Dr. Parr was employed by Zimmer, Inc., a medical device manufacturer where
he served as Vice President of Research from January 1991 through October 1993
and as Director of Advanced Technology from June 1980 to December 1990.
Allen H. DeSatnick has been President of Questus Division since October
1994. Prior to joining the Company and since 1989, Mr. DeSatnick was President
and part owner of Questus Technologies, Inc.
Richard H. Mazza was Vice President of Manufacturing from April 1994
until March 1996 when he was elected to Executive Vice President of Operations.
Prior to joining the Company, Mr. Mazza was employed by United States Surgical
Corporation as Senior Director of Operations.
Herbert W. Korthoff has been a Director of the Company since May, 1993,
serving as Chairman since July 1, 1993. Mr. Korthoff served as the Chief
Executive Officer of the Company from July 1993 to November 1995. Prior to
joining the Company, Mr. Korthoff was the Executive Vice President of
Operations, a member of the Executive Management Committee and a Director of
United States Surgical Corporation.
William J. Kidd has been a Director of the Company since July 1993. Mr.
Kidd has been an officer and principal shareholder of Kidd, Kamm & Company, a
privately owned investment firm (formerly a partnership), from 1987 when he
co-founded the firm until present. As of January 1, 1997, Mr. Kidd became an
officer, controlling shareholder and founder of Kidd & Company, LLC and is a
director of a number of other companies.
Kurt L. Kamm has been a Director of the Company since July 1993. Mr.
Kamm has been an officer and principal shareholder of Kidd, Kamm & Company, a
privately owned investment firm (formerly a partnership), from 1987 when he
co-founded the firm until present. As of January 1, 1997, Mr. Kamm became an
officer, director and co-founder of Kamm Theodore and is a director of a number
of other companies.
<PAGE> 201
Walter S. Hennig has been a Director of the Company since April 1994.
Mr. Hennig had been Vice President of Quality Functions at United States
Surgical Corporation since 1976 prior to his retirement in March 1992.
Eric R. Hamburg has been a Director of the Company since January 1996.
Mr. Hamburg was a partner with Kidd, Kamm & Company until late 1996.
Presently he is a principal shareholder of Industrial Renaissance. Prior to
joining Kidd, Kamm & Company, Mr. Hamburg was a Senior Manager with Andersen
Consulting from 1985 to 1993, where he led the design and implementation of
numerous business turnarounds and profit improvement initiatives across a
wide variety of industries. Mr. Hamburg is a director of a number of other
companies.
<PAGE> 202
<TABLE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to
compensation paid by the Company during the period from January 1, 1994 through
December 31, 1996, to the Company's Chief Executive Officer and to the four most
highly compensated executive officers whose compensation exceeded $100,000 in
1996 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term Compensation
-------------------------------
Annual Compensation Awards
-------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (g) (i)
Name and Other Annual Securities Underlying All Other
Principal Position Year Salary Bonus (1) Compensation Options (2) Compensation
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard D. Nikolaev 1994 $0 $0 $0 c. 20,000common $0
President and 1995 $51,754 (3) $0 $0 a. 110,000common $1,891 (4)
Chief Executive Officer 1996 $525,500 $0 $44,091 (5) $9,270 (6)
Lewis H. Ferguson, III 1994 $500,000 $0 $9,796 (7)(8) 0 $42,589 (9)
Senior Vice President 1995 $525,773 $0 $23,388 (10) 0 $7,936 (9)
1996 $525,498 $0 $65,681 (11) 0 $9,038 (12)
George G. Griffin, III, 1994 $165,000 $82,500 $3,064 (7)(8) 0 $16,123 (13)
Executive Vice President, 1995 $171,783 $0 $0 0 $8,489 (13)
Chief Financial Officer 1996 $176,200 $44,050 $0 (8) 0 $8,921 (14)
Jack E. Parr, Ph.D. 1994 $165,000 $82,500 - (8) b. 15,000common $63,293 (15)
Executive Vice President, 1,500preferred
Research and Development 1995 $171,783 $0 $0 $8,458 (15)
1996 $176,200 $44,050 $0 (8) 0 $10,122 (16)
Richard H. Mazza, 1994 $102,039 $45,917 $0 a. 25,000common $91,009 (17)
Executive Vice President, 1995 $150,700 $0 $0 a. 10,000common $21,057 (17)
Operations 1996 $173,317 $43,329 $0 (8) a. 30,000common $8,322 (17)
</TABLE>
<PAGE> 203
(1) Bonus payments for 1994 were calculated on 1994 performance, but paid
in the first quarter of 1995. Bonus payments for 1996 were calculated
on 1996 performance, but paid in the first quarter of 1997.
(2) Indicates the number of shares that may be purchased pursuant to
options granted. Options were granted under three separate plans and
are identified as "a" for options to purchase Class A Common Stock
granted pursuant to the 1993 Stock Option Plan; "b" for options to
purchase Class A Common Stock and Series A Preferred Stock granted
pursuant to the 1993 Special Stock Option Plan; "c" for options to
purchase Class A Common Stock granted pursuant to the 1994 Non-Employee
Stock Option Plan.
(3) Mr. Nikolaev joined the Company on November 28, 1995 as Chief Executive
Officer and President. His annualized salary in 1995 was $525,000.
(4) Represents $338 premium for group term life insurance and $1,553 of
401(k)employer matching contributions.
(5) Represents a housing stipend in the amount of $10,186, personal travel
expenses of $14,384, personal use of Company vehicle of $6,536, and
$12,985 to cover expected tax payments on all other annual
compensation.
(6) Represents $664 of club dues, $4,106 of group term life insurance, and
$4,500 of 401(k) employer matching contributions.
(7) Represents funds to cover expected tax payments on all other annual
compensation.
(8) Other perquisites and personal benefits were less than the lesser of
$50,000 or 10% of the total of annual salary and bonus.
(9) Includes $36,893 for relocation expenses, $2,376 for group term life
insurance and $3,320 of 401(k) employer matching contributions for
1994, and includes $844 for club dues, $2,592 for group term life
insurance and $4,500 of 401(k) employer matching contributions for
1995.
(10) Mr. Ferguson received a housing stipend of $23,388 in 1995.
(11) Includes a housing stipend of $18,000, personal travel expenses of
$16,202, personal use of Company vehicle of $12,000, and $19,479 to
cover expected tax payments on all other annual compensation.
(12) Includes $1,238 for club dues, $672 for vehicle expenses, $2,628 for
group term life insurance, and $4,500 for 401(k) employer matching
contributions.
(13) Includes $15,690 for relocation expenses and $433 for group term life
insurance in 1994. For 1995, includes $3,565 for club dues, $424 for
group term life insurance and $4,500 of 401(k) employer matching
contributions.
(14) Represents $3,982 of club dues, $439 of group term life insurance, and
$4,500 of 401(k) employer matching contributions.
(15) Includes $60,860 for relocation expenses, $1,121 for group term life
insurance and $1,312 of 401(k) employer matching contributions in 1994.
For 1995, includes $2,556 for club dues, $1,096 for group term life
insurance, $306 for travel and $4,500 of 401(k) employer matching
contributions.
<PAGE> 204
(16) Represents $4,486 of club dues, $1,136 of group term life insurance,
and $4,500 of 401(k) employer matching contributions.
(17) Represents relocation expenses of $89,666 and $1,097 of 401(k) employer
matching contributions in 1994 and $16,207 of relocation and $4,500 of
401(k) employer matching contributions in 1995. Also represents group
term life insurance of $246 in 1994 and $350 in 1995. For 1996,
represents $3,112 of club dues, $710 for group term life, and $4,500 of
401(k) employer matching contributions.
<PAGE> 205
<TABLE>
The following table sets forth certain information with respect to
stock options granted to the Named Executive Officers during 1996.
<CAPTION>
Option Grants in Last Fiscal Year
Potential Realizable Value
at Assumed Annual rates of
Stock Price Appreciation for
Option Term
Individual Grants
(a) (b) (c) (d) (e) (f) (g)
Number of % of Total
Securities Options Exercise
Underlying Granted to or Base
Options Employees in Price Expiration
Name Granted (#) Fiscal Year ($/Sh) Date 5% 10%
---- ----------- ----------- ------ ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Richard D. Nikolaev -0- N/A N/A N/A N/A N/A
Lewis H. Ferguson, III -0- N/A N/A N/A N/A N/A
George G. Griffin, III -0- N/A N/A N/A N/A N/A
Jack E. Parr, Ph.D. -0- N/A N/A N/A N/A N/A
Richard H. Mazza 30,000 25.34% 21.00 10/1/06 (1) 347,337 (2) 855,507 (2)
<FN>
(1) Options were granted under the Company's 1993 Stock Option Plan. Options under that Plan entitle holders to purchase shares
of Class A Common Stock and are conditional on employment. These options vest over a four-year period (in successive
yearly increments of 20%, 20%, 25% and 35% of the total grant) on the anniversary date of October 1, 1996, but can be
accelerated at the Board's discretion.
(2) Based upon the Company's internal risk adjusted valuation model, the options were granted to Mr. Mazza at the then current
market value of $21.00.
</FN>
</TABLE>
<PAGE> 206
<TABLE>
The following table sets forth certain information with respect to stock
options held at December 31, 1996 by the Named Executive Officers.
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
(a) (b) (c) (d) (e)
Value of Unexercised
In-the-Money(1)
Number of Securities Options at
Shares Underlying Unexercised FY-end ($)
Acquired Value Options at FY-end (#) Exercisable/
Name on Exercise Realized Exercisable/ Unexercisable(2) Unexercisable(3)
---- ----------- -------- ----------------------------- --------------------
<S> <C> <C> <C> <C>
Richard D. Nikolaev -0- -0- a. 22,000 / 88,000 common -0- / -0-
-0- -0- c. 15,000 / 5,000 common 108,450 /36,150
Lewis H. Ferguson, III -0- -0- a. -0- / 96,500 common -0- / 2,012,797
George G. Griffin, III -0- -0- a. 12,500 / 17,500 common 260,725 / 365,015
b. 1,500 / -0- preferred -0- / -0-
Jack E. Parr, Ph.D. 12,500 260,725 a. -0- / 17,500 common -0- / 365,015
b. 1,500 / -0- preferred -0- / -0-
Richard H. Mazza -0- -0- a. 16,250 / 8,750 common 338,943 / 182,508
-0- -0- d. 8,000 / 32,000 common -0- / -0-
</TABLE>
(1) Given the lack of a public trading market for the Company's equity
securities at December 31, 1996, the fair market value of the unexercised
options is necessarily subjective, subject to change and for the purposes
of this table has been established by the Board of Directors of the
Company at $21.00 per share of Class A Common Stock. Shares of preferred
stock were valued at their cost and, accordingly, were not in-the-money
at December 31, 1996.
(2) Options under Plan "a" are conditional on employment and vest over a
four-year period (in successive yearly increments of 20%, 20%, 25% and
35% of the total grant) for these officers on the first through fourth
anniversary of June 30, 1993 but can be accelerated at the Board's
discretion. Options under Plan "b" are sold in units of 10 shares of
Class A Common Stock and 1 share of Series A Preferred Stock and are
conditioned only on employment as of March 31, 1995. Options under Plan
"c" were issued under the Company's 1994 Non-Employee Stock Option Plan
and vest equally over four years from the date of grant. Options held by
Mr. Ferguson under Plan "a" are subject to vesting criteria set forth in
the Letter Agreement. Options under Plan "d" are conditional on
employment and vest over a four-year period (in successive yearly
increments of 20%, 20%, 25% and 35% of the total grant) for these
officers on the first through fourth anniversary.
(3) Values do not consider any tax payments related to the exercise of the
options or sale of the underlying securities.
<PAGE> 207
Director Compensation
Directors of the Company are not compensated for their services as
directors with the exception of (a) Mr. Walter Hennig, who receives $1,000 per
day of service as a director and, in consideration of his role as a consultant
to the Company, has been granted options to 5,000 shares of common stock of the
Company and (b) Mr. Herbert Korthoff, who pursuant to the Letter Agreement
receives an annual salary of $100,000 for his service as the Chairman of the
Company's Board of Directors. Mr. Hennig's options vest over a four year period
at the rate of 20%, 20%, 25% and 35% on the first through fourth anniversary of
January 1, 1994. All non-employee directors of the Company are reimbursed for
ordinary and necessary expenses incurred in attending board or committee
meetings.
Employment Contracts
Mr. Nikolaev's 1997 salary and Mr. Ferguson's 1997 salary remain
unchanged from prior year. Pursuant to the Letter Agreement, Mr.
Korthoff is paid an annual salary of $100,000, and is eligible to
receive a bonus as the Board of Directors may determine.
The Letter Agreement provides that the Company's Board of Directors
will consist of seven directors or as otherwise provided under the Company's
Restated Certificate of Incorporation. KKEP has the right to nominate three
directors, Mr. Korthoff has the right to nominate three directors (one of whom
is subject to KKEP's approval) and the holders of the Notes have the right to
nominate one director to the Company's Board.
Board Compensation Committee Interlocks and Insider Participation
The directors functionally acting as the Company's compensation
committee are Mr. Korthoff and Mr. Kidd. Mr. Nikolaev and Mr. Kidd
comprise the Option Committee. Mr. Kidd and Mr. Ferguson functionally
act as the Company's Audit Committee. There are no other committees of
the Board of Directors.
<PAGE> 208
<TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following tables set forth, as of December 31, 1996, information
with respect to the beneficial ownership of shares of the Company's Class A
Common Stock and Series A Preferred Stock by (i) each stockholder known by the
Company to be the beneficial owner of more than 5% of either class of such
shares, (ii) each director of the Company, the Company's Chief Executive Officer
and each of the other Named Executive Officers (as defined in Item 11, Executive
Compensation), and (iii) all directors and executive officers of the Company as
a group. Unless otherwise indicated, the persons named in this table have sole
voting power and investment power with respect to all shares beneficially owned
by them.
<CAPTION>
Amount and Nature of Percentage
Title of Class Name and Address of Beneficial Owners Beneficial Ownership of Class
-------------- ------------------------------------- -------------------- ----------
<S> <C> <C> <C>
Class A Common Stock Kidd Kamm Equity Partners, L.P. 5,353,820 44.3%
Three Pickwick Plaza
Greenwich, Connecticut 06830
Herbert W. Korthoff 1,797,150 (1) 14.88%
444 August Drive
Riverton, Wyoming 82501
Barbara Korthoff 1,797,150 (2) 14.88%
Riverton, Wyoming 82501
California Public Employee Retirement System 1,143,737 (3) 9.47%
1200 Prospect Street
La Jolla, California 92037
Princes Gate Investors, L.P. 741,110 (3) 6.14%
1585 Broadway
New York, New York 10036
William J. Kidd 5,353,820 (4) 44.3%
c/o Kidd, Kamm & Company
Three Pickwick Plaza
Greenwich, Connecticut 06830
Kurt L. Kamm 5,353,820 (4) 44.3%
c/o Kidd, Kamm & Company
9454 Wilshire Boulevard, Suite 920
Beverly Hills, California 90212
Richard D. Nikolaev 37,000 (5) (7)
Lewis H. Ferguson, III 479,920 (6) 4.0%
George G. Griffin 47,500 (7)
Jack E. Parr, Ph.D. 47,500 (7)
Richard H. Mazza 24,250 (7)
Walter S. Hennig 3,250 (7)
Eric R. Hamburg -0- -0-
All directors and officers as a group (10 7,890,678 65.32%
persons)
</TABLE>
<PAGE> 209
(1) Includes 96,500 shares of Class A Common Stock held by Mr. Korthoff's
wife, Barbara Korthoff, of which Mr. Korthoff disclaims beneficial
ownership.
(2) Includes 1,700,650 shares of Class A Common Stock held by
Mrs. Korthoff's husband, Herbert Korthoff, of which Mrs. Korthoff
disclaims beneficial ownership.
(3) Shares subject to warrants currently exercisable.
(4) Deemed to be the beneficial owners of the Class A Common Stock
beneficially owned by KKEP, since Mr. Kidd and Mr. Kamm control KKEP.
(5) Represents shares subject to options that are exercisable currently.
(6) Includes 96,500 shares subject to repurchase by KKEP under certain
conditions pursuant to the Letter Agreement, and includes 96,500 shares
of Class A Common Stock issuable pursuant to options granted to Mr.
Ferguson, which options may be exercisable within the next 60 days as
determined by formula contained in the Letter Agreement.
(7) Less than one percent (1%).
<PAGE> 210
<TABLE>
<CAPTION>
Amount and Nature of Percentage
Title of Class Name and Address of 5% Beneficial Owner Beneficial Ownership of Class
-------------- --------------------------------------- -------------------- --------
<S> <C> <C> <C>
Series A Preferred Stock Kidd Kamm Equity Partners, L.P. 535,382 63.6%
Three Pickwick Plaza
Greenwich, Connecticut 06830
Herbert W. Korthoff 179,715 (1) 21.3%
444 August Drive
Riverton, Wyoming 82501
Barbara W. Korthoff 179,715 (2) 21.3%
444 Augusta Drive
Riverton, Wyoming 82501
William J. Kidd 535,382 (3) 63.6%
c/o Kidd, Kamm & Company
Three Pickwick Plaza
Greenwich, Connecticut 06830
Kurt L. Kamm 535,382 (3) 63.6%
c/o Kidd, Kamm & Company
9454 Wilshire Boulevard; Suite 920
Beverly Hills, California 90212
Richard D. Nikolaev -0- -0-
Lewis H. Ferguson, III 38,342 (4) 4.6%
George G. Griffin 1,500 (5) (6)
Jack E. Parr, Ph.D. 1,500 (5) (6)
Richard H. Mazza -0- -0-
Walter S. Hennig -0- -0-
Eric R. Hamburg -0- -0-
All directors and officers as a group (10
persons) 756,439 89.8%
<FN>
(1) Includes 9,650 share of Series A Preferred Stock held by Mr. Korthoff's wife Barbara Korthoff, of which Mr. Korthoff
disclaims beneficial ownership.
(2) Includes 170,065 shares of Series A Preferred Stock held by Mrs. Korthoff's husband, Herbert Korthoff, of which
Mrs. Korthoff disclaims beneficial ownership.
(3) Deemed to be the beneficial owners of the Series A Preferred Stock beneficially owned by KKEP, since Mr. Kidd and Mr. Kamm
control KKEP.
(4) Includes 9,650 shares subject to repurchase by KKEP under certain conditions pursuant to the Letter Agreement.
(5) Represents shares subject to options which are currently exercisable.
(6) Less than one percent (1%).
</FN>
</TABLE>
<PAGE> 211
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Management Agreement with Kidd Kamm & Company and its Affiliates
Kidd Kamm & Company, an affiliate of KKEP, has a management services
agreement with the Company pursuant to which it renders management, consulting
and related services to the Company for an annual management fee of $360,000,
subject to increases as determined by the Board of Directors of the Company,
plus out-of-pocket expenses.
Tissue Engineering, Inc.
In February, 1997, William J. Kidd and the other principals of Kidd and
Company, LLC purchased common stock and warrants to acquire additional common
stock options in Tissue Engineering Inc. (a company with which the Company
entered into a joint venture agreement in 1996), Kidd and Company, LLC is
providing financial advisory services to Tissue Engineering, Inc.
Transactions with Investors
Stock Transactions. At the Acquisition closing date, Herbert W.
Korthoff, the Company's Chairman, purchased 1,254,500 shares of Class A Common
Stock and 125,450 shares of Series A Preferred Stock plus 96,500 shares of Class
A Common Stock and 9,650 shares of Series A Preferred Stock purchased in his
wife's name, by delivering to the Company two recourse promissory notes in his
name, the H. Korthoff Group 1 Note in the principal amount of $1,232,877 with
respect to the purchase of the H. Korthoff Group 1 Shares, consisting of 579,000
shares of Class A Common Stock and 57,900 shares of Series A Preferred Stock,
and the H. Korthoff Group 2 Note in the principal amount of $1,438,356 with
respect to the purchase of the H. Korthoff Group 2 Shares, consisting of 675,500
shares of Class A Common Stock and 67,550 shares of Series A Preferred Stock and
by delivering to the Company two promissory notes in his wife's name, the Mrs.
Korthoff Group 1 Note in the principal amount of $102,739 with respect to the
purchase of the Mrs. Korthoff Group 1 Shares, consisting of 48,250 shares of
Class A Common Stock and 4,825 shares of Series A Preferred Stock, and the Mrs.
Korthoff Group 2 Note in the principal amount of $102,739 with respect to the
purchase of the Mrs. Korthoff Group 2 Shares, consisting of 48,250 shares of
Class A Common Stock and 4,825 shares of Series A Preferred Stock.
On June 1, 1994, the Company requested that the holders of the Notes
waive certain provisions of the Indenture to allow the Company to repurchase
from Mr. Korthoff 798,380 shares of Class A Common Stock and 79,838 shares of
Series A Preferred Stock for use in employee incentive programs. The Company was
notified on July 22, 1994 of the approval of the holders of the Notes for such a
transaction and accordingly repurchased such shares for $1,700,549 through a pro
rata credit of that sum against the principal balance of the H. Korthoff Group 1
Note and the H. Korthoff Group 2 Note. On December 27, 1995, Herbert W. Korthoff
and Barbara Korthoff paid the Company $1,176,162 representing the entire
principal of the Korthoff Group 1 Note and Korthoff Group 2 Notes. The
<PAGE> 212
balance of the Group 1 Notes and Group 2 Notes, representing the accrued but
unpaid interest on such notes, is evidenced by the Amended Note.
Lewis H. Ferguson III, a director and officer of the Company, purchased
at the Acquisition closing date 289,500 shares of Class A Common Stock and
28,950 shares of Series A Preferred Stock by delivering to the Company two
recourse promissory notes, the Ferguson Group 1 Note in the principal amount of
$410,959 with respect to the purchase of the Ferguson Group 1 Shares consisting
of 193,000 shares of Class A Common Stock and 19,300 shares of Series A
Preferred Stock and the Ferguson Group 2 Note (together with the Ferguson Group
1 Note, the "Ferguson Notes") in the principal amount of $205,480 with respect
to the purchase of the Ferguson Group 2 Shares consisting of 96,500 shares of
Class A Common Stock and 9,650 shares of Series A Preferred Stock.
The Amended Note is full recourse and (i) will mature on June 30, 1998,
subject to acceleration upon a sale of all or substantially all of the business,
assets or issued and outstanding capital stock of the Company or the successful
completion of an initial public offering by the Company of any of its equity
securities pursuant to the Securities Act, and (ii) is secured by a pledge of,
and the Company is entitled to offset, all dividends payable on the Series A
Preferred Stock held by Herbert W. Korthoff and Barbara Korthoff. The Ferguson
Notes are full recourse and (i) bear interest, payable semi-annually (but which
interest may be, and to date has been, deferred and added to principal at the
option of the maker), at the rate of 10% per annum, (ii) will mature on June 30,
1998, subject to acceleration upon a sale of all or substantially all of the
business, assets or issued and outstanding capital stock of the Company or the
successful completion of an initial public offering by the Company of any of its
equity securities pursuant to a registration statement under the Securities Act,
and (iii) are secured by the pledge of the Ferguson Group 1 and Ferguson Group 2
Shares to the Company.
Pursuant to the Letter Agreement among KKEP, the Company and each of
Mr. Korthoff, his wife and Mr. Ferguson, each dated June 30, 1993, upon the
occurrence of an Event of Default (defined as including (a) any default in the
payment of principal or interest which has continued for ten (10) business days,
or (b) certain bankruptcy, insolvency or similar proceedings not dismissed,
vacated or stayed within sixty (60) days) under the Ferguson Notes, the Company
has the right to foreclose upon the Ferguson Shares, and KKEP has the right to
elect to succeed to all the rights of the Company under said Ferguson Notes and
related stock pledge agreements. In the event KKEP elects to succeed to all
rights of the Company under said Ferguson Notes, KKEP must make full payment to
the Company of the outstanding balance of the Ferguson Notes, as the case may
be, and allow each of the other initial cash equity investors in the Company
(except the defaulting noteholder) to participate in such purchase in proportion
to their respective ownership of the capital stock of the Company.
Mr. Ferguson also owns 9,650 shares of Series A Preferred Stock and
96,500 shares of Class A Common Stock of the Company which are subject to
repurchase by KKEP or the Company in the event that KKEP has not achieved a
certain target rate of return on its equity investment in
<PAGE> 213
the Company in accordance with a formula that is set forth in an attachment to
the Letter Agreement. In addition, Mr. Ferguson holds options to purchase 96,500
shares of the Company's Class A Common Stock that vest only in the event that
KKEP achieves the target rates of return described in the attachment to the
Letter Agreement.
Payments to Outside Counsel. Mr. Ferguson is a partner (on an
extended leave of absence) in the law firm of Williams & Connolly, which
the Company retained during fiscal years 1994, 1995 and 1996 and
proposes to retain during fiscal year 1997.
Officer and Director Arrangements. Mr. Korthoff's, Mr. Ferguson's
and Mr. Nikolaev's salaries will remain unchanged for 1997.
The Letter Agreement provides that the Company's Board of Directors
will consist of seven directors or as otherwise provided under the Company's
Restated Certificate of Incorporation. KKEP has the right to nominate three
directors, Mr. Korthoff has the right to nominate three directors (one of which
is subject to KKEP's approval) and the holders of the Notes have the right to
nominate one director to the Company's Board. Messrs. Kidd, Kamm and Hamburg are
of KKEP's nominees and Messrs. Korthoff, Ferguson, and Hennig are Mr. Korthoff's
nominees. Neither KKEP nor the noteholders has nominated any other directors as
of the date hereof.
Principal Stockholders' Agreement. Pursuant to the terms of the
Principal Stockholders' Agreement, except for certain permitted transfers
including the repurchase by KKEP and such of the other parties to the agreement
of a defaulting person's shares subject to pledge to the Company, no person
subject thereto may sell any of his, her or its shares of capital stock of the
Company.
The Principal Stockholders' Agreement also provides that if, at any
time prior to the third anniversary of the Principal Stockholders' Agreement and
provided no Event of Default (as defined in the Indenture) has occurred and is
continuing under the terms of the Indenture, the holders of more than 662/3% of
the issued and outstanding shares (the "Requisite Percentage") determine to sell
all of their shares in an arm's-length transaction to an unaffiliated third
person, then all holders will sell all of their shares under the terms of the
sale, subject to certain conditions, but not to any restrictions as to price. At
any time after the third anniversary of the Principal Stockholders' Agreement,
or at any time an Event of Default under the terms of the Indenture has occurred
and is continuing at the time a contract of sale is entered into, the Requisite
Percentage necessary to cause the other stockholders to sell their shares in a
qualified transaction will be a majority-in-interest of the issued and
outstanding shares of capital stock.
The Principal Stockholders' Agreement also grants holders tag- along
rights making any transfers subject to the right of other holders to participate
in such transfer in proportion to their ownership of shares of the Company's
capital stock at the same price per share being offered to the transferring
holder. The Principal Stockholders' Agreement terminates on the closing of an
underwritten public offering
<PAGE> 214
of the Company's shares of Common and Preferred Stock pursuant to a registration
statement under the Securities Act declared effective by the Securities and
Exchange Commission.
Other Related Party Transactions. In 1995, Mr. Nikolaev was paid
a consulting fee of $135,000 for consulting services performed for the
Company. At the election of Mr. Nikolaev, such amount was paid to the
company through which the services were rendered and which is owned by
one of the members of his family.
On June 30, 1994 Mr. Ferguson received a loan from the Company in the
amount of $75,000 for the purchase of a residence. That loan bears interest at
7.25%, the prime rate as of June 30, 1994. The original note was due January 1,
1996, and has been extended until June 30, 1997, and is secured by Mr.
Ferguson's stock in the Company.
<PAGE> 215
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) The following documents are filed or incorporated by
reference as part of this Form 10-K:
1. Financial Statements and Financial Statement
Schedules:
The "Index to Financial Statements" set forth on page
53 of this Form 10-K is incorporated herein by
reference.
Schedules have been omitted because either they are
not required or the information is included elsewhere
in the financial statements and notes thereto.
2. Exhibits (Exhibits listed below without asterisks are
filed herewith.)
EXHIBIT DESCRIPTION OF EXHIBIT
2.1* Purchase and Sale Agreement, dated May
14, 1993, among the Company, Dow Corning
and Dow Corning Wright Corporation.
3.1****** Restated Certificate of Incorporation of
the Company dated September 25, 1995.
3.2* By-Laws of the Company.
4.1* Indenture dated as of June 30, 1993,
between the Company and the First
National Bank of Boston, as trustee.
4.1(a)* First Supplemental Indenture, dated as
of November 1, 1993, between the Company
and The First National Bank of Boston.
4.2* Security Agreement dated as of June 30,
1993, between the Company and BancBoston
Trust Company of New York, as collateral
agent acting on behalf of the First
National Bank of Boston.
4.3* Pledge Agreement, dated as of June 30,
1993, between the Company and BancBoston
Trust Company of New York, as collateral
agent acting on behalf of The First
National Bank of Boston.
4.4* Form of Purchase Agreement, dated June
30, 1993, between the Company and the
purchasers of the Notes.
<PAGE> 216
4.5* Registration Rights Agreement, dated as
of June 30, 1993, between the Company
and the purchasers of the Notes.
4.6***** Series B Preferred Stock Purchase and
Class A Common Stock Warrant Agreement,
dated July 29, 1994, between the Company
and CalPERS.
4.6(a)******* Amendment No. 1 dated September 25, 1995
to Series B Preferred Stock Purchase and
Class A Common Stock Warrant Agreement,
dated July 29, 1994 between the Company
and CalPERS.
10.1* Product Manufacturing Agreement, dated
June 30, 1993, between the Company and
Dow Corning Corporation.
10.2* Revolving Credit Agreement, dated
September 30, 1993, between the Company
and Heller Financial, Inc.
10.3* Principal Stockholders' Agreement, dated
June 30, 1993, among the Company and
certain of its stockholders.
10.4* Omnibus Stockholders' Agreement, among
the Company and certain of its
stockholders.
10.5* License Agreement, dated June 25, 1993,
between the Company and Dr. Alfred B.
Swanson.
10.6**** 1993 Stock Option Plan
10.7**** 1993 Special Stock Option Plan
10.8**** Employee Common Stock Grant Plan
10.9**** Distributor Stock Purchase Plan
10.10* Industrial Development Lease Agreement
date as of July 9, 1985 between The Industrial
Development Board of The City of Arlington, Tennessee
(the "Arlington IDB") and Dow Corning Wright, Inc.
10.11* Lease and Security Agreement dated as of
April 1, 1974 between the Arlington IDB
and Wright Manufacturing Company
together with First Supplement to Lease
dated as of December 1, 1981.
<PAGE> 217
10.12* Industrial Development Lease Agreement
dated as of June 29, 1984 between
Langston Associates and the Arlington
IDB.
10.13* Letter Agreements dated June 30, 1993
among the Company and certain of its
Stockholders with Promissory Notes and
Stock Pledge and Security Agreements
attached.
10.14*** Letter Agreement dated June 30, 1993
between KKEP and Herbert W. Korthoff,
Lewis Ferguson, and Barbara Korthoff.
10.14(a)***** Amendment dated July 29, 1994 to Letter
Agreement dated June 30, 1993 between
KKEP and Herbert W. Korthoff, Lewis
Ferguson, and Barbara Korthoff.
10.15* Agreement dated January 24, 1983,
between Leo A. Whiteside, M.D. and the
Company.
10.16** Acquisition Agreement dated February 5,
1994, between the Company and
OrthoTechnique.
10.17***** Distribution Agreement dated December
20, 1993, between the Company and Kaneka
Medix Corporation.
10.18***** Research and Development Agreement dated
October 7, 1994, between the Company and
OsteoBiologics, Inc.
10.19*** Acquisition Agreement dated December 8,
1994, between the Company and Orthomet.
10.20***** 1994 Distributor Stock Option Plan.
10.21***** Non-qualified Stock Option Agreement for
Non-Employees.
10.22******* Securityholders Agreement, dated
September 25, 1995, between the Company,
the purchasers named therein and PG
Investors, Inc., as agent.
10.23******* Distribution Agreement dated February
22, 1996, between the Company and
Century Medical, Inc.
10.24******** Revolving Credit Agreement, dated
September 13, 1996 between the Company
and Sanwa Business Credit Corporation.
<PAGE> 218
10.25 Joint Venture Agreement, dated July 12,
1996 between the Company and Tissue
Engineering, Inc.
11.1 Statement re: Computation of earnings
per share.
12.1 Statement re: Computation of ratios of
earnings to fixed charges and preferred
dividends.
21.1 Subsidiaries of the Company.
23.2 Consent of Arthur Andersen LLP
* Document incorporated by reference from
Registration Statement on Form S-4 No.
33-69286 filed by the Company on
November 10, 1993.
** Document incorporated by reference to
Current Report on Form 8-K dated as of
February 5, 1994.
*** Document incorporated by reference to
Current Report on Form 8-K dates as of
December 8, 1994.
**** Document incorporated by reference to
Annual Report on Form 10-K filed March 25, 1994.
***** Document incorporated by reference to
Annual Report on Form 10-K filed March 31, 1995.
****** Document incorporated by reference to
Quarterly Report on Form 10-Q filed November 14, 1995.
******* Document incorporated by reference to
Annual Report on Form 10-K Filed March
31, 1996.
******** Document incorporated by reference to
current report on Form 8-K dated as of
September 13, 1996.
(b) Reports on Form 8-K
The registrant filed a current report on Form 8-K on
September 13, 1996 regarding the Revolving Credit
Agreement between the Company and Sanwa Business
Credit
Corporation.
<PAGE> 219
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
WRIGHT MEDICAL TECHNOLOGY, INC.
(Registrant)
BY: /s/Richard D. Nikolaev
Richard D. Nikolaev
President and Chief Executive Officer
DATE: March 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE (CAPACITY) DATE
President, Chief Executive
Officer, and Director
/s/Richard D. Nikolaev (Principal Executive
Richard D. Nikolaev Officer) March 25, 1997
Chief Financial Officer
and Executive Vice
/s/George G. Griffin,III President (Principal
George G. Griffin, III Financial Officer) February 25, 1997
/s/Lewis H. Ferguson,III Senior Vice President
Lewis H. Ferguson, III Secretary, and Direct March 18, 1997
/s/Herbert W. Korthoff Chairman of the Board of
Herbert W. Korthoff Directors March 18, 1997
/s/William J. Kidd
William J. Kidd Director February 25, 1997
/s/Kurt L. Kamm
Kurt L. Kamm Director March 18, 1997
/s/Walter S. Hennig
Walter S. Hennig Director March 18, 1997
/s/Gregory K. Butler Vice President, Controller
Gregory K. Butler and Assistant Secretary March 18, 1997
/s/Eric R. Hamburg
Eric R. Hamburg Director March 18, 1997
<PAGE> 220
INDEX TO FINANCIAL STATEMENTS
Wright Medical Technology, Inc.
Report of Independent Public Accountants...............................54
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 1996
and 1995 ........................................................55
Consolidated Statements of Operations for the Year Ended
December 31, 1996, 1995 and 1994.................................56
Consolidated Statements of Cash Flows for the Year Ended
December 31, 1996, 1995 and 1994.................................57
Consolidated Statements of Changes in Stockholders'
Investment for the Year Ended December 31, 1996, 1995
and 1994.........................................................58
Notes to Consolidated Financial Statements.........................59
<PAGE> 221
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of Wright Medical Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Wright
Medical Technology, Inc. (a Delaware corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related consolidated statements of
operations, changes in stockholders' investment and cash flows for the
years ended December 31, 1996, 1995 and 1994. These financial statements
are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Wright Medical
Technology, Inc. and subsidiaries as of December 31, 1996 and 1995, and the
results of their operations and their cash flows for the years ended
December 31, 1996, 1995 and 1994, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Memphis, Tennessee,
March 14, 1997.
<PAGE> 222
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
December 31, December 31,
1996 1995
------------------ -----------------
ASSETS (in thousands) (in thousands)
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 910 $ 1,126
Trade receivables, net 18,289 18,269
Inventories, net 59,107 54,815
Prepaid expenses 1,692 1,353
Deferred income taxes 978 -
Other 2,540 1,948
------------------ -----------------
Total Current Assets 83,516 77,511
------------------ -----------------
Property, Plant and Equipment, net 33,659 39,141
Deferred Income Taxes - 2,608
Investment in Joint Venture 3,597 -
Other Assets 45,554 55,111
------------------ -----------------
$ 166,326 $ 174,371
================== =================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt $ 138 $ 446
Short-term borrowing 8,390 3,900
Accounts payable 6,063 7,769
Accrued expenses and other current liabilities 18,453 17,550
Deferred income taxes - 2,608
------------------ -----------------
Total Current Liabilities 33,044 32,273
------------------ -----------------
Long-Term Debt 84,668 84,462
Preferred Stock Dividends 17,999 14,938
Other Liabilities 3,189 570
Deferred Income Taxes 978 -
------------------ -----------------
Total Liabilities 139,878 132,243
------------------ -----------------
Commitments and Contingencies (Notes 1, 3, 5 & 11)
Mandatorily Redeemable Series B Preferred Stock, $.01 par value, (aggregate
liquidation value of $75.3 million, including accrued and unpaid dividends
of $4.1 million, 800,000 shares authorized, 600,000 shares
issued and outstanding) 59,959 46,757
Redeemable Convertible Series C Preferred Stock, $.01 par value, (aggregate
liquidation value of $40.3 million, including accrued and unpaid dividends
of $5.3 million, 350,000 shares authorized, issued and outstanding) 24,995 20,548
Stockholders' Investment:
Series A preferred stock, $.01 par value, (aggregate liquidation value of
$25.0 million, including accrued and unpaid dividends of $8.6 million),
1,200,000 shares authorized,
915,325 shares issued 9 9
Undesignated preferred stock, $.01 par value,
650,000 shares authorized, no shares issued - -
Class A common stock, $.001 par value, 46,000,000 shares authorized,
10,023,421 and 9,791,040 shares issued 10 10
Class B common stock, $.01 par value, 1,000,000 shares authorized,
no shares issued - -
Additional capital 53,853 51,470
Accumulated deficit (111,855) (76,557)
Other 516 930
------------------ -----------------
(57,467) (24,138)
Less - Notes receivable from stockholders (1,037) (1,037)
Series A preferred treasury stock, 86,688 shares (1) (1)
Class A common treasury stock, 878,130 shares (1) (1)
------------------ -----------------
Total Stockholders' Investment (58,506) (25,177)
------------------ -----------------
$ 166,326 $ 174,371
================== =================
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
<PAGE> 223
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share)
<CAPTION>
Year Ended December 31,
------------------------------------------------------
1996 1995 1994
--------------- --------------- --------------
<S> <C> <C> <C>
Net sales $ 121,868 $ 123,196 $ 95,763
Cost of goods sold 44,433 33,722 43,610
---------------- ---------------- ---------------
Gross profit 77,435 89,474 52,153
---------------- ---------------- ---------------
Operating expenses:
Selling 47,437 47,085 33,227
General and administrative 19,357 23,358 23,274
Research and development 13,196 12,728 15,083
Purchased in-process research and development - - 27,700
Equity in loss of joint venture 500 - -
---------------- ---------------- ---------------
80,490 83,171 99,284
---------------- ---------------- ---------------
Operating income (loss) (3,055) 6,303 (47,131)
Interest expense (12,079) (11,935) (10,140)
Interest income 132 613 931
Other income (expense), net 413 146 (921)
---------------- ---------------- ---------------
Loss before income taxes (14,589) (4,873) (57,261)
Income tax provision (benefit) - 1,619 (7,881)
---------------- ---------------- ---------------
Net loss $ (14,589) $ (6,492) $ (49,380)
================ ================ ===============
Loss applicable to common stock $ (35,298) $ (19,783) $ (53,166)
================ ================ ===============
Loss per share of common stock $ (3.90) $ (2.24) $ (6.10)
================ ================ ===============
Weighted average common shares outstanding 9,059 8,825 8,717
================ ================ ===============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 224
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1996 1995 1994
--------------- ---------------- ---------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
Net loss $ (14,589) $ (6,492) $ (49,380)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation 7,007 7,272 7,246
Instrument amortization 4,265 4,337 -
Provision for instrument reserves 3,647 - -
Provision for excess/obsolete inventory (453) (2,369) 12,114
Provision for sales returns (247) 290 (497)
Deferred income tax provision (benefit) - 1,270 (8,455)
Deferred income 1,502 - -
Amortization of intangible assets 3,266 3,747 1,351
Amortization of deferred financing costs 1,361 1,036 829
Loss on disposal/abandonment of equipment 485 97 138
Equity in loss of joint venture 500 - -
Purchased in-process research and development - - 27,700
Other 614 (178) (126)
Changes in assets and liabilities, net of effect of
purchases of businesses
Trade receivables 442 (522) (769)
Inventories (3,335) (18,101) (2,606)
Other current assets (1,104) (77) (166)
Accounts payable (1,706) 2,741 (3,282)
Accrued expenses and other liabilities (1,380) (16,848) 11,095
Other assets (840) (1,869) (2,903)
--------------- ---------------- ---------------
Net cash used in operating activities (565) (25,666) (7,711)
--------------- ---------------- ---------------
Cash Flows From Investing Activities:
Capital expenditures (3,778) (12,525) (10,550)
Purchases of businesses, net of cash acquired - - (60,688)
Other (884) (1,139) (497)
--------------- ---------------- ---------------
Net cash used in investing activities (4,662) (13,664) (71,735)
--------------- ---------------- ---------------
Cash Flows From Financing Activities:
Net proceeds from short-term borrowings 4,490 3,900 -
Proceeds from issuance of stock and stock warrants 1,278 33,409 59,493
Payments of debt issuance costs (387) - -
Payments of debt (446) (641) (63)
Proceeds from stockholders on notes receivable - 1,225 855
Other 76 (509) 44
--------------- ---------------- ---------------
Net cash provided by financing activities 5,011 37,384 60,329
--------------- ---------------- ---------------
Net decrease in cash and cash equivalents (216) (1,946) (19,117)
Cash and cash equivalents, beginning of period 1,126 3,072 22,189
--------------- ---------------- ---------------
Cash and cash equivalents, end of period $ 910 $ 1,126 $ 3,072
=============== ================ ===============
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 10,474 $ 11,885 $ 9,336
=============== ================ ===============
Cash paid for income taxes $ 33 $ 234 $ 786
=============== ================ ===============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 225
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' INVESTMENT
(in thousands)
<CAPTION>
Number of Shares Notes
Series A Class A Series A Class A Receivable
Preferred Common Preferred Common Additional Accumulated From Treasury
Stock Stock Stock Stock Capital Deficit Other Stockholders Stock Total
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, 12/31/93 920 9,290 $9 $9 $19,589 ($3,608) $- ($4,397) $- $11,602
Purchase of treasury stock - - - - (1,740) - - 1,573 (2) (169)
Issuance of common stock
warrants - - - - 12,681 - - - - 12,681
Acquisition of business - 170 - - 2,336 - - - - 2,336
Preferred stock dividend - - - - - (3,447) - - - (3,447)
Payments on stockholder
notes receivable - - - - - - - 855 - 855
Accretion of preferred
stock discount - - - - - (339) - - - (339)
Net loss - - - - - (49,380) - - - (49,380)
Other (4) (19) - - (80) - 439 - - 359
----------- ----------- ---------- --------- --------- ----------- --------- ---------- ----- ---------
BALANCE, 12/31/94 916 9,441 9 9 32,786 (56,774) 439 (1,969) (2) (25,502)
Issuance of common stock - 350 - 1 497 - - - - 498
Issuance of common stock
warrants - - - - 18,187 - - - - 18,187
Preferred stock dividend - - - - - (10,455) - - - (10,455)
Payments on stockholder
notes receivable - - - - - - - 1,225 - 1,225
Accretion of preferred
stock discount - - - - - (2,836) - - - (2,836)
Net loss - - - - - (6,492) - - - (6,492)
Other (1) - - - - - 491 (293) - 198
----------- ----------- ---------- --------- --------- ----------- --------- ---------- ----- ---------
BALANCE, 12/31/95 915 9,791 9 10 51,470 (76,557) 930 (1,037) (2) (25,177)
Issuance of common stock - 232 - - 2,383 - - - - 2,383
Preferred stock dividend - - - - - (14,251) - - - (14,251)
Accretion of preferred
stock discount - - - - - (6,458) - - - (6,458)
Net loss - - - - - (14,589) - - - (14,589)
Other - - - - - - (414) - - (414)
----------- ----------- ---------- --------- --------- ----------- --------- ---------- ------ ---------
BALANCE, 12/31/96 915 10,023 $9 $10 $53,853 ($111,855) $516 ($1,037) ($2) ($58,506)
=========== =========== ========== ========= ========= =========== ========= ========== ====== =========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 226
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Description of Business -
Wright Medical Technology, Inc. and its subsidiaries (the "Company")
engage in the business of developing, manufacturing and selling orthopaedic
products, principally knee and hip implants. The Company's products are designed
to restore mobility and relieve pain through the replacement of damaged or
diseased joints. The Company distributes its products through various
distributors with approximately 75% of its products sold in the United States.
The Company purchased substantially all of the assets of Dow Corning Wright
Corporation ("DCW") on June 30, 1993 (the "DCW Acquisition").
Liquidity and Capital Resources -
Since the DCW Acquisition, the Company's strategy has been to position
itself for aggressive growth through new product development and the acquisition
of new technologies through license agreements, joint venture arrangements and
the purchase of other companies in the orthopaedic industry (see Note 2). The
Company has funded this strategy through the sale of $85 million of senior debt
securities and the contribution of approximately $15 million of equity at the
time of the DCW Acquisition. Further, the Company has obtained additional
capital through the issuance of $60,000,000 of Series B Preferred Stock in 1994
and $35,000,000 of Series C Preferred Stock in 1995 (see Note 8). The Company
has also funded its growth and working capital requirements through the use of
revolving lines of credit (see Note 7).
The Company has incurred significant losses since its inception and
anticipates incurring a loss during 1997. Additionally, the Company's projected
working capital requirements for 1997 indicate a continued reliance on its
revolving credit facility. Accordingly, management continues to closely monitor
the Company's working capital needs and believes that the Company's current
revolving line of credit will be sufficient to meet its working capital
requirements throughout 1997.
In July 1998, the Company's first annual sinking fund payment of $28.3
million is due on its senior debt securities. Prior to that time, management
believes that it will need to effect a recapitalization plan for the Company. In
this regard, management has begun discussions with a limited number of
investment banks to assess the various alternatives available to the Company
including, without limitation, refinancing its senior debt securities and an
initial public offering of equity securities. Management believes that a
successful plan of recapitalization will be completed prior to July, 1998;
however, there can be no assurance that such a recapitalization plan can be
consummated.
<PAGE> 227
Significant Risks and Uncertainties -
Inherent in the accompanying financial statements are certain risks and
uncertainties. These risks and uncertainties include, but are not limited to,
timely development and acceptances of new products, impact of competitive
products, regulatory approval of new products, regulation of current products,
disposition of certain litigation matters (see Note 11) and the Company's
ability to accurately forecast and manage its working capital requirements.
Significant Accounting Policies -
Principles of Consolidation
The accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned domestic and foreign subsidiaries. All
significant intercompany accounts and transactions have been eliminated. The
Company accounts for its investment in the Orthopaedic Tissue Technology L.L.C.
joint venture under the equity method of accounting.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and short-term
investments with original maturities of three months or less.
Allowance for Returns
An allowance is maintained for anticipated future returns of products
sold by the Company. An allowance for returns of approximately $0.6 million and
$1.2 million is included as a reduction of trade receivables at December 31,
1996 and December 31, 1995, respectively.
Inventories
Inventories are stated at the lower of cost or market, with cost being
determined using the first-in, first-out ("FIFO") method. Inventory reserves are
established to reduce the carrying amount of obsolete and excess inventory to
its net realizable value. The Company principally follows an inventory reserve
formula that reserves inventory balances based on historical and forecasted
sales.
<PAGE> 228
Statement of Position 94-6 ("SOP 94-6"), issued by the American
Institute of Certified Public Accountants, requires, among other things, certain
disclosures regarding the use of estimates in the preparation of financial
statements. SOP 94-6 was required to be adopted by the Company in 1995. In that
regard, management has made its best estimate in determining the required level
of the inventory reserves discussed above and does not expect any material
changes thereto; however, given the subjective nature of the reserves, the
Company's estimate of the required reserves could change in the future.
Property and Depreciation
Property, plant and equipment are carried at cost. Depreciation is
provided on a straight-line basis over estimated useful lives of 15 to 20 years
for land improvements, 15 to 45 years for buildings, 3 to 10 years for machinery
and equipment, and 5 to 15 years for furniture, fixtures and equipment.
Expenditures for major renewals and betterments that extend the useful life of
the assets are capitalized. Maintenance and repair costs are charged to expense
as incurred. Upon sale or retirement, the asset cost and related accumulated
depreciation are eliminated from the respective accounts, and any resulting gain
or loss is included in income.
Instruments loaned to and used by surgeons in the implantation of the
Company's products are included in property, plant and equipment and depreciated
on a straight-line basis over periods not to exceed five years with adjustments
made as necessary for identified impairments in carrying value.
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of"
("SFAS No. 121"), which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present. During
1996, the Company adopted SFAS No. 121 which did not have a material effect on
its consolidated financial position or operating results.
Goodwill and Other Intangible Assets
The cost of intangible assets is amortized over the estimated periods
benefited, but not exceeding 40 years. The realizability of goodwill and other
intangibles is evaluated periodically as events or circumstances indicate a
possible inability to recover their carrying amount. Such evaluation is based on
various analyses, including cash flow and profitability projections. These
analyses necessarily involve significant management judgement. At December 31,
1996, management believes that the carrying value of its goodwill and other
intangibles is realizable.
<PAGE> 229
Stock-Based Compensation
In October 1995, the FASB issued Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No.
123"). This new standard encourages, but does not require, companies to
recognize compensation expense for grants of stock, stock options, and
other equity instruments based on a fair-value method of accounting.
Companies that do not choose to adopt the new expense recognition rules
of SFAS No. 123 will continue to apply the existing accounting rules
contained in Accounting Principles Board Opinion No. 25 ("APB No. 25")
and related Interpretations, but will be required to provide pro forma
disclosures of the compensation expenses determined under the fair-value
provisions of SFAS No. 123, if material. The Company adopted the
disclosure provisions only of SFAS No. 123 during 1996.
Income Taxes
Income taxes are accounted for pursuant to the provisions of Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." This
statement requires the use of the liability method of accounting for deferred
income taxes. The provision for income taxes includes federal, foreign, and
state income taxes currently payable and those deferred because of temporary
differences between the financial statement and tax bases of assets and
liabilities. Provisions for federal income taxes are not made on the
undistributed earnings of foreign subsidiaries where the subsidiaries do not
have the capability to remit earnings in the foreseeable future and when
earnings are considered permanently invested. Undistributed earnings of foreign
subsidiaries at December 31, 1996 are insignificant.
Research and Development Costs
Research and development costs are charged to expense as incurred or
when expenditures for such costs are contractually obligated and the amount is
determinable.
Foreign Currency Translation
Revenues and expenses for foreign activities are translated at average
exchange rates during the period. Assets (primarily inventories and receivables)
located outside the U.S. are translated into U.S. dollars using end-of-period
exchange rates. The cumulative foreign currency translation adjustment at
December 31, 1996 and 1995 is not significant.
Earnings Per Share
Net loss per common share is computed by dividing net loss, plus
preferred stock dividends and accretion, by the weighted average common shares
outstanding during the period. Because of the net loss applicable to common
stock, the assumed exercise of common stock equivalents has not been included in
the computation of weighted average shares outstanding because their effect
would be anti-dilutive.
<PAGE> 230
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable to
estimate that value:
- Cash and cash equivalents - The carrying amount approximates fair
value because of the short maturities of the cash equivalents.
- Long-term debt - At December 31, 1996 and 1995, the fair value of
the Series B Notes was approximately $85.9 million and $86.7
million, respectively, based upon market quotes provided by an
investment banker. The carrying amount of these notes was
approximately $84.4 million and $84.3 million at December 31, 1996
and 1995, respectively.
- Series B and C preferred stock - These are specialized instruments
with various terms and preferential treatment which render it
impracticable to determine their current fair value.
- Noncurrent distributor receivables - The fair value is based upon
the anticipated cash flows discounted at rates currently established
by management. The fair value of these receivable balances at
December 31, 1996 and 1995 approximates book value.
Reclassifications
Certain prior year amounts have been reclassified to conform to the 1996
presentation.
2. ACQUISITIONS OF BUSINESSES
Orthopaedic Tissue Technology, L.L.C.
On July 12, 1996 the Company and Tissue Engineering, Inc. entered into a
joint venture agreement to create a joint venture named Orthopaedic Tissue
Technology, L.L.C. ("OTT"). The Company executed a promissory note for
$1,500,000 of which $630,000 was drawn in 1996. The Company will also make
additional funding contributions of $1,500,000 to OTT on July 12, 1997 and 1998.
Tissue Engineering, Inc. contributed the license to certain proprietary
technology to OTT. The Company has a 49% equity interest in OTT and will receive
50% of OTT's annual profit/ losses. OTT will develop and distribute biological
products for musculoskeletal applications. Products are designed to reproduce
the events of tissue formation including the treatment of medical conditions
involving disease, injury or deterioration of ligaments, tendons, cartilage or
bone and sports related injuries. The Company accounts for its investment in OTT
under the equity method of accounting and has reflected the present value of its
future funding commitments as a liability in the accompanying consolidated
financial statements.
<PAGE> 231
U.S. Gypsum
On September 30, 1996, the Company entered into an Asset Purchase
Agreement to purchase the biomaterials business of the Industrial Gypsum
Division of United States Gypsum Company ("USG"). The Company will pay $750,000
for this business in four quarterly installments beginning on December 31, 1996.
The purchase price was principally allocated to existing patents and will be
amortized over 5 years. The Company also receives the right to sell and
distribute the OSTEOSET(TM) medical grade calcium sulfate pellets for a 25 year
period. The Company will pay USG a royalty of 6% of sales, net of commissions,
on this product.
Orthomet
On December 8, 1994, the Company acquired Orthomet, Incorporated
("Orthomet"), a Minnesota corporation, for a cash price of approximately $64.6
million, including related fees and expenses. Orthomet designed, manufactured
and marketed selected orthopaedic reconstructive implants and related surgical
instrumentation. The acquisition was accounted for as a purchase and,
accordingly, the consolidated financial statements include the results of
operations of Orthomet from December 8, 1994.
The accompanying financial statements include the estimated fair value
of assets acquired and liabilities assumed by the Company. A summary of the
purchase transaction and the final allocation of the purchase price is as
follows (in thousands):
Purchase price:
Cash purchase price $ 62,906
Transaction fees and expenses 1,678
--------------
Total purchase price $ 64,584
==============
Allocated to assets and liabilities as follows:
Current assets, including cash of $8,816 $ 21,130
Property, plant and equipment 3,496
In-process research and development 20,700
Other identifiable intangible assets 5,992
Excess of cost over net assets acquired 29,302
Current liabilities (10,787)
Other noncurrent items, net (5,249)
--------------
$ 64,584
==============
The amount allocated to in-process research and development was expensed
immediately following the acquisition because, in the opinion of management, the
technological feasibility of the in-process technology had not yet been
established and the technology has no alternative future use. Excess of cost
over net assets acquired is being amortized over 20 years on a straight-line
basis.
<PAGE> 232
Questus
On October 13, 1994, the Company acquired Questus Corporation
("Questus"), a Massachusetts corporation, following the spin-off by Questus of
certain of its lines of business. The portion of Questus acquired by the Company
is in the business of medical device and arthroscopic research and development.
In exchange for the Questus shares, the Company paid $2 million in cash
and issued 169,630 shares of Class A Common Stock. An additional 84,818 shares
of Class A Common Stock are held in escrow until certain research and
development milestones are achieved; in connection therewith, the Company has
committed to the former Questus shareholders to spend $5 million towards the
achievement of these milestones. Additionally, the Company will pay the former
Questus shareholders a royalty equal to 5% of net sales of certain products.
The acquisition was accounted for as a purchase and, accordingly, the
consolidated financial statements include the results of operations of Questus
from October 13, 1994. A summary of the purchase transaction and the allocation
of the purchase price is as follows (in thousands):
Purchase price:
Cash paid $ 2,000
Value of Company shares issued 2,336
Transaction fees and expenses 62
-----------
Total purchase price $ 4,398
===========
Allocated to assets and liabilities as follows:
In-process research and development $ 7,000
Deferred income taxes (2,660)
Other 58
-----------
$ 4,398
===========
The amount allocated to in-process research and development was expensed
immediately following the acquisition because, in the opinion of management, the
technological feasibility of the in-process technology had not yet been
established and the technology has no alternative future use.
OrthoTechnique
On February 5, 1994, the Company acquired 100% of the outstanding
capital stock of OrthoTechnique S.A. ("OrthoTechnique") which is headquartered
in France. The purchase price, including acquisition costs, was 28.9 million
French francs (approximately U.S. $4.9 million) plus additional consideration
contingent upon OrthoTechnique's future operating results. OrthoTechnique is in
the business of distributing medical implants throughout France, including
products manufactured by the Company.
<PAGE> 233
The acquisition was accounted for as a purchase and, accordingly, the
consolidated financial statements include the results of operations of
OrthoTechnique from the acquisition date. The acquisition resulted in
approximately $3.1 million of excess of cost over fair value of net assets
acquired, which is being amortized on a straight-line basis over 40 years.
An allocation of the purchase price is as follows(in thousands):
Current assets, including cash of $888 $ 3,591
Excess of cost over net assets acquired 3,093
Current liabilities (2,084)
Other 288
----------
$ 4,888
==========
Pro Forma Financial Information
Unaudited pro forma financial information relating to the Orthomet and
OrthoTechnique acquisitions is as follows (in thousands, except per share
amounts):
1994
------------
Net sales $ 121,799
Net loss (25,620)
Net loss per share of common stock $ (3.93)
The pro forma results are not necessarily indicative of what would have
occurred had the acquisitions actually been consummated at the beginning of the
period presented, or of future results of the combined companies.
<TABLE>
3. INVENTORIES
The components of inventories, net of reserves, are as follows (in
thousands):
<CAPTION>
December 31,
------------------------
1996 1995
--------- --------
<S> <C> <C>
Raw materials $ 2,214 $ 3,146
Work in process 10,186 10,971
Finished goods 36,388 35,650
Surgical instruments 10,319 5,048
--------- --------
$ 59,107 $ 54,815
========= ========
</TABLE>
In April 1996, the Company instituted a new surgical instrument program
with its domestic distributor network. The program makes more
<PAGE> 234
of the Company's surgical instruments available for sale to its distributors
and, thus, reduces the demand for loaner instruments. Concurrent with this
program adoption, the Company reclassified approximately $8.5 million of
surgical instruments from property, plant and equipment to inventory at their
net book value.
Generally, the Company's products are subject to regulation by the Food
and Drug Administration ("FDA"). Currently, management believes that the
Company's products comply with applicable FDA regulations and that the Company
has no significant inventory levels of products awaiting FDA approval that, if
such approvals were denied, would have a material effect on the
consolidated financial position or operating results of the Company.
<TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<CAPTION>
December 31,
------------------------
1996 1995
----------- ----------
<S> <C> <C>
Land and land improvements $ 844 $ 859
Buildings 5,696 5,619
Machinery and equipment 25,036 22,824
Furniture, fixtures and equipment 13,033 12,672
Loaner instruments 14,174 17,633
----------- ----------
58,783 59,607
Less: Accumulated depreciation (25,124) (20,466)
----------- ----------
$ 33,659 $39,141
=========== -=========
</TABLE>
<TABLE>
5. INTANGIBLE ASSETS
Other assets include certain intangible assets as follows (in
thousands):
<CAPTION>
December 31,
------------------------
1996 1995
----------- -----------
<S> <C> <C>
Excess of cost over net assets acquired $ 35,461 $ 35,629
Distribution network 4,800 4,800
Patents, licenses and trademarks 3,137 2,439
Other 3,004 2,962
----------- -----------
46,402 45,830
Less: Accumulated amortization (8,528) (5,656)
----------- -----------
$ 37,874 $ 40,174
=========== ===========
</TABLE>
<PAGE> 235
Excess of cost over net assets acquired is being amortized over periods
ranging from 10 to 40 years on a straight-line basis. Other intangibles are
being amortized over periods ranging from 2 to 25 years on either a
straight-line or double declining balance basis.
<TABLE>
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
A detail of accrued expenses and other current liabilities is as follows
(in thousands):
<CAPTION>
December 31,
-------------------------
1996 1995
------------ -----------
<S> <C> <C>
Interest $ 4,668 $ 4,619
Employee benefits 3,489 2,350
Joint venture 2,105 -
Research and development - 2,600
Commissions 1,358 1,385
Taxes 761 1,194
Distributor product reserve 161 618
Professional fees 1,088 1,020
Other 4,823 3,764
----------- -----------
$ 18,453 $ 17,550
============ ===========
</TABLE>
<TABLE>
7. LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<CAPTION>
December 31,
------------------------
1996 1995
------------ -----------
<S> <C> <C>
10-3/4% Series B Senior Secured
Notes, net of unamortized
discount of $572 and $735 $ 84,428 $ 84,265
Capital lease obligations 378 643
---------- -----------
84,806 84,908
Less current portion (138) (446)
---------- ----------
$ 84,668 $ 84,462
========== ==========
</TABLE>
On June 30, 1993, the Company issued 10-3/4% Series A Senior Secured
Notes (the "Series A Notes") with an aggregate principal amount of $85 million.
Attached to the Series A Notes were 350,000 common
<PAGE> 236
stock purchase warrants which were sold for $.02 per warrant. The Series A Notes
were issued at 99.389% of par resulting in an effective interest rate of
approximately 10-7/8%.
The Series A Notes were issued pursuant to a Registration Rights
Agreement whereby the Company agreed to use its best efforts to effect a
registration statement for a new issue of senior secured notes of the Company
identical in all respects to the Series A Notes. On December 8, 1993, an
exchange offer was consummated whereby the Company issued $85 million of 10-3/4%
Series B Senior Secured Notes (the "Series B Notes") in exchange for the Series
A Notes. In connection with the issuance of the Series A Notes and Series B
Notes, the Company incurred costs aggregating approximately $3.9 million which
have been deferred and are being amortized over the 7-year term of the Series B
Notes.
The Series B Notes mature on July 1, 2000 and are subject to certain
optional and mandatory redemption provisions. On or after July 1, 1996, the
Company has the option to redeem the Series B Notes, in whole or in part, at the
following redemption price (expressed as a percentage of principal amount):
Date Percentage
---- ----------
July 1, 1996 - June 30, 1997 106%
July 1, 1997 - June 30, 1998 103%
July 1, 1998 and thereafter 100%
The mandatory redemption provision of the Series B Notes requires
sinking fund payments of approximately $28.3 million on July 1, 1998 and 1999.
If a change in control, as defined, of the Company occurs, the note holders have
the right to require the Company to repurchase, in whole or in part, the Series
B Notes at 101% of the aggregate principal amount of the Series B Notes.
Certain restrictions apply to the Series B Notes which limit, among
other things, (a) the issuance of additional debt or preferred stock, (b)
payment of cash dividends on, and redemption of, the Company's capital stock,
(c) consolidations, mergers, transfers or sales of all or substantially all of
the Company's assets and (d) transactions with affiliates. Additionally, the
Company is required to maintain specified levels of consolidated net worth, as
defined, throughout the term of the Series B Notes. At December 31, 1996, the
Company is in compliance with the Series B Notes covenants. Based upon current
operating projections, management believes the Company will meet its
consolidated net worth requirements as of December 31, 1997, its next scheduled
compliance date. However, to meet the consolidated net worth test at December
31, 1997, the Company will be required to pay dividends "in-kind" on the Series
B Preferred Stock (see Note 8) during 1997. Also, there can be no assurance that
the Company will achieve its operating plan for 1997.
The Series B Notes are secured by a first priority security interest in
certain of the fixed assets, intellectual property rights and other intangible
assets of the Company, now in existence or hereinafter acquired, other than
cash, cash equivalents, accounts
<PAGE> 237
receivable and inventory, and by a first priority pledge of all the capital
stock of all current and future subsidiaries of the Company.
At December 31, 1996, the fair value of the Series B Notes was
approximately $85.9 million based upon a market quote provided by an investment
banker.
The Company had available to it a $30 million revolving line of credit
with Heller Financial, Inc. (the "Heller Agreement") that expired in September,
1996. The Company's projected cash flow requirements indicated that a similar
revolving credit agreement was needed to fund the on going working capital needs
of the Company. Management negotiated with several financial institutions and on
September 13, 1996, finalized and closed a Loan and Security Agreement with
Sanwa Business Credit Corporation (the "Sanwa Agreement") for a $25 million
(which can increase to $30 million upon the occurrence of certain events)
revolving line of credit which expires in September, 1999. As of December 31,
1996, this agreement provided an eligible borrowing base of $19.4 million and
the Company had drawn $8.4 million pursuant to this agreement. During 1996,
borrowings under the Heller and Sanwa Agreements averaged $12.5 million with a
maximum amount borrowed of $16.1 million, as compared to 1995 when borrowings
averaged $15.1 million and reached a high of $29.0 million. Borrowings under
this agreement are collateralized by the Company's accounts receivable and
inventories and bear interest at prime plus 1.5%. A guaranty fee of 3% per
annum is required on any letter of credit guaranties.
The agreement places various restrictions on the Company which limit,
among other things, (a) additional indebtedness, (b) acquisitions, (c)
consolidations, mergers, sales of all or substantially all of the Company's
assets and (d) transactions with affiliates. Additionally, the Company must meet
a specified cash flow coverage ratio.
8. CAPITAL STOCK
Common Stock
Two classes of common stock of the Company have been authorized for
issuance: Class A Common Stock and Class B Common Stock. The holders of Class A
Common Stock are entitled to one vote for each share of Class A Common Stock.
There are currently no shares of Class B Common Stock outstanding. Subject to
any preferential rights of any outstanding series of preferred stock designated
by the Board of Directors, the holders of Class A Common Stock are entitled to
receive, ratably, with the holders of any Class B Common Stock, such dividends,
if any, as may be declared from time to time by the Board of Directors.
Pursuant to a restated certificate of incorporation dated September 25,
1995 (the "Restated Certificate"), the Company has 47,000,000 authorized shares
of common stock consisting of 46,000,000 shares of Class A Common Stock and
1,000,000 shares of Class B Common Stock.
<PAGE> 238
Preferred Stock
Pursuant to the Restated Certificate, the Company has 3,000,000
authorized shares of preferred stock consisting of 1,200,000 shares of Series A
Preferred Stock, 800,000 shares of Series B Preferred Stock, 350,000 shares of
Series C Preferred Stock, and 650,000 shares of undesignated preferred stock.
The Series C Preferred Stock is senior to the Series A Preferred Stock and
junior to the Company's Series B Preferred Stock with respect to dividends and
rights upon liquidation.
The Series A Preferred Stock is voting stock and, upon liquidation or
dissolution of the Company, entitles the holders to a preferential distribution,
subordinate to the Series B and Series C Preferred Stock, from the assets
legally available for distribution to stockholders after the payment of all
debts and liabilities of the Company. At December 31, 1996, the aggregate
preferential distribution would amount to $25.0 million, including accrued and
unpaid dividends ($8.6 million).
Dividends on the Series A Preferred Stock accumulate at the rate of 12%
per annum for a five-year period and at the rate of 15% per annum thereafter,
subject to escalation in the event of delinquency in the payment of the
dividends; as of December 31, 1996, the dividend rate had escalated to 16.86%
per share. Dividends can be paid on the Series A Preferred Stock at the
Company's discretion and the Series A Preferred Stock is redeemable at any time
at the option of the Company; such dividend and redemption rights are currently
restricted, however, by the indenture relating to the Series B Notes.
On July 29, 1994, the Company and California Public Employees'
Retirement System ("CalPERS") entered into a Series B Preferred Stock Purchase
and Class A Common Stock Warrant Agreement whereby the Company would have the
option, for a period of 30 months after July 29, 1994, to sell up to $60 million
of Series B Preferred Stock to CalPERS. On July 29, 1994, the Company sold
150,000 shares of the Series B Preferred Stock and 254,684 warrants to purchase
Class A Common Stock to CalPERS for $15 million. On October 31, 1994, the
Company sold 450,000 shares of Series B Preferred Stock and 764,053 warrants to
purchase Class A Common Stock to CalPERS for $45 million. Each warrant (exercise
price of $.001 per share) entitles CalPERS to purchase from the Company one
share of Class A Common Stock at any time. The Company may be required to issue
additional warrants to CalPERS to allow CalPERS to achieve a certain return on
its investment in the Company.
The Series B Preferred Stock is non-voting and, upon liquidation or
dissolution of the Company, the holders of the Series B Preferred Stock are
entitled to a preferential distribution from the assets legally available for
distribution to stockholders after the payment of all debts and liabilities of
the Company. As of December 31, 1996, such aggregate preferential distribution
would amount to $75.3 million, including accrued and unpaid dividends ($4.1
million).
Dividends on the Series B Preferred Stock are payable on January 2 and
July 1 of each year, subject to the dividend restrictions in the indenture
relating to the Series B Notes. The dividend rate, originally $10 per share, is
subject to escalation in the event of delinquency in
<PAGE> 239
the payment of the dividends; as of December 31, 1996, the dividend rate had
escalated to $12.10 per share. The Company has the option to pay dividends in
either cash or additional shares of Series B Preferred Stock.
On February 25, 1997, the Company's Board of Directors declared a
dividend "in-kind" of $11.2 million to the Series B Preferred Stock shareholders
by issuing 111,910 shares of Series B Preferred Stock to shareholders of record
as of December 31, 1996. Accordingly, this "in-kind" dividend has been reflected
in the carrying amount of the Mandatorily Redeemable Series B Preferred Stock in
the accompanying consolidated balance sheet. Subsequently, the Company declared
an additional "in-kind" dividend of $5.3 million by issuing 53,485 shares of
Series B Preferred Stock to its Series B Preferred Stock shareholders as of
February 28, 1997.
The Series B Preferred Stock is subject to an optional redemption by the
Company. The Company must pay a premium of 6-1/2% if such redemption occurs
prior to July 29, 1997, and a 5% premium during the subsequent 24 months. Unless
earlier redeemed, the Company must redeem all Series B Preferred Stock on July
29, 2002. The Series B Preferred Stock also may be redeemed at the option of the
holder in certain circumstances. The terms of the Series B Preferred Stock
limit, among other things, (a) the issuance of additional capital stock, (b)
consolidations, mergers, transfers or sales of all or substantially all of the
Company's assets, (c) payment of dividends on and redemption of the Company's
capital stock, and (d) additional indebtedness.
On September 25, 1995, the Company and Princes Gate Investors, L.P. and
affiliates, investment partnerships managed by Morgan Stanley & Co. Incorporated
(collectively, the "Princes Gate Investors") entered into a Securities Purchase
Agreement, pursuant to which the Princes Gate Investors purchased, for an
aggregate sum of $35 million ($33.8 million net of commissions), 350,000 shares
of preferred stock designated Redeemable Convertible Preferred Stock, Series C
(the "Series C Preferred Stock") and 741,110 warrants to purchase Class A Common
Stock (the "Series B Warrants").
The Series C Preferred Stock is senior to the Company's Class A Common
Stock and Series A Preferred Stock and junior to the Company's Series B
Preferred Stock with respect to dividends and rights upon liquidation. The
Series C Preferred Stock is non-voting and, upon liquidation of the Company, the
holders of the Series C Preferred Stock are entitled to a preferential
distribution from the assets legally available for distribution to stockholders
after the payment of all debts and liabilities of the Company and all
liquidation payments to the holders of the Series B Preferred Stock, including
all accrued and unpaid dividends (the "Series C Redemption Amount"). As of
December 31, 1996, the Series C Redemption Amount was $40.3 million, including
accrued and unpaid dividends ($5.3 million).
Dividends on the Series C Preferred Stock, which are payable on
January 1, April 1, July 1 and October 1 of each calendar year, cumulate
at the rate of $12 per share per annum through March 24, 1999. The
<PAGE> 240
dividend rate per share per annum increases according to the following
schedule:
March 25, 1999 to September 24, 1999 $13.00
September 25, 1999 to March 24, 2000 14.00
March 25, 2000 to September 24, 2000 15.00
September 25, 2000 to March 24, 2001 16.00
March 25, 2001 and thereafter 17.00
Under the terms of the Company's indenture relating to the Series B
Notes, dividends on the Series C Preferred Stock may not be paid until the
Series B Notes are paid in full and, under the Restated Certificate, dividends
on the Series C Preferred Stock are subject to the prior payment of dividends on
and, under certain circumstances, redemption of the Series B Preferred Stock.
At any time after March 24, 1999, the Princes Gate Investors, holding
not less than 66-2/3% of all Series C Preferred Stock, have the right to convert
the Series C Preferred Stock into shares of Class A Common Stock having a fair
market value, as defined, equal to 110% of the Series C Redemption Amount
on that date. After any such conversion, no new shares of Series C Preferred
Stock may be issued by the Company. Additionally, subject to certain limitations
imposed by the Restated Certificate and the Series B Notes, the Series C
Preferred Stock is redeemable at the option of the Company for an amount equal
to the Series C Redemption Amount on the date of any such redemption.
The terms of the Series C Preferred Stock, contain certain covenants
that, among other things, limit the Company's ability to (a) issue additional
shares of preferred stock, (b) incur additional indebtedness and (c)
consolidate, merge or sell substantially all of the Company's assets.
Each of the Series B Warrants entitles the holder thereof to purchase
one share of Class A Common Stock at an exercise price of $.01 per share. The
Company will be required to issue additional Series B Warrants upon the
occurrence of certain events as follows: If 1) the Company has not repurchased,
redeemed or converted all outstanding Series C Preferred Stock on or before
March 25, 1999, or 2) prior to March 25, 1999, an initial public offering has
occurred and all of the proceeds from such offering are not used to redeem
outstanding shares of Series C Preferred Stock, then on the earlier of (1) or
(2) above, additional Series B Warrants shall be issued, if Series C Preferred
Stock is still outstanding; provided, however, that at no time is the Company
required to issue more than an aggregate of 3,989,931 Series B Warrants.
In September 1995, the Company also issued an additional 125,000
warrants (exercise price of $.001 per share) to purchase Class A Common Stock to
the holders of the Company's Series B Preferred Stock. These warrants were
issued in exchange for the consent of the holders of the
<PAGE> 241
Series B Preferred Stock to the issuance of the Series C Preferred Stock.
Warrants
In addition to the warrants issued to CalPERS and Princes Gate
Investors, the Company issued warrants to the purchasers of its senior secured
notes at the purchase price of $.02 per warrant. In the aggregate, the warrants
entitle the holders to purchase 350,000 shares of the Company's Class A Common
Stock at $.142 per share. The exercise price and the number of warrant shares
are both subject to adjustment in certain cases. The warrants are exercisable at
any time and, unless exercised, the warrants will automatically expire ten years
from the date of issuance.
The holders of the warrants have no voting or dividend rights. The
holders of the warrants are not entitled to share in the assets of the Company
in the event of liquidation or dissolution of the Company. In case of certain
consolidations or mergers of the Company, or the sale of all or substantially
all of the assets of the Company to another corporation, each warrant shall
thereafter be exercisable for the right to receive the kind and amount of shares
of stock or other securities or property to which such holder would have been
entitled as a result of such consolidation, merger or sale had the warrants been
exercised immediately prior thereto.
Stock Option Plans
At December 31, 1996, the Company has two fixed stock option plans for
employees, two stock option plans for nonemployees which principally includes
the distributors of the Company's products and a distributor stock purchase
plan. Generally, the Company's stock option plans grant options to purchase the
Company's Class A Common Stock and, in certain instances, the Company's Series A
Preferred Stock.
Under the 1993 Stock Option Plan, the Company may grant options to its
employees for up to 1.5 million shares of Class A Common Stock. Under the 1993
Special Stock Option Plan, the Company may grant options to its employees for up
to 200,000 shares of common stock and 20,000 shares of preferred stock. Under
these two fixed stock option plans, options generally become exercisable in
installments of 25% annually in each of the first through fourth anniversaries
of the grant date and have a maximum term of ten years. Under both plans, the
exercise price of each option equals the market price of the Company's
respective stock on the date of grant.
The Company's non-employee stock option plans include the 1994 Non-
employee Stock Option Plan ("NSOP") which authorizes up to 125,000 shares of
Class A Common Stock and the 1994 Distributor Stock Option Plan ("DSOP") which
authorizes up to 500,000 shares of Class A Common Stock. Under both of those
plans, the exercise price of each option equals the market price of the
Company's Common Stock on the date of grant with the options maximum term
equaling ten years. Under the NSOP, options generally become exercisable in
installments of 25% annually in each of the first through fourth anniversaries
of the grant date. Under the
<PAGE> 242
DSOP, options generally become exercisable upon the achievement of a specified
performance target.
A summary of the Company's fixed and non-employee stock option plans as
of December 31, 1994, 1995 and 1996, and changes during the years ending on
those dates is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Class A Shares Exercise Shares Exercise Shares Exercise
Common Stock (000's) Price (000's) Price (000's) Price
- ------------ ------ -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance,
Beginning of year 971.5 $0.14 1,635.3 $3.09 1,822.2 $8.78
Granted 819.3 6.32 624.5 19.28 204.7 21.00
Exercised - - (330.5) 0.14 (123.0) 0.14
Lapsed (155.5) 0.85 (107.1) 9.66 (231.8) 11.57
--------- -------- --------
Balance,
End of year 1,635.3 3.09 1,822.2 8.78 1,672.1 10.53
==============================================================
</TABLE>
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ----
Weighted Weighted Weighted
Average Average Average
Series A Shares Exercise Shares Exercise Shares Exercise
Preferred Stock (000's) Price (000's) Price (000's) Price
- --------------- ------ -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance,
Beginning of year 14,750 $19.88 14,775 $19.88 17,000 $19.88
Granted 3,025 19.88 3,250 19.88 - -
Exercised - - (525) 19.88 - -
Lapsed (3,000) 19.88 (500) 19.88 (3,250) 19.88
--------- ------- --------
Balance,
End of year 14,775 19.88 17,000 19.88 13,750 19.88
==============================================================
</TABLE>
<PAGE> 243
<TABLE>
The following table summarizes information concerning the Company's
stock option plan's at December 31, 1996:
<CAPTION>
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (years) Price Exercisable Price
<S> <C> <C> <C> <C> <C> <C>
$0.14 1,026,875 6.79 $0.14 260,250 $0.14
$7.50 132,880 7.44 $7.50 101,380 $7.50
$8.48 153,560 7.71 $8.48 74,918 $8.48
$13.77 119,800 7.90 $13.77 69,130 $13.77
$16.57 166,980 8.16 $16.57 76,491 $16.57
$20.13 108,200 8.41 $20.13 32,700 $20.13
$21.00 417,275 9.11 $21.00 69,070 $21.00
</TABLE>
The Company applies APB Opinion 25 and related Interpretations in
accounting for its stock option plans. Accordingly, no compensation cost has
been recognized for its fixed stock option plans. Also, no compensation cost has
been recognized under the Company's non-employee stock option plans during 1994
and 1995, however, approximately $126,000 of compensation cost was recognized in
the accompanying consolidated statement of operations for the year ended
December 31, 1996 related to the non-employee stock option plans. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with SFAS No. 123, the Company's net loss and earnings per
share would have been increased to the following pro forma amounts (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net loss As reported ($14,589) ($6,492)
Pro forma ($15,554) ($7,356)
Loss Per Share As reported ($3.90) ($2.24)
Pro forma ($4.00) ($2.35)
</TABLE>
The fair value of each option is estimated on the date of grant using the
minimum value methodology promulgated by SFAS No. 123. The weighted average fair
value of options granted during 1996 and 1995 were $9.62 and $9.03,
respectively. This methodology is used as the Company's shares are not publicly
traded. In applying the minimum value methodology, the Company utilized a risk
free interest rate that varied between 5.63% and 7.50% for 1996 and 1995 grant
dates and expected lives of the options of 10 years for both 1996 and 1995.
<PAGE> 244
Employees' Common Stock Grant Plan
The Company has an Employees' Common Stock Grant Plan of which 122,500
shares are reserved for issuance under this plan. No grants have been made
during 1996, 1995 and 1994.
Distributor Stock Purchase Plan
During 1993, the Company established a Stock Purchase Plan for its
distributors pursuant to which shares of Class A Common Stock and Series A
Preferred Stock were offered to the Company's distributors for a purchase price
of $.142 and $19.88, respectively, per share. As of December 31, 1996, 417,000
shares of Class A Common Stock and 39,450 shares of Series A Preferred Stock
purchased under this plan were outstanding. Shares purchased under this plan
vest on December 31, 1999, or earlier if certain criteria are met. As of
December 31, 1996, 342,040 shares of Class A Common Stock and 31,954 shares of
Series A Preferred Stock were vested. These shares are subject to repurchase by
the Company in the event that a distributor's association with the Company is
terminated or if the distributor is no longer operating as an exclusive sales
representative for the Company. The repurchase price shall be the distributor's
cost to purchase the shares until the shares vest; thereafter, the repurchase
price shall be at fair market value.
<TABLE>
9. INCOME TAXES
Consolidated income (loss) before income taxes consists of the following
(in thousands):
<CAPTION>
1996 1995 1994
----------- ------------ -----------
<S> <C> <C> <C>
United States $(10,525) $ (4,403) $(59,038)
Foreign (4,064) (470) 1,777
----------- ------------ -----------
$(14,589) $ (4,873) $(57,261)
=========== ============ ===========
</TABLE>
<TABLE>
The provision (benefit) for income taxes consists of the following (in
thousands):
<CAPTION>
1996 1995 1994
----------- ----------- ------------
<S> <C> <C> <C>
Current - Foreign $ (1,278) $ 351 $ 574
Deferred (1,603) 2,167 (17,550)
Tax benefit of operating loss (1,495) (3,426) (5,179)
carryforward
Adjustment to valuation allowance 4,376 2,527 14,274
----------- ----------- ------------
$ - $ 1,619 $ (7,881)
=========== =========== ============
</TABLE>
<PAGE> 245
<TABLE>
The income tax provision (benefit) differs from the amount computed by
applying the U.S. statutory federal income tax rate due to the following (in
thousands):
<CAPTION>
1996 1995 1994
---------- ---------- ---------
<S> <C> <C> <C>
Income tax benefit at statutory rate $ (4,911) $ (1,657) $(19,469)
Adjustment to valuation allowance 4,376 2,527 14,274
State income taxes (415) (176) (2,385)
Foreign income taxes 104 162 (388)
Goodwill amortization 560 584 32
Other, net 286 179 55
---------- ---------- ----------
$ - $ 1,619 $ (7,881)
========== ========== ==========
</TABLE>
<TABLE>
The components of deferred taxes are as follows (in thousands):
<CAPTION>
1996 1995
------------ ------------
Deferred tax assets:
<S> <C> <C>
Operating loss carryforward $ 9,718 $ 7,544
Reserves and allowances 9,398 9,088
Intercompany profit on inventories 319 700
Other 5,294 3,910
----------- -----------
24,729 21,242
Valuation allowance (22,051) (17,675)
----------- -----------
$ 2,678 $ 3,567
=========== ===========
Deferred tax liabilities:
Intangible assets $ 1,700 $ 1,873
Depreciation 363 604
Other 615 1,090
----------- -----------
$ 2,678 $ 3,567
=========== ===========
</TABLE>
The Company has provided a valuation allowance against its net deferred
tax assets because, given the Company's history of operating losses, the
realizability of these assets is uncertain. Management's assessment of the need
for a valuation allowance could change in the future based on the Company's
future operating results.
At December 31, 1996, the Company has a net operating loss carryforward
for U.S. federal income tax purposes of approximately $21.3 million which
expires in 2008 through 2011. Additionally, the Company has credit carryforwards
of approximately $646,000 which expire through 2010.
<PAGE> 246
10. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution plan which covers employees
that are 21 years of age and over. The Company has the option to contribute
annually to the plan shares of Company stock determined by the Board of
Directors and will match employee's voluntary contributions at rates of 100% of
the first 2% of an employee's annual compensation, and 50% of the next 2% of an
employee's annual compensation. Employees vest in the Company's contributions
after 5 years. The Company's cost related to this plan was approximately $1.7
million, $1.7 million and $1.2 million, respectively, for the years ended
December 31, 1996, 1995 and 1994.
<TABLE>
11. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases certain equipment under capital leases and
noncancelable operating leases. The future annual minimum rental payments under
these leases are as follows (in thousands):
<CAPTION>
Capital Operating
Year Leases Leases
---- ----------- -----------
<S> <C> <C>
1997 $170 $ 622
1998 108 360
1999 84 253
2000 42 73
2001 33 5
Thereafter 8 -
----------- -----------
Total minimum lease payments 445 $ 1,313
===========
Less amount representing interest (67)
-----------
Present value of future lease payments $378
===========
</TABLE>
Rental cost under operating leases for the years ended December 31,
1996, 1995 and 1994 was approximately $1.2 million, $1.3 million, and $1.0
million, respectively.
Concentration of Credit Risk
Substantially all of the Company's sales and trade receivables are
concentrated with hospitals and physicians. The Company maintains reserves for
potential credit losses on trade receivables, which are generally not
collateralized.
Legal Proceedings
Substantial patent litigation among competitors occurs regularly in
the medical device industry. The Company assumed responsibility for
<PAGE> 247
certain patent litigation in which the Company and/or Dow Corning Corporation
and/or its former subsidiary, Dow Corning Wright Corporation (collectively,
"DCW") was a party. Those proceedings in which the Company was a defendant have
now been resolved.
DCW, pursuant to the Acquisition agreements, retains liability for
matters arising from conduct of DCW prior to the Company's acquisition on June
30, 1993, of substantially all the assets of the large joint orthopaedic implant
business of DCW. As such, DCW has agreed to indemnify the Company against all
liability for all products manufactured prior to the DCW Acquisition except for
products provided under the Company's 1993 agreement with DCW pursuant to which
the Company purchased certain small joint orthopaedic implants for worldwide
distribution. However, the Company was notified in May 1995 that DCW, which
filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code, would no
longer defend the Company in such matters until it received further direction
from the bankruptcy court. On December 2, 1996, DCW filed a proposed plan of
reorganization that provides that all commercial creditors will be paid 100% of
their claims, plus interest. The plan did not, however, indicate whether DCW
would affirm or reject the Acquisition agreements. Accordingly, there can be no
assurance that Dow Corning will indemnify the Company on any claims in the
future. Although the Company does not maintain insurance for claims arising on
products sold by DCW, management does not believe the outcome of this matter
will have a material adverse effect on the Company's financial position or
results of operations.
On October 25, 1996, the Company was notified that it had been sued by
Mitek Surgical Products, Inc. in the United States District Court for the
Northern District of California seeking damages for the alleged infringement of
its patent by the Company's ANCHORLOK(TM) soft tissue anchor. The Company has
denied the allegations and is defending the action.
On April 3, 1995, the Company (and Orthomet, Inc., a wholly owned
subsidiary at the time that has subsequently been merged with and into the
Company) was notified that it had been sued by Joint Medical Products
Corporation (which was purchased by Johnson & Johnson Professional, Inc.), in
the United States District Court for the District of Connecticut seeking damages
for the alleged infringement of its patent (the "'472 Patent") by certain of the
Company's acetabular cups and liners. Pending the resolution of an interference
proceeding in the U.S. Patent and Trademark Office regarding the '472 Patent by
British Technology Group Ltd. ("BTG"), such complaint was dismissed without
prejudice. In early November 1996, the Company was notified that the
interference proceeding was resolved, and that, the complaint has been refiled
(but not served). BTG has offered the Company a license of the '472 Patent and a
corresponding reissue patent. The Company believes that it has valid defenses to
claims of infringement of the '472 Patent and to the reissue patent.
The Company is not involved in any other pending litigation of a
material nature or that would have a material adverse effect on the Company's
financial position or results of operations.
<PAGE> 248
Other
On October 7, 1994, the Company entered into a research and development
funding agreement with OsteoBiologics, Inc. ("OBI") based in San Antonio, Texas.
In exchange for the Company's $6.5 million funding commitment, OBI has granted
the Company (a) exclusive worldwide distribution rights for 15 years from the
date of commercialization of certain OBI orthopaedic products and (b) warrants
to purchase up to 1,252,848 shares of OBI common stock at $0.025 per share. In
1994, the Company expensed the $6.5 million commitment as research and
development expense. At December 31, 1996, the Company had paid all of its
funding obligations pursuant to this agreement.
On February 22, 1996, the Company entered into a Distribution Agreement
with a Japanese corporation whereby the Company received $3 million in exchange
for 60,000 shares of the Company's Class A Common Stock and the exclusive rights
to distribute the Company's products in Japan for an initial period of five
years, with a possible extension for an additional five years subject to the
achievement of certain sales goals. In connection with this Distribution
Agreement, the Company is amortizing $1,740,000 for the proceeds assigned to the
distribution rights to income ratably over 5 years. At December 31, 1996,
deferred income in the accompanying consolidated financial statements related to
this distribution right was $1,502,000.
During 1996, the Company decided to discontinue operations of certain
subsidiaries including Wright Medical Technology of Hong Kong Limited, Wright
Medical Technology do Brasil Importadora e Comercial Ltda, Wright Medical
Technology of Australia Pty Limited and Wright Medical Technology France
S.A.R.L. Discontinuance of those operations did not have a material effect on
the Company's consolidated operating results or financial position.
12. RELATED PARTY TRANSACTIONS
Stockholder Notes Receivable
As of December 31, 1996 and 1995, the Company has notes receivable from
stockholders aggregating approximately $1.0 and $1.0 million, respectively,
relating to purchases of the Company's common and preferred stock. On December
27, 1995, Herbert Korthoff, the Company's Chairman and then Chief Executive
Officer, and Barbara Korthoff repaid the outstanding principal balance of
$1,176,164 on 552,690 shares of Class A Common Stock and 55,269 shares of Series
A Preferred Stock purchased through a note on June 30, 1993. A new non-interest
bearing note was issued for the unpaid interest on the above note of $420,480.
Effective April 1, 1994, the Company repurchased 798,380 shares of Class A
Common Stock and 79,838 shares of Series A Preferred Stock from Herbert
Korthoff. The Company repurchased the shares at the same price at which such
shares had originally been sold to Mr. Korthoff. The repurchase of the shares
was accomplished through a $1.7 million reduction of the stock purchase note
receivable from Mr. Korthoff.
The remaining stockholder notes receivable bear interest at the
rate of 10% per annum, payable semi-annually. At the option of the
<PAGE> 249
maker, the interest may be deferred and added to principal, and to date such
interest has been added to principal. The entire principal amount is due on June
30, 1998, subject to acceleration upon a sale of all or substantially all of the
business assets, or issued and outstanding capital stock of the Company or the
successful completion of an initial public offering by the Company of any of its
equity securities pursuant to a registration statement under the Securities Act
of 1933. The notes are secured by a pledge of the related preferred and common
stock. Approximately $61,644, $178,000, and $265,000 respectively, of interest
income relating to stockholder notes receivable was recorded by the Company
during the years ended December 31, 1996, 1995 and 1994.
Distributor Notes Receivable
The Company has notes receivable from its distributors relating
primarily to the purchase of instruments used by surgeons in the implantation of
the Company's products. The notes bear interest at variable rates ranging from
approximately 6% to 8% and generally are collateralized by the related
instruments. The outstanding balance on these notes was approximately $0.4
million and $8.6 million at December 31, 1996 and 1995, respectively, of which
the current portion (included in "other current assets" in accompanying balance
sheets) was $0.3 million and $1.5 million, respectively.
During 1996, the Company repurchased certain surgical instruments owned
by distributors at the lower of the instruments' fair value or the related
unpaid note balance. This repurchase was done to implement the instrument
program discussed in Note 3 to the consolidated financial statements.
The accompanying statements of operations for the years ended December
31, 1996, 1995 and 1994, include approximately $0.8 million, $2.4 million, and
$2.0 million, respectively, of net sales of instruments to distributors.
Typically, the Company has not reflected any gross margin on these instrument
sales.
Management Agreement
The Company has a management agreement with an affiliate of one of its
principal stockholders pursuant to which management fees of $360,000 were
incurred for the years ended December 31, 1996, 1995 and 1994.
13. SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
Following is a summary of the Company's noncash investing and financing
activities for the year ended December 31:
1994
- Repurchased 798,380 shares of Class A Common Stock and 79,838 shares
of Series A Preferred Stock through a $1.7 million reduction of
stock purchase note receivable.
- Acquired Questus for approximately $4.4 million, of which
<PAGE> 250
approximately $2.3 million was funded by the issuance of 169,630
shares of the Company's Class A Common Stock.
- Acquired certain intellectual property rights through incurrence of
related indebtedness of approximately $3.6 million.
1995
- None
1996
- Issued 111,910 shares of Series B Preferred Stock in the form of an
"in-kind" dividend payment aggregating $11.2 million.
- Repurchased surgical instruments from distributors totaling $6.8
million through the forgiveness of accounts owed by distributors to
the Company on such surgical instruments.
<TABLE>
14. INDUSTRY SEGMENT AND FOREIGN OPERATIONS
The Company's operations are classified as a single industry segment.
Selected financial information by geographic area is as follows (in thousands):
<CAPTION>
United Elimi-
Year Ended December 31, 1994 States Foreign nations Total
- ----------------------------- ---------- --------- ----------- ----------
Net sales
<S> <C> <C> <C> <C>
Unaffiliated customers $ 72,963 $ 22,800 $ - $ 95,763
Intercompany 9,045 - (9,045) -
----------- ---------- ----------- ----------
Total $ 82,008 $ 22,800 $ (9,045) $ 95,763
----------- ---------- ----------- ----------
Operating loss $ (34,673) $ (11,452) $ (1,006) $ (47,131)
----------- ---------- ----------- ----------
Identifiable assets $ 137,597 $ 18,621 $ (1,667) $ 154,551
----------- ---------- ----------- ----------
Year Ended December 31, 1995
Net sales
Unaffiliated customers $ 109,046 $ 14,150 $ - $ 123,196
Intercompany 3,005 - (3,005) -
----------- ---------- ---------- ----------
Total $ 112,051 $ 14,150 $ (3,005) $ 123,196
----------- ---------- ---------- ----------
Operating income (loss) $ 5,308 $ 1,171 $ (176) $ 6,303
----------- ---------- ---------- ----------
Identifiable assets $ 159,871 $ 16,339 $ (1,839) $ 174,371
----------- ---------- ---------- ----------
Year Ended December 31, 1996
Net sales
Unaffiliated customers $ 108,125 $ 13,743 $ - $ 121,868
Intercompany 5,375 - (5,375) -
----------- ---------- ---------- ----------
Total $ 113,500 $ 13,743 $ (5,375) $ 121,868
----------- ---------- ---------- ----------
Operating income (loss) $ (774) $ (3,289) $ 1,008 $ (3,055)
----------- ---------- ---------- ----------
Identifiable assets $ 167,458 $ 5,761 $ (6,893) $ 166,326
----------- ---------- ---------- ----------
</TABLE>
<PAGE> 251
Operating expenses not directly related to a particular geographic
segment have been allocated between segments in proportion to net sales.
15. SUBSEQUENT EVENT
On January 3, 1997, the Company entered into an agreement with Gary K.
Michelson, M.D., to purchase rights to patents, ideas and designs related to the
"MultiLock" design for an anterior cervical plating system. The purchase price
includes a payment of $120,000 due in four installments in 1997, as well as
royalties equal to 8% of the sales, net of commissions, of the locking cam
products. The Company guaranteed minimum royalties as follows:
04/01/98 - 03/31/99 $320,000
04/01/99 - 03/31/00 $480,000
04/01/00 - 03/31/01 $700,000
04/01/01 - 03/31/02 $1,000,000
For each of the annual periods commencing April 1, 2002 through March 31
of the subsequent year, and continuing for the longer of the period for which
the MultiLock products are being sold or 10 years from January 3, 1997, the
minimum royalty shall be $1.0 million.
The Company also entered into an agreement with Dr. Michelson to
purchase rights to patents, ideas and designs related to the "SingleLock" design
for an anterior cervical plating system. The purchase price includes a payment
of $100,000 due in 1997, as well as royalties equal to 8% of the net sales of
the SingleLock products. The Company guaranteed minimum royalties as follows:
10/01/98 - 03/31/99 $80,000
04/01/99 - 03/31/00 $200,000
04/01/00 - 03/31/01 $295,000
04/01/01 - 03/31/02 $425,000
04/01/02 - 03/31/03 $500,000
and years thereafter
Dr. Michelson agreed to provide exclusive continuing services as a
developer, product lecturer and general consultant for anterior cervical
plating. The Company is acquiring a $5,000,000 ten year term key man life
insurance policy on Dr. Michelson with the Company as beneficiary.
<PAGE> 252
EXHIBIT INDEX
Does not include the documents incorporated by reference as delineated
by Item 14 of this Form 10-K.
10.25 Joint Venture Agreement with Tissue
Engineering, Inc.
11.1 Statements re: Computation of Earnings per
Share
12.1 Statement re: Computation of Ratios of
Earnings to Fixed Charges and Preferred
Dividends
21.1 Subsidiaries of the Company
23.2 Consent of Arthur Andersen LLP
<PAGE> 253
Exhibit 10.25
Joint Venture Agreement with Tissue Engineering
JOINT VENTURE AGREEMENT
THIS JOINT VENTURE AGREEMENT (the "Agreement") is entered into as of the
12th day of July, 1996, by and between WRIGHT MEDICAL TECHNOLOGY, INC., a
Delaware corporation, having offices at 5677 Airline Road, Arlington, Tennessee
38002 ("Wright") and TISSUE ENGINEERING, INC., a Delaware corporation, having
offices at The Fargo Building, 451 D Street, Boston, Massachusetts 02210 (the
"Company").
WHEREAS, the Company has developed and owns technology to produce
collagen-based scaffolds which can be used, among other things, for ligament and
tendon reconstruction, for cartilage regeneration, and for use with calcium
phosphate/sulfate as a bone graft substitute (collectively, the "Technology");
and
WHEREAS, Wright and the Company desire to form a jointly owned Delaware
limited liability company (the "LLC") for the purpose of broadly commercializing
products for use in the treatment of musculoskeletal problems based on the
Technology (the "Products"), upon the terms and subject the conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the premises and actual covenants
set forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
SECTION 1. DEFINITIONS. The following definitions shall apply to
this Agreement:
"Additional Note" shall have the meaning given to it in Section
3(C) hereof.
"Approved Marketing Expenses" for any period shall mean the total amount
of marketing expenses mutually agreed upon by Wright and the Company for such
period when Products become available for marketing. Within thirty (30) days
following the end of each Contract Year, Wright shall provide the LLC with a
written reconciliation of actual marketing expenses and the Approved Marketing
Expenses for such year. In the event the actual marketing expenses do not exceed
the Approved Marketing Expenses that had been returned to Wright that year, the
difference shall be added to Gross Billings for the month in which the
reconciliation is presented. Wright shall be solely responsible for any actual
marketing expenses that exceed the Approved Marketing Expenses for any year.
"Approved Per Unit Marketing Expenses" shall be calculated each Contract
Year and shall mean the Approved Marketing Expenses divided by the Expected
Minimum Unit Sales.
"Approved R&D Expenses" for any period shall mean the total amount of
research and development expenses mutually agreed upon by Wright and the Company
for such period. Within thirty (30) days following the end of each Contract
Year, the Company shall provide the LLC with a written
<PAGE> 254
reconciliation of actual research and development expenses and the Approved R&D
Expenses for such year. In the event that the actual research and development
expenses do not exceed the Approved R&D Expenses that had been returned to the
Company that year, such difference shall be added to Gross Billings for the
month in which the reconciliation is presented. The Company shall be solely
responsible for any actual research and development expenses that exceed the
Approved R&D Expenses for any year, unless provision is made by the LLC for such
research and development Expenses and for other mutually agreed upon research
and development expenses to be paid by funds raised by the LLC.
"Budget" shall mean the annual budget of the LLC approved by Wright and
the Company, which shall include, among other things, budgets for sales
forecasts, Approved Marketing Expenses, Approved R&D Expenses, intellectual
property development, patent prosecution and maintenance expenses, pre-clinical
and clinical costs and expenses, administrative and accounting expenses;
provided that the initial budget for the LLC is attached hereto as Exhibit D.
"CGS" shall mean the Company's fully absorbed costs to manufacture each
Product sold.
"Commissions" shall mean the actual sales commissions to be paid by
Wright on the sale of the Products.
"Contract Year" shall mean each twelve month period commencing on
January 1 and ending on December 31; provided that the first Contract Year shall
commence upon execution of this Agreement and end on December 1, 1996.
"Expected Minimum Unit Sales" shall mean the Minimum Gross Billings
divided by the average selling price of the Product in the prior year.
"Expenses" shall mean (1) Commissions; provided, however, that in any
one month period those Commissions may not exceed twenty percent (20%) of the
Gross Billings; (2) the CGS; (3) Approved Per Unit Marketing Expenses; provided,
however, that such marketing expenses shall cease to be deducted when the
aggregate Approved Marketing Expenses for a given year have been repaid to
Wright; (4) Wright's shipping costs for Products sold if such costs are able to
be billed by Wright to the customer and if not otherwise included in CGS; (5)
Approved R&D Expenses, manufacturing scale-up and manufacturing expenses
incurred by the Company; (6) all costs and expenses of Wright associated with
pre-clinical animal studies and clinical studies; and (7) any other expenses
that Wright and the Company agree to deduct.
"Formation Date" shall have the meaning given to it in Section 3(A)
hereof.
"Gross Billings" shall mean the sum of (1) the gross sales price charged
by Wright, (2) excess Approved Marketing Expenses and (3) excess Approved R&D
Expenses.
"Initial Note" shall have the meaning given to it in Section
<PAGE> 255
3(B)(1) hereof.
"License" shall mean the royalty free, exclusive and perpetual license
granted by the Company for the Technology for use in the musculoskeletal field,
excluding dental applications, to the LLC pursuant to a license agreement
substantially in the form of Exhibit A attached hereto.
"Minimum Gross Billings" shall have the meaning given to it in Section
7(B)(2) hereof.
"Net Profit" for any period shall mean the aggregate Gross Billings
minus Expenses.
"Proprietary Information" shall mean any information of either party or
the LLC that might reasonably be considered proprietary, secret, sensitive or
private, including but not limited to: (a) technical information, know-how,
data, techniques, discoveries, inventions, ideas, unpublished patent
applications, trade secrets, formulae, analyses, laboratory reports, other
reports, financial information, studies, findings, or other information relating
to the LLC or the Technology or methods or techniques used by the LLC, whether
or not contained in samples, documents, sketches, photographs, drawings, lists
and the like; (b) data and other information employed in connection with the
marketing of the Products, including cost information, business policies and
procedures, revenues and markets, distributors and customers, and similar items
of information whether or not contained in documents or other tangible
materials; or (C) any other information obtained by the any party to this
Agreement during the term hereof, that is not generally known to, and not
readily ascertainable by proper means by, third parties.
SECTION 2. PURPOSE OF THE LLC. The LLC will be established for the
purposes of commercializing products based on the Technology. It is expected
that the LLC initially will focus a large share of its efforts toward products
that can be manufactured using the Technology and commercialized in the near
future. It is also expected that an appropriate balance of longer term product
opportunities will be maintained, working to develop commercializable products.
The parties hereto agree to negotiate in good faith to enter into one or more
additional LLC agreements in the event transactions contemplated by this
Agreement result in additional product ideas.
SECTION 3. FORMATION OF LLC; FURTHER CAPITAL CONTRIBUTIONS;
ADDITIONAL AGREEMENTS OF THE PARTIES.
A. As soon as practicable following the execution of this Agreement, the
parties hereto shall cause the LLC to be formed as a limited liability company
pursuant to the laws of the State of Delaware by filing a certificate of
incorporation (the "Charter"). The date of such filing is hereinafter referred
to as the "Formation Date".
B. On the Formation Date:
1. Wright shall contribute to the LLC (a) initial
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administrative, accounting and legal support in order to create the LLC and (b)
a promissory note in the amount of $1,500,000 (the "Initial Note"), which
Initial Note shall be drawn down on demand by the LLC in accordance with the
Budget, in exchange for issuance by the LLC on the Formation Date of 49% of the
validly issued, fully paid and nonassessable shares of capital stock of the LLC
issued and outstanding on the Formation Date.
2. The Company shall contribute to the LLC the License to the
Technology in exchange for issuance by the LLC on the Formation Date of 51% of
the validly issued, fully paid and nonassessable shares of capital stock of the
LLC issued and outstanding on the Formation Date.
3. Wright and the Company shall execute a shareholders
agreement substantially in the form of Exhibit B attached hereto.
C. Wright hereby agrees to make additional funding contributions to the
LLC, in furtherance of the LLC, in the amount of $1,500,000 on each of the first
and second annual anniversary of the Formation Date; provided that each such
obligation shall be satisfied by delivering to the LLC a promissory note in the
amount of $1,500,000 (the "Additional Note"). To the extent that the LLC is able
to raise its own capital, or arrange for its own financing, Wright shall be able
to charge the LLC reasonable fees reflecting its fully absorbed cost for
providing administrative, accounting, legal, regulatory and clinical support
provided to the LLC and, in addition to the research and development provided
pursuant to the Budget for the first three years, beginning on the four year
anniversary of the execution of this Agreement, the Company shall be able to
charge the LLC for research and development support and support of product
manufacturing at normal commercial rates for such services.
D. The Company hereby agrees to grant to Wright an irrevocable voting
proxy for that number of shares of capital stock of the LLC equal to 1% of the
issued and outstanding stock of the LLC on the Formation Date, it being the
intent of the parties hereto that the Company and Wright each have a right to
vote 50% of the issued and outstanding stock of the LLC at all times; provided,
however, that in the event that Wright is a party to any agreement that
prohibits it from exercising such voting proxy, such proxy shall be granted to
an independent third party mutually acceptable to both Wright and the Company;
and provided, further, that Wright shall have the option to purchase such 1%
interest for $1.00 at anytime following the Formation Date. Furthermore, the
Company hereby agrees to take all action necessary to ensure that any such proxy
continues in perpetuity, including without limitation, executing subsequent
voting proxy upon the expiration of any existing proxy under applicable Delaware
law or, at the request of Wright, entering into a voting trust to effectuate the
purposes set forth in this Section 3(D).
SECTION 4. CORPORATE GOVERNANCE; MANAGEMENT.
A. Except as otherwise required by law or as provided in the
Charter, responsibility for the management, direction and control of the
LLC shall be vested in the Board of Directors of the LLC. The Charter
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shall provide for the election of four directors.
B. The directors of the LLC shall be elected annually at annual meetings
of the stockholders of the LLC. It is understood and agreed by the parties
hereto that two of the directors of the LLC shall be individuals nominated by
Wright and two of the directors of the LLC shall be individuals nominated by the
Company. Each of the parties hereto covenants and agrees to vote its shares of
stock of the LLC to cause the election of the directors nominated in accordance
with the foregoing. In the event of the death, incapacity, resignation or
removal of a director prior to the end of his or her term, each of the parties
hereto agrees to vote its shares of stock so as to appoint as his or her
replacement a director nominated by the party hereto who nominated the director
whose death, incapacity, resignation or removal was the cause of such vacancy.
C. Wright and the Company shall take all actions necessary or
appropriate to ensure that the Charter accurately reflects the
arrangements set forth in this Section 4.
D. The management of the LLC shall be comprised of officers designated
by the Board of Directors of the LLC. Each of the parties hereto hereby
covenants and agrees to cause the directors of the LLC nominated by it to cast
their votes so as to appoint as officers of the LLC individuals who qualify
under the foregoing provisions of this Section 4(D). In the event of death,
incapacity, resignation or other removal of an officer prior to the end of his
or her term, each of the parties hereto agrees to cause the directors of the LLC
to cast their votes so as to appoint his or her replacement a nominee who
qualifies under said foregoing provisions of this Section 4(D).
E. Notwithstanding anything to the contrary contained herein, the
parties hereto hereby agree to use their best efforts to avoid the occurrence of
any deadlock and further agree to use their best efforts to resolve any deadlock
as expeditiously as possible.
F. The parties hereto agree that the Board of Directors of the LLC shall
meet at least once each calendar quarter at such time and place acceptable to
all directors, and at each annual meeting of the Board of Directors, an annual
operating Budget of the LLC shall be adopted.
G. If the parties are unable to agree at any Board of Directors' meeting
to act upon a resolution approving the LLC's annual operating plan and Budget,
the parties hereto agree that a top-level meeting be convened between the
parties, attended by corporate officers of each party with decision-making
authority regarding the dispute, in order to attempt in good faith to resolve
the matter. At such meeting each of the parties hereto will use its best efforts
to resolve the deadlock and such meeting shall continue until a resolution is
achieved.
SECTION 5. RESEARCH AND DEVELOPMENT ACTIVITIES.
A. Wright will use its best efforts to obtain regulatory approval
to sell and distribute the Products. In connection therewith, Wright
<PAGE> 258
and the Company will meet, discuss and formulate a plan for Wright to fund
pre-clinical animal studies and clinical trials. Wright and the Company agree to
establish a clinical trials committee (the "CTC"), comprised equally of members
from Wright and the Company. The CTC will design and supervise the clinical
trials and shall have the full authority to direct the conduct of such clinical
trials. The CTC will operate by consensus, however, in the event the members of
the CTC cannot unanimously agree upon any given matter (other than matters
related to the funding of the clinical trials), such matter shall be referred to
and resolved by an oversight committee comprised of an equal number of
independent members from the respective scientific advisory boards of Wright and
the Company.
B. Wright agrees that it shall use commercially reasonable efforts to
assist and consult with the Company with respect to financial, accounting,
regulatory, engineering and manufacturing matters relating to the Products.
C. The LLC shall use the Company exclusively for research and
development services; provided that in the event the Company ceases to provide
such research and development services, the LLC shall be permitted to find
alternatives sources of research and development services.
D. (1) On the fourth anniversary of this Agreement, the Company shall
provide research and development services to the LLC and (2) upon commencement
of production of any Products, the Company shall provide manufacturing services,
each on financial terms to be mutually agreed upon by the Company, the LLC and
Wright.
SECTION 6. DISTRIBUTION RIGHTS; INTELLECTUAL PROPERTY RIGHTS.
A. In furtherance of the LLC, the Company hereby agrees to cause the LLC
to grant and convey to Wright the world-wide exclusive rights to sell, market,
distribute and conduct all incidental and necessary activities thereto with
respect to the Products pursuant to a distribution agreement substantially in
the form of Exhibit C attached hereto.
B. The Company shall own all patents associated with the Technology;
provided that the Company hereby grants the LLC a royalty-free license to the
Company's intellectual property to the extent necessary to make, use and sell
any Product, including without limitation, any and all patents and registered
trademarks, which license shall be exclusive for musculoskeletal use. Such
license shall automatically transfer to any successors in interest of the LLC.
Wright shall have the right to develop and own trademarks and tradenames for the
sale of the Product; provided that Wright shall undertake to acknowledge in any
Product literature that the Company participated in the invention of such
Product. Any intellectual property developed by either party, or by any third
party, pursuant to work commissioned as an Approved R&D Expense shall be owned
by the LLC. Patent prosecution and maintenance costs associated with such
intellectual property shall be paid by the LLC. Research and development
conducted by either party,
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independent of this Agreement, or not commissioned as an Approved R&D Expense,
and the intellectual property associated therewith, shall be owned by the party
conducting such research and development.
SECTION 7. PROFIT SHARING; SALES; FORECASTS, ETC.
A. Profit Sharing. The LLC shall pay each of Wright and the Company
fifty percent (50%) of all Net Profits, if any, on the sale of any Products
during each month; provided that, if in any month Expenses exceed Gross
Billings, such excess Expenses shall be carried forward and deducted in the
following month on a pro rata basis consistent with the percentage of Expenses
incurred and paid that month to Wright and the Company respectively. The Net
Profit calculation shall be conducted by Wright, and the LLC shall tender any
payment to the Company and Wright, within 90 days of the end of each month.
B. Sales. Wright hereby agrees to use commercially reasonable
efforts to promote the Products in accordance with the Budgets.
C. Forecasts. Wright shall provide quarterly sales forecasts
that will include its best forecast for sales in the succeeding three
(3) months as well as projected sales for the succeeding twelve (12)
months.
D. Orders and Receivables. Wright shall take all orders for the
Products. Upon notification from Wright, the Company shall be responsible for
promptly delivering such Products directly to the customer or Wright, as
directed by Wright from time to time. The Company shall provide the Product
packaged and sterile according to Wright's packaging instructions. Wright shall
be responsible for all billing and collections. Freight shall be shipped F.O.B.
the Company and shall be added by Wright to all billings to customers, if
acceptable to the marketplace.
SECTION 8. ACCOUNTING AND GENERAL REPORTING.
A. The accounting period of the LLC shall commence on January 1 of each
year end on December 31 of the following; provided that the first accounting
period of the LLC shall commence as of the date this Agreement is executed and
end on the next following December 31.
B. Wright shall be responsible for keeping all books and records of the
LLC in accordance with sound and generally accepted accounting principles
applicable the LLC and corporate practices consistently applied. Wright shall
make and keep books, records and accounts that in reasonable detail accurately
and fairly reflect the transactions of the LLC.
C. Wright shall prepare monthly, quarterly and annual financial
statements of the LLC. Such financial statements shall be prepared in accordance
with generally accepted accounting principles. Wright shall submit such
statements to the Company as soon as practicable (but not later than 30 days in
the case of monthly and quarterly financial statements and 60 days in the case
of annual financial statements) after the end of each period.
<PAGE> 260
D. Each party shall have the right, upon 10 days notice, to inspect the
financial records of the other party and the LLC only as they relate to the
calculation of Expenses (including without limitation, commissions, Approved
Marketing Expenses), Gross Billings and the calculation of Net Profit. All
materials reviewed and all materials prepared by the other party based upon the
audit shall remain confidential and not be used for any purpose other the
operation or enforcement of this Agreement.
SECTION 9. PROPRIETARY INFORMATION.
A. All business, technical, research and development and financial
information and materials containing such business information provided by the
parties to each other, including without limitation, lists of present or
prospective customers or vendors or of persons that have or shall have dealt
with the respective parties hereto, customer requirements, preferences and
methods of operation, management information reports and other computer
generated reports, pricing policies and details, details of contracts,
operational methods, plans or strategies, business acquisition plans, new
personnel acquisition plans, product information and samples, technology,
know-how, patent applications, designs and other business, technical, research
and development and financial affairs learned heretofore or hereafter, are and
shall be treated as confidential. Each party agrees for itself and on behalf of
its directors, officers, employees and agents to whom such information and
materials are disclosed, that it and they shall keep such information and
materials confidential and retain them in strictest confidence both during and
after the term of this Agreement. Such information and materials shall not be
disclosed by either party to any person except to its officers and employees
requiring such information or materials to perform services pursuant to this
Agreement and except to other persons under a confidentiality agreement with
either party protecting such information from disclosure. Each party
acknowledges and agrees that it shall be liable to the other for damages caused
by any breach of this provision or by any unauthorized disclosure or use of such
confidential information and materials by its officers and employees or third
parties to whom unauthorized disclosure was made. In addition to any other
rights or remedies that may be available to each party, each party shall be
entitled to appropriate injunctive relief or specific performance against the
other or its officers and employees to prevent unauthorized disclosure of such
confidential information and materials or other breach of this provision. Each
party acknowledges and agrees that such unauthorized disclosure or other breach
of this provision will cause irreparable injury to the other party and that
money damages will not provide an adequate remedy. Each party shall be entitled
to recover from the other its costs, expenses and attorneys' fees incurred in
enforcing its rights under this Section 9. Each party shall return to the other
all such information and materials covered under this Section 9 and received
pursuant to this Agreement and all copies thereof immediately upon the
termination of this Agreement.
B. This obligation of confidentiality shall not apply to any information
that (1) was known to the receiving party at the time of receipt as evidenced by
tangible records; (2) was in the public domain at the time of receipt; (3)
becomes publicly available through no fault
<PAGE> 261
of the party obligated to keep it confidential; (4) such party legitimately
learns from third parties who are under no obligation of confidentiality with
respect to the information; or (5) is required by applicable law or court order
or other mandatory legal process to be disclosed.
C. The provisions of this Section 9 shall survive the termination
or expiration of this Agreement.
SECTION 10. OPERATION OF THE LLC.
A. The Company shall provide the LLC with product research and
development services, engineering support, patent services, as well as
manufacture the Products for sale by the LLC, all pursuant to the Budget of
Approved R&D Expenses. As set forth in the Budget, the Company hereby agrees to
provide continuing research and development support necessary to meet customer
demand, technological advances and as may reasonably be requested by Wright, and
employees of the Company shall be regularly available to consult and work with
the LLC and Wright on such research and development. In addition, the Company
shall manufacture and supply all Products necessary for the conduct of the LLC's
business; provided that the LLC may use an alternative manufacturer or supplier
that it determines is more cost effective than the Company. In order to receive
the necessary funding for the conduct of all Approved R&D Expenses and all other
Expenses set forth in the Budget, the Company shall be allowed to draw down upon
the Initial Note on the first of each month an advance of $100,000, and within
seven days thereafter provide a reconciliation of previous months expenditures
and the balance of the account to date. This advance shall be transferred by
wire directly to a segregated non-commingle operating account of the Company by
the 1st of the month. If during any month the reconciliation reflects a credit
balance in excess of $10,000, or if a large purchase is anticipated exceeding
$10,000, this monthly advance amount may be adjusted accordingly by mutual
agreement between Wright and the Company.
B. Wright shall provide the LLC with administrative services, accounting
services and marketing service, all pursuant to the Budget of Approved Marketing
Expenses. In addition, Wright shall be fully responsible for any and all
regulatory approvals necessary for the public sale and marketing of the Product
and all labeling and warnings associated with the Product. The Company promptly
shall provide Wright notice of any and all claims from third parties regarding
any of the Products, including events that may be reportable as an under any
current or future Food and Drug Administration MDR (medical device reporting)
regulations. Upon request, Wright shall consult with the Company regarding,
and/or provide the Company with proof of any regulatory approvals. In order for
Wright and the Company to be reimbursed for expenses detailed in Section 3(C)
hereof, and for those Approved Marketing Expenses and all other Expenses set
forth in the Budget, Wright and the Company shall provide the LLC with monthly
invoices, which invoices shall set forth in reasonable detail the services
provided and which shall be paid within 15 days of receipt by the LLC.
C. Wright shall be the exclusive distributor of all Products,
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and shall be entitled to distribute the Products in a manner consistent
with the distribution of its own products.
D. The LLC shall be managed in accordance with its Budget and detailed
business plans. In accordance with the initial Budget, the LLC shall be
permitted to draw down the Initial Note upon demand in amounts equal to
approximately $800,000 for direct expenses and approximately $700,000 for
indirect expenses. In addition, the LLC shall be permitted to draw down upon
each Additional Note in amounts necessary to fund operations.
SECTION 11. COVENANTS OF THE PARTIES.
A. Except as otherwise expressly provided herein, all costs and expenses
incurred in connection with the preparation and execution of this Agreement and
the transactions contemplated hereby, including without limitation, attorneys'
fees and advisors' fees, if any, will be paid by the party incurring such costs
and expenses
B. Each of the parties hereby agree to use all reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws, rules and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including without limitation, any state or federal regulatory
filings. In the event that at any time after the execution of this Agreement,
further action is necessary or desirable to carry out the purposes of this
Agreement, the proper officers or directors of each of the parties shall take
such necessary action.
C. Upon execution of this Agreement, and continuing during its term, the
Company shall provide the LLC access to, or copies of, all documents and things
in the Company's control which relate to the Products and are necessary for the
LLC to conduct its business, including without limitation, obtaining regulatory
approval for any Product.
D. The Company hereby agrees to use its reasonable efforts during the
term of this Agreement to actively seek to develop the Products and to make
prudent and efficient use of the Initial Note and Additional Note, as well as
its own research and development expenditures. As used in this Agreement, the
term "best efforts" shall mean the commercially reasonable efforts that a
prudent person desiring to achieve a particular result would use in order to
ensure that such result is achieved as expeditiously as possible.
E. Each of the parties hereto hereby agrees to at all times conduct its
efforts hereunder in strict compliance with all applicable federal, state and
local laws and regulations and with the highest government standards.
F. Each of the parties hereto hereby agrees to use its best efforts to
arrange for independent financing for the LLC; provided, that in the event that
the LLC obtains such independent financing, the parties hereto hereby agree to
cause the LLC to distribute the first $1,000,000 of any such proceeds to Wright
as a return of its Initial
<PAGE> 263
Capital Contribution to the LLC.
SECTION 12. LIABILITY.
A. The Company shall indemnify and hold harmless Wright from all
liability, damages, costs and expenses (including reasonable attorneys' fees)
incurred as a result of any claims, actions, judgments and demands for injuries
to persons or property arising from any and all design or manufacturing defects
in the Products (collectively, a "Claim"), and for any conduct of the Company,
but not for claims, actions, judgments, and demands arising from Wright's
negligence, gross negligence, or willful misconduct with respect to the sale and
distribution of Products.
B. Wright shall indemnify and hold harmless the Company from any Claim
arising from Wright's negligence, gross negligence, or willful misconduct with
respect to the sale and distribution of Products.
C. The provisions of paragraphs 12(A) and 12(B) hereof shall
survive the expiration and any termination of this Agreement.
D. Upon commercialization of Products, the LLC shall carry liability
insurance regarding the Products in an amount consistent with industry practice,
and each of the Company and Wright shall carry commercially reasonable amounts
of insurance commensurate with their respective obligations under this Agreement
(including without limitation, its indemnification obligations) and support of
the LLC's operations.
E. With respect to any actual or potential Claim or demand or
commencement of any action, or the occurrence of any other event, relating to
any Claim against which a party hereto is indemnified (the "Indemnified Party")
by the other party (the "Indemnifying Party") under this Section 9:
1. Promptly after the Indemnified Party first receives written
documents pertaining to the Claim, or if such Claim does not involve a third
party Claim (a "Third Party Claim"), promptly after the Indemnified Party first
has actual knowledge of such Claim, the Indemnified Party shall give notice to
the Indemnifying Party of such Claim in reasonable detail, stating the amount
involved, if known, together with copies of any such written documentation.
2. The Indemnifying Party shall have no obligation to indemnify the
Indemnified Party with respect to any Claim if the Indemnified Party fails to
give the notice with respect thereto in accordance with this Section 9.
3. If the Claim involves a Third Party Claim, then the Indemnifying
Party shall have the right, at its sole cost, expense and ultimate liability
regardless of the outcome, and through counsel of its choice (which counsel
shall be reasonably satisfactory to the Indemnified Party), to litigate, defend,
settle or otherwise attempt to resolve such Third Party Claim; provided,
however, that if in the Indemnified Party's reasonable judgment a conflict of
interest may exist between the Indemnified Party and the Indemnifying Party with
respect to
<PAGE> 264
such Third Party Claim, then the Indemnified Party shall be entitled to select
counsel of its own choosing, reasonably satisfactory to the Indemnifying Party,
in which event the Indemnifying Party shall be obligated to pay the reasonable
fees and expenses of such counsel. Notwithstanding the preceding sentence, the
Indemnified Party may elect, at any time and at the Indemnified Party's sole
cost, expense and ultimate liability, regardless of the outcome, and through
counsel of its choice, to litigate, defend, settle or otherwise attempt to
resolve such Third Party Claim. If the Indemnified Party so elects (for reasons
other than the Indemnifying Party's failure or refusal to provide a defense to
such Third Party Claim), then the Indemnifying Party shall have no obligation to
indemnify the Indemnified Party with respect to such Third Party Claim, but such
disposition will be without prejudice to any other right the Indemnified Party
may have to indemnification under this Section 9, regardless of the outcome of
such Third Party Claim. If the Indemnifying Party fails or refuses to provide a
defense to any Third Party Claim, then the Indemnified Party shall have the
right to undertake the defense, compromise or settlement of such Third Party
Claim, through counsel of its choice, on behalf of and for the account and at
the risk of the Indemnifying Party, and the Indemnifying Party shall be
obligated to pay the costs, expenses and reasonable attorneys' fees incurred by
the Indemnified Party in connection with such Third Party Claim. In any event,
Wright and the Company shall fully cooperate with each other and their
respective counsel in connection with any such litigation, defense, settlement
or other attempted resolution.
SECTION 13. TERM AND TERMINATION.
A. The term of the Agreement shall commence as of the date of execution
of this Agreement and unless this agreement is terminated earlier pursuant to
the provisions hereof or otherwise, shall expire upon dissolution of the LLC.
During the term that this Agreement remains in effect, the Company and Wright
agree not to sell or distribute any other product line similar to the Products
for use in the musculoskeletal area without the consent of the other party;
provided, however, that this restriction shall not apply to any product line
incidentally acquired by either company through the purchase of another entity
and subsequently contributed to the LLC, Wright's ownership interest in
OsteoBiologics, Inc. or the sale or distribution by Wright of products developed
by OsteoBiologics, Inc.
B. In addition to other events of Termination set forth in this
Agreement, this Agreement shall terminate in the following events:
1. If either party breaches a material term or provision of this
agreement and the breaching party fails to cure the breach within 180 days after
notice thereof, the non-breaching party may terminate this Agreement, with such
termination effective upon expiration of the 180 day period.
2. If any governmental authority limits the ability of the Company
to manufacture or Wright to sell the Products in any material respect, either
party may terminate this agreement by giving written notice of termination for
such reason to the other party, such
<PAGE> 265
termination to be effective upon the giving of such notice.
C. Upon the expiration or termination of this Agreement, Wright shall
have no right to order or purchase Products from the Company or the LLC, but may
dispose of its inventory of the Products through normal channels. Upon the
termination of this Agreement, all intellectual property owned by either party,
but licensed to the LLC, shall, subject to the terms of any applicable license
agreement, remain property of the respective party.
SECTION 14. MISCELLANEOUS.
A. Should any provision of this agreement be determined by a court
having jurisdiction over the parties and the subject matter to be illegal or
unenforceable in such jurisdiction, the parties agree that such determination
shall not affect or impair the validity or enforceability of such provision in
any other jurisdiction or the validity or enforceability of any other provision.
The determination by a court having jurisdiction over the parties and the
subject matter that any provision of this agreement is illegal or unenforceable
in such jurisdiction shall also not affect the validity or enforceability of the
other provisions of the agreement in that jurisdiction.
B. If a claim for indemnification arises under this agreement, the
indemnified party shall give the indemnifying party prompt written notice of any
event which might give rise to a claim for indemnification, specifying the
nature of the possible claim and the amount believed to be involved. If the
claim for indemnification arises from a claim or dispute with any third person,
the indemnifying party shall have the right, at its own expense, to defend
and/or settle such claim or dispute, and the indemnified party shall generally
cooperate fully in any such defense, but at no out-of-pocket cost to the
indemnified party.
C. In the event that either party is unable to carry out its obligations
under this agreement due to force majeure (including, without limitation, acts
of God; war; riot; fire; flood; explosion; labor disputes; embargoes; or
unavailability or shortages of raw materials, bulk, equipment or transport), the
failure so to perform shall be excused and not constitute a default hereunder
during the continuation of the intervention of such force majeure. The party
affected by such force majeure shall resume performance as promptly as
practicable after such force majeure has been eliminated. Notwithstanding the
foregoing, in the event either party is unable to carry out its obligations
hereunder by reason of such force majeure for a period of 180 days or more, than
either party may at any time thereafter during the continuation of such force
majeure terminate this agreement upon notice to the other party setting forth
the circumstances of such force majeure.
D. This agreement is binding upon and inures to the benefit of
the parties hereto and their respective permitted successors and
assigns.
E. This agreement, including the Exhibits annexed hereto,
<PAGE> 266
constitutes the entire agreement between the parties with reference to the
subject matter hereof and supersedes all previous agreements, representations,
memoranda and undertakings whether oral or written, between the parties with
respect to the subject matter hereof and may not be changed without the written
consent of the parties.
F. Except as provided for in Section 4(F), any disputes regarding this
contract between the parties shall be settled by binding arbitration under the
rules of the American Arbitration Association. Each party shall pick a single
temporary arbitrator which two arbitrators will then choose the single
arbitrator before whom the dispute shall be heard. The dispute shall be heard
before that single arbitrator in Memphis, Tennessee, if initiated by the Company
and in Boston, Massachusetts, if initiated by Wright.
G. All notices and reports required or permitted to be given under this
agreement shall be deemed validly given and made if in writing and delivered
personally (as of such delivery) or sent by registered or certified mail,
postage prepaid, return receipt requested (as of ten (10) days after deposit in
the mail) or sent by facsimile or overnight courier service, charges prepaid (as
of the date of confirmed receipt) to the party to be notified in care of its
General Counsel at its address (or facsimile number if sent by facsimile) first
set forth above. Either party may, by notice to the other, change its address
and facsimile number for receiving such notices or reports.
H. This agreement shall be construed in accordance with and
governed by the laws of Tennessee without regard to its principles of
conflicts of laws.
I. Nothing contained in this Agreement shall be deemed to constitute
either party as the agent for the other, or to establish a fiduciary
relationship of any kind between the parties.
<PAGE> 267
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day and year first above written.
WRIGHT MEDICAL TECHNOLOGY, INC.
By: /s/Jon A. Brilliant
Jon A. Brilliant
Assistant General Counsel
TISSUE ENGINEERING, INC.
By: /s/Eugene Bell
Eugene Bell
CEO & President
<PAGE> 268
Exhibit 11
Earnings Per Share
<TABLE>
Exhibit 11.1
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except loss per share)
<CAPTION>
Years Ended
--------------------------------------------------------------------------
December 31, 1996 December 31, 1995 December 31, 1994
--------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Net loss $ (14,589) $ (6,492) $ (49,380)
Dividends on preferred stock (14,251) (10,455) (3,447)
Accretion of preferred stock discount (6,458) (2,836) (339)
--------------------- ---------------------- ---------------------
Net loss applicable to common
and common equivalent shares $ (35,298) $ (19,783) $ (53,166)
===================== ====================== =====================
Weighted average shares of
common stock outstanding (a) 9,059 8,825 8,717
===================== ====================== =====================
Loss per share of common stock $ (3.90) $ (2.24) $ (6.10)
===================== ====================== =====================
<FN>
(a) Because of the net loss applicable to common stock, the assumed exercise
of common stock equivalents has not been included in the computation of
weighted average shares outstanding because their effect would be
anti-dilutive.
</FN>
</TABLE>
<PAGE> 269
Exhibit 12.1
Ratio of Earnings to Fixed Charges
<TABLE>
Exhibit 12.1
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
(in thousands, except ratios)
(unaudited)
<CAPTION>
Years Ended December 31,
----------------------------------------------------
1996 1995 1994
-------------- -------------- --------------
Earnings:
<S> <C> <C> <C>
Loss before income taxes $ (14,589) $ (4,873) $ (57,261)
Add back: Interest expense 10,718 10,899 9,311
Amortization of debt issuance cost 1,361 1,036 829
Portion of rent expense representative of interest factor 459 451 349
-------------- -------------- --------------
Earnings (loss) as adjusted $ (2,051) $ 7,513 $ (46,772)
============== ============== ==============
Fixed charges:
Interest expense $ 10,718 $ 10,899 $ 9,311
Amortization of debt issuance cost 1,361 1,036 829
Portion of rent expense representative of interest factor 459 451 349
-------------- -------------- --------------
$ 12,538 $ 12,386 $ 10,489
============== ============== ==============
Preferred dividends (grossed up to pretax equivalent basis): $ 14,251 $ 16,863 $ 3,997
Accretion of preferred stock (grossed up to pretax equivalent basis): 6,458 4,573 394
-------------- -------------- --------------
$ 20,709 $ 21,436 $ 4,391
============== ============== ==============
Ratio of earnings to fixed charges (a) (a) (a)
============== ============== ==============
Ratio of earnings to fixed charges, preferred dividends and accretion of
preferred stock (b) (b) (b)
============== ============== ==============
</TABLE>
(a) Earnings were inadequate to cover fixed charges by $14.6 million, $4.9
million, and $57.3 million, respectively, for the years ended December 31,
1996, December 1995, and December 31, 1994.
(b) Earnings were inadequate to cover fixed charges, preferred dividends and
accretion of preferred stock by $35.3 million, $26.3 million, and $61.7
million respectively, for the years ended December 31, 1996, December 31,
1995, and December 31, 1994. Certain of the preferred dividends are, at
the option of the Company, payable in kind.
<PAGE> 270
Exhibit 21.1
Subsidiaries of the Company
Exhibit 21.1
SUBSIDIARIES OF THE COMPANY
- - Wright Medical Technology Canada Ltd.
- - OrthoTechnique, S.A.
<PAGE> 271
Exhibit 23.2
Consent of Independent Public Accountants
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Form S-8 Registration Statements File Nos.
33-73232 and 33-73230.
Memphis, Tennessee,
March 21, 1997
<PAGE> 272
EX-27
FDS --
ARTICLE 5
LEGEND
This schedule contains summary financial information extracted from the
Consolidated Financial Statements and is qualified in its entirety by
reference to such financial statements.
/LEGEND
MULTIPLIER 1000
CURRENCY U.S. dollars
TABLE
S C
PERIOD-TYPE 12-MOS
FISCAL-YEAR-END DEC-31-1996
PERIOD-START JAN-01-1996
PERIOD-END DEC-01-1996
EXCHANGE-RATE 1
CASH 910
SECURITIES 0
RECEIVABLES 18,289
ALLOWANCES 125
INVENTORY 59,107
CURRENT-ASSETS 83,516
PP&E 33,659
DEPRECIATION 25,124
TOTAL-ASSETS 166,326
CURRENT-LIABILITIES 33,044
BONDS 84,428
PREFERRED-MANDATORY 9
PREFERRED 0
COMMON 10
OTHER-SE 58,487
TOTAL-LIABILITY-AND-EQUITY 166,326
SALES 121,868
TOTAL-REVENUES 121,868
CGS 44,433
TOTAL-COSTS 44,433
OTHER-EXPENSES 80,077
LOSS-PROVISION (2,642)
INTEREST-EXPENSE 11,947
INCOME-PRETAX (14,589)
INCOME-TAX 0
INCOME-CONTINUING (14,589)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (14,589)
EPS-PRIMARY (3.90)
EPS-DILUTED (3.90)
/TABLE
<PAGE> 273
COVER
SEC Cover Letter
Wright Medical Technology Inc.
5677 Airline Road
Arlington, TN 38002
March 25, 1997
Securities and Exchange Commission
450 5th Street, N.W.
Judiciary Plaza
Washington, D.C. 20549
Dear Sirs:
Pursuant to regulations of the Securities and Exchange
Commission, submitted herewith for filing on behalf of Wright
Medical Technology, Inc., (the "Company") is the Company's annual
Form 10-K for the year ended December 31, 1996.
This filing is being effected by direct transmission to the
Commission's EDGAR System.
Sincerely,
RICHARD D. NIKOLAEV
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
X THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-69286
WRIGHT MEDICAL TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 62-1532765
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5677 Airline Road, Arlington, Tennessee 38002-0100
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (901)867-9971
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares outstanding of Class A Common Stock, par value
$.001 at March 31, 1997: 9,199,025
<PAGE> 275
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Wright Medical Technology, Inc. & Subsidiaries:
Consolidated Balance Sheets - March 31, 1997
and December 31, 1996...................................3
Condensed Consolidated Statements of Operations
for the Three Month Periods Ended March 31, 1997
and March 31, 1996......................................4
Consolidated Statements of Cash Flows for the
Three Month Periods Ended March 31, 1997 and
March 31, 1996..........................................5
Notes to Consolidated Financial Statements..............6
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS........................8
<PAGE> 276
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, 1997 December 31, 1996
------------------ -----------------
(in thousands) (in thousands)
(unaudited)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 1,122 $ 910
Trade receivables, net 21,124 18,289
Inventories, net 57,309 59,107
Prepaid expenses 1,673 1,692
Deferred income taxes 978 978
Other 2,351 2,540
------------------ -----------------
Total Current Assets 84,557 83,516
------------------ -----------------
Property, Plant and Equipment, net 31,759 33,659
Investment in Joint Venture 3,279 3,597
Other Assets 44,489 45,554
------------------ -----------------
$ 164,084 $ 166,326
================== =================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt $ 83 $ 138
Short-term borrowing 14,850 8,390
Accounts payable 5,823 6,063
Accrued expenses and other current liabilities 12,251 18,453
------------------ -----------------
Total Current Liabilities 33,007 33,044
------------------ -----------------
Long-Term Debt 84,688 84,668
Preferred Stock Dividends 16,385 17,999
Other Liabilities 3,533 3,189
Deferred Income Taxes 978 978
------------------ -----------------
Total Liabilities 138,591 139,878
------------------ -----------------
Commitments and Contingencies
Mandatorily Redeemable Series B Preferred Stock, $.01 par value, (aggregate
liquidation value of $77.2 million, including accrued and unpaid dividends
of $.6 million, 800,000 shares authorized, 765,395 shares issued and outstanding) 65,810 59,959
Redeemable Convertible Series C Preferred Stock, $.01 par value, (aggregate
liquidation value of $41.4 million, including accrued and unpaid dividends of
$6.4 million, 350,000 shares authorized, issued and outstanding) 26,107 24,995
Stockholders' Investment:
Series A preferred stock, $.01 par value, (aggregate liquidation value of
$25.8 million, including accrued and unpaid dividends of $9.3 million),
1,200,000 shares authorized, 915,325 shares issued 9 9
Undesignated preferred stock, $.01 par value, 650,000 shares authorized,
no shares issued - -
Class A common stock, $.001 par value, 46,000,000 shares authorized,
10,077,650 and 10,023,421 shares issued and outstanding 10 10
Class B common stock, $.01 par value, 1,000,000 shares authorized,
no shares issued - -
Additional capital 54,913 53,853
Accumulated deficit (120,401) (111,855)
Other 86 516
------------------ -----------------
(65,383) (57,467)
Less - Notes receivable from stockholders (1,039) (1,037)
Series A preferred treasury stock, 86,688 shares (1) (1)
Class A common treasury stock, 878,630 shares (1) (1)
------------------ -----------------
Total Stockholders' Investment (66,424) (58,506)
------------------ -----------------
$ 164,084 $ 166,326
================== =================
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
<PAGE> 277
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share)
(unaudited)
<CAPTION>
Three Months Ended
-----------------------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Net sales $ 32,253 $ 30,707
Cost of goods sold 12,444 9,577
-------------- --------------
Gross profit 19,809 21,130
-------------- --------------
Operating expenses:
Selling 12,250 11,456
General and administrative 4,512 4,996
Research and development 2,937 3,048
Equity in loss of joint venture 317 -
-------------- --------------
20,016 19,500
-------------- --------------
Operating income (loss) (207) 1,630
Interest (income) expense, net 3,074 2,965
Other (income) expense, net (71) 129
-------------- --------------
Loss before income taxes (3,210) (1,464)
Provision for income taxes - 25
-------------- --------------
Net loss $ (3,210) $ (1,489)
============== ==============
Loss applicable to common stock $ (8,560) $ (6,681)
============== ==============
Loss per share of common stock $ (0.93) $ (0.75)
============== ==============
Weighted average common shares outstanding 9,168 8,957
============== ==============
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 278
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Three Months Ended
-----------------------------
March 31, March 31,
1997 1996
-------------- ------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net loss $ (3,210) $ (1,489)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 1,643 2,496
Instrument amortization 1,385 -
Provision for instrument reserves 1,003 -
Provision for excess/obsolete inventory 926 (515)
Provision for sales returns 5 (98)
Deferred income - 856
Amortization of intangible assets 838 737
Amortization of deferred financing costs 346 351
Loss on disposal/abandonment of equipment - 49
Equity in loss of joint venture 317 -
Other (112) 129
Changes in assets and liabilities, net effect
of purchases of businesses
Trade receivables (2,845) (268)
Inventories (128) (3,017)
Other current assets 208 (110)
Accounts payable (240) 113
Accrued expenses and other liabilities (4,836) (4,695)
Other assets 570 435
---------- ----------
Net cash used in operating activities (4,130) (5,026)
---------- ----------
Cash Flows From Investing Activities:
Capital expenditures (1,257) (2,329)
Other (723) (87)
---------- ----------
Net cash used in investing activities (1,980) (2,416)
---------- ----------
Cash Flows From Financing Activities:
Net proceeds from short-term borrowings 6,460 6,950
Proceeds from issuance of stock and stock warrants - 631
Payments of debt (78) (112)
Other (60) (16)
---------- ----------
Net cash provided by financing activities 6,322 7,453
---------- ----------
Net increase in cash and cash equivalents 212 11
Cash and cash equivalents, beginning of period 910 1,126
---------- ----------
Cash and cash equivalents, end of period $ 1,122 $ 1,137
========== ==========
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 2,639 $ 4,870
========== ==========
Cash paid for income taxes $ - $ -
========== ==========
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 279
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements as of March 31, 1997 and for the
three month periods ended March 31, 1997 and March 31, 1996 include the accounts
of Wright Medical Technology, Inc. and its wholly-owned domestic and foreign
subsidiaries and joint ventures ("the Company").
The accompanying unaudited financial information, in management's
opinion, includes all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. The results of the periods
presented are not necessarily indicative of the results to be expected for the
full year.
The financial information has been prepared in accordance with the
instructions to Form 10-Q and, therefore, does not include all information and
footnote disclosures necessary for fair presentation of financial statements
prepared in accordance with generally accepted accounting principles. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1996 Annual Report on Form 10-K.
NOTE 2 - INVENTORIES
Components of inventory are as follows (in thousands):
March 31, Dec. 31,
1997 1996
------------- ----------
(unaudited)
Raw materials $ 1,978 $ 2,214
Work in process 8,294 10,186
Finished goods 37,185 36,388
Surgical instruments 9,852 10,319
---------- ----------
Total $ 57,309 $ 59,107
========== ==========
<PAGE> 280
NOTE 3 - ACCRUED EXPENSES
A detail of accrued expenses is as follows (in thousands):
March 31, Dec. 31,
1997 1996
----------- ------------
(unaudited)
Interest $ 2,419 $ 4,668
Employee benefits 1,590 3,489
Joint venture 1,385 2,105
Commissions 1,446 1,358
Professional fees 1,107 1,088
Taxes - other than income 639 761
Distributor product reserve 113 161
Other 3,552 4,823
----------- ------------
Total $ 12,251 $ 18,453
=========== ============
NOTE 4 - LEGAL PROCEEDINGS
No material developments occurred in the Company's legal proceedings in
the period covered by this report.
NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("SFAS No. 128"), which establishes new standards for computing and presenting
earnings per share. SFAS No. 128 is effective for financial statements for both
interim and annual periods ending after December 15, 1997. At this time,
management does not believe that adoption of this standard will have a material
impact on the Company's earnings per share.
<PAGE> 281
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
This discussion includes forecasts and projections that are forward
looking statements based on management's current expectations of the Company's
near term results, based on currently available information pertaining to the
Company. Actual future results and trends may differ materially depending on a
variety of factors, including competition in the marketplace, changing market
conditions, demographic trends, product research and development, government
approvals, government reimbursement schedules and other factors. The Company
assumes no obligation for updating any such forward looking statements.
The Company was pleased with first quarter 1997 results as the positive
sales trends, which began in the third quarter of last year, continued to
accelerate. Sales for the first quarter were $32.3 million representing a 5%
increase over the prior year period which, the Company believes, was in excess
of the industry average for reconstructive products. Adjusted earnings before
interest taxes, depreciation, and amortization increased 31% over prior year for
the period. The Company was particularly encouraged by its strong international
sales growth, with sales increasing 21% over the prior year period. Sales of its
core knee products, including the new ADVANCE(TM) Knee System were strong,
increasing $1.2 million. Also, net of interest expenses, the Company had
positive cash flow from operations during the period.
The Company expects these positive trends to continue given that many
of the Company's new key products, including OSTEOSET(TM) Bone Graft Substitute,
the VERSALOK(TM) Spinal Fixation System and the MAGELLAN(TM) Intramedullary
Nailing System, appear to have received very favorable market acceptance.
OSTEOSET(TM) is the industry's first FDA cleared synthetic bone graft
substitute which is totally bioresorbable. The surgeons response to the clinical
results they have been able to achieve with OSTEOSET(TM) has been very positive.
The Company also expects to receive FDA clearance to market for use in the spine
and pelvis, the largest markets for bone grafting material. The Company expects
those sales of the OSTEOSET(TM) family of products to contribute materially to
its growth in the full year 1997.
<PAGE> 282
Despite its limited release, the Company's VERSALOK(R) Spine System,
which addresses the lumbar spine fusion market, also has received favorable
reviews from surgeons. The sales trend for that product is positive and is
expected to accelerate in the second quarter as the Company rolls out the system
to the remainder of its domestic sales force.
The Company was pleased with the favorable reviews of its MAGELLAN(TM)
Intramedullary Nailing System which was previewed at the annual meeting of the
American Academy of Orthopaedic Surgeons. That product incorporates a novel and
patented targeting system for the distal screw and modular components at the
proximal end which permits required nail inventory to be reduced by as much as
75%. The first components of the MAGELLAN(TM) System, the femoral nail, is
expected to be released to selected trauma centers around the country in the
second quarter.
The Company's new CONSERVE(TM) Hip System which involves a resurfacing
of the femoral head has been well received. The Company's new TRANSCEND(TM) Hip
System, employing metal-on-metal and ceramic-on-ceramic bearing surfaces, began
to be sold in Europe and clinical trials in the U.S. were commenced.
Internationally, the Company established a new stocking distributor in
Australia and continued to see sales increases in Asia including Japan.
Domestically, the Company furthered its goal of improving its distribution by
reorganizing its operations in New England and by the purchase of two
distributorships that previously sold spinal devices for a competitor, Sofamor
Danek.
Results of Operations
The Company's net sales for the quarter ended March 31, 1997 were $32.3
million as compared to prior year's sales of $30.7 million for the same period.
The sales increase is attributable primarily to increases in the sales of the
Company's core knee products of $1.3 million. Spinal products and OSTEOSET(TM)
contributed $0.6 million to net sales.
International sales were strong during the first quarter with sales
increasing 21% over the prior year period to $9.3 million while domestic sales
remained unchanged. Sales in Australia as a result of the Company's new
distribution agreement with EBOS Group Limited as of February, 1997, contributed
significantly to the increase in international sales.
<PAGE> 283
Cost of Sales
Cost of Sales for the period increased by $2.9 million over the same
period in 1996 due to increased reserves and stronger sales volume. Increased
reserving for obsolescence due, in part, to new product introductions ($1.4
million) and increased instruments reserving in 1997 ($0.9 million) primarily
led to the unfavorable variance. In August 1996, instruments were reclassified
from property, plant & equipment to inventory as part of the Company's revised
instrument program designed to give the Company's independent distributors
better access to these instruments. During the first quarter of 1996,
instruments were classified as property and as such were depreciated to selling
expense. Increased sales volume accounted for an increase of $1.0 million in the
cost of sales and was unusually high relative to the increase in sales due to
the lower margins from international sales. These increases were offset by $0.4
million of lower manufacturing variances charged to cost of sales in the current
quarter.
Selling
Selling expenses increased in 1997 by $0.8 million to a total of $12.2
million as compared to prior year. Domestic selling expenses increased $1.3
million, mainly due to increased instrument amortization ($0.8 million), and
royalty expenses ($0.3 million). Those expenses were offset by a $0.4 million
savings the Company realized by eliminating its physician practice management
initiative last year.
General and Administrative
General and administrative expenses for the three months ended March
31, 1997 decreased $0.5 million, or approximately 10% over the same period in
1996. The major contributors to the 1997 decrease in expenses were decreased
domestic travel expenses ($0.4 million) due to the sale of the Company jet in
1996 and lower foreign expenses in Brazil ($0.2 million) associated with the
closure of that office.
Research and Development
Research and development expenses of $2.9 million for the first quarter
of 1997 remained relatively flat compared to the first quarter of 1996. Domestic
outside services decreased $0.3
<PAGE> 284
million offset by slightly higher domestic salaries and benefits of $0.2 million
in 1997.
Other
Equity in loss of joint venture ($0.3 million) represented the
Company's 50% share of expenses incurred related to the joint venture with
Tissue Engineering, Inc. Progress continues to be made in that venture in the
development of artificial collagen based ligaments, tendons, cartilage, and a
calcium phosphate based bone cement.
Interest expense remained relatively flat for the three months ended
March 31, 1997 when compared to the same period in 1996.
Other (income) expense for the three months ended March 31, 1997
decreased $0.2 million due, in part, to favorable currency conversion compared
to the same period in 1996.
For the three month periods ended March 31, 1997 and 1996 earnings
before interest, taxes, depreciation, and amortization ("EBITDA") is detailed in
the table below.
March 31,
---------------------------
1997 1996
----------- ----------
Operating Income $ (207) $ 1,630
Depreciation and Instrument Amortization 3,028 2,496
Provision for Instrument Reserves 1,003 -
Provision for Excess/Obsolete Inventory 926 (515)
Amortization of Intangibles 838 737
Amortization of Other Assets 133 91
Other Non Cash Addbacks 104 -
---------- ----------
EBITDA after Certain Adjustments $ 5,825 $ 4,439
=========== ==========
Liquidity and Capital Resources
Since the DCW Acquisition, the Company's strategy has been to attain
growth aggressively through new product development and acquisition of new
technologies through license agreements, joint
<PAGE> 285
ventures and purchases of other companies in the orthopaedic field. As
anticipated, the Company's substantial needs for working capital have been
funded through the sale of $85 million of senior debt securities and $15 million
of equity at the time of the DCW Acquisition, through the issuance of Series B
Preferred Stock in 1994 to the California Public Employees' Retirement System
($60 million), through the issuance of Series C Preferred Stock to the Princes
Gate purchasers in September 1995 ($35 million), and through borrowings on the
Company's revolving line of credit, that are discussed below.
The Company has available to it a $25 million revolving line of credit
under the Sanwa Agreement (the "Sanwa Agreement") which provided an eligible
borrowing base at March 31, 1997 of $20.8 million. As of March 31, 1997 the
Company had drawn $14.9 million under this agreement. The Company's continued
growth has resulted in an increase in its capital requirements and has been
dependent upon the Sanwa Agreement and other funding sources to meet working
capital needs. During the first quarter of 1997, borrowings under the Sanwa
Agreement reached $16.8 million compared to 1996 first quarter when borrowing
(under the former Heller Agreement) reached $14.4 million.
The Company's capitalization includes senior debt securities of $84.6
million and various series of preferred stock with an aggregate liquidation
value of $144.3 million including accrued dividends of $16.3 million at March
31, 1997. These securities currently bear interest or dividend rates ranging
from 10.0% to 18.9% and, in certain circumstances, these rates can increase to
21.4%. As a result of the Company's obligations to establish a sinking fund for
its senior debt securities beginning in July 1998 ($28.3 million) and its
obligation to issue additional warrants to acquire common stock in the event
that the Series C Preferred Stock is not redeemed or there has not otherwise
been a qualified initial public offering on or before March 1999, Management
believes that the Company will be required to effect a recapitalization plan to
satisfy these future obligations. In this regard, the Company has begun
discussions with a limited number of investment banks to discuss the various
alternatives available to the Company including without limitation, refinancing
the Senior Secured Notes. Management believes that a successful plan of
recapitalization will be completed prior to the sinking fund payment becoming
due in July, 1998, however, there can be no assurance that such a refinancing or
recapitalization plan can be consummated.
<PAGE> 286
At March 31, 1997, the Company had less than $1.0 million in
outstanding capital commitments, and has budgeted approximately $4.3 million for
1997 expenditures for the purchase of machinery and related capital equipment.
As of March 31, 1997, the Company had net working capital of $51.6
million, compared with $50.5 million as of December 31, 1996. Of this $1.1
million growth, $2.8 million was attributed to growth in accounts receivable,
and $6.2 million was due to a decrease in accrued expenses and other current
liabilities because of payout of the 1996 management bonus ($1.0 million) and
semi-annual interest payment on the bonds ($4.6 million). These increases were
offset by a $1.8 million decrease in inventories and a $6.5 million increase in
short term borrowings against the Company's line of credit.
<PAGE> 287
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 4. in the "NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS" On Page 7.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A) See Exhibit Index at page 16.
B) No reports on Form 8-K were filed during the
quarter for which this report on Form 10-Q is
filed.
<PAGE> 288
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: /s/Richard D. Nikolaev
Richard D. Nikolaev
President and Chief Executive Officer
Date: /s/George G. Griffin, III
George G. Griffin, III
Executive Vice President and
Chief Financial Officer
<PAGE> 289
Exhibit Index
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
11.1 Statement regarding Computation of Earnings
Per Share 17
12.1 Statement regarding Computation of Ratio of
Earnings to Fixed Charges and Preferred
Dividends 18
27.1 Financial Data Schedule 19
<PAGE> 290
Exhibit 11.1
Earnings Per Share
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except loss per share)
(unaudited)
<CAPTION>
Three Months Ended
----------------------------------------
March 31, 1997 March 31, 1996
------------------ ------------------
<S> <C> <C>
Net loss $ (3,210) $ (1,489)
Dividends on preferred stock (3,735) (3,577)
Accretion of preferred stock discount (1,615) (1,615)
------------------ ------------------
Net loss applicable to common
and common equivalent shares $ (8,560) $ (6,681)
================== ==================
Weighted average shares of
common stock outstanding (a) 9,168 8,957
================== ===================
Loss per share of common stock $ (0.93) $ (0.75)
================== ===================
<FN>
(a) Because of the net loss applicable to common stock for the three months
ended March 31, 1997, and March 31, 1996, the assumed exercise of common
stock equivalents has not been included in the computation of weighted
average shares outstanding because their effect would be anti-dilutive.
</FN>
</TABLE>
<PAGE> 291
Exhibit 12.1
Ratio of Earnings to Fixed Charges
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
(in thousands, except ratios)
(unaudited)
<CAPTION>
Three Months
Ended March 31, Year Ended December 31,
----------------------- ------------------------------------
1997 1996 1996 1995 1994
---------- ---------- ---------- ---------- ----------
Earnings:
<S> <C> <C> <C> <C> <C>
Loss before income taxes $ (3,210) $(1,464) $(14,589) $ (4,873) $(57,261)
Add back: Interest expense 2,774 2,643 10,718 10,899 9,311
Amortization of debt issuance cost 346 351 1,361 1,036 829
Portion of rent expense representative
of interest factor 119 124 459 451 349
---------- --------- ---------- --------- ---------
Earnings (loss) as adjusted $ 29 $ 1,654 $ (2,051) $ 7,513 $(46,772)
========== ========= ========== ========== ==========
Fixed charges:
Interest expense $ 2,774 $ 2,643 $ 10,718 $ 10,899 $ 9,311
Amortization of debt issuance cost 346 351 1,361 1,036 829
Portion of rent expense representative of interest factor 119 124 459 451 349
---------- --------- ---------- --------- ---------
$ 3,239 $ 3,118 $ 12,538 $ 12,386 $ 10,489
========== ========= ========== ========= =========
Preferred dividends (grossed up to pretax equivalent basis): $ 3,735 $ 5,769 $ 14,251 $ 16,863 $ 3,997
Accretion of preferred stock (grossed up to pretax equivalent basis): 1,615 2,604 6,458 4,573 394
---------- --------- ---------- ---------- ---------
$ 5,350 $ 8,373 $ 20,709 $ 21,436 4,391
========== ========= ========== ========== =========
Ratio of earnings to fixed charges (a) (a) (a) (a) (a)
========== ========= ========== ========== =========
Ratio of earnings to fixed charges, preferred dividends and accretion
of preferred stock (b) (b) (b) (b) (b)
========== ========= ========== ========== ==========
</TABLE>
(a) Earnings were inadequate to cover fixed charges by $3.2 million, $1.5
million, $14.6 million, $4.9 million and $57.3 million, respectively, for
the three months ended March 31, 1997 and March 31, 1996, for the years
ended December 31, 1996, December 31, 1995, and December 31, 1994.
(b) Earnings were inadequate to cover fixed charges, preferred dividends and
accretion of preferred stock by $8.6 million, $9.8 million, $35.3 million,
$26.3 million and $61.7 million, respectively, for the three months ended
March 31, 1997 and March 31, 1996, for the years ended December 31, 1996,
December 31, 1995 and December 31, 1994. Certain of the preferred
dividends are, at the option of the Company, payable in kind.
<PAGE> 292
Exhibit 27.1
FDS --
ARTICLE 5
LEGEND
This schedule contains summary financial information extracted from the
Consolidated Financial Statements and is qualified in its entirety by
reference to such financial statements.
/LEGEND
MULTIPLIER 1000
CURRENCY U.S. dollars
TABLE
S C
PERIOD-TYPE 3-MOS
FISCAL-YEAR-END DEC-31-1997
PERIOD-START JAN-01-1997
PERIOD-END MAR-31-1997
EXCHANGE-RATE 1
CASH 1,122
SECURITIES 0
RECEIVABLES 21,768
ALLOWANCES 644
INVENTORY 57,309
CURRENT-ASSETS 84,557
PP&E 59,726
DEPRECIATION 27,967
TOTAL-ASSETS 164,084
CURRENT-LIABILITIES 33,007
BONDS 84,469
PREFERRED-MANDATORY 91,917
PREFERRED 9
COMMON 10
OTHER-SE 0
TOTAL-LIABILITY-AND-EQUITY 164,084
SALES 32,253
TOTAL-REVENUES 32,253
CGS 12,444
TOTAL-COSTS 12,444
OTHER-EXPENSES 20,016
LOSS-PROVISION 0
INTEREST-EXPENSE 3,074
INCOME-PRETAX (3,210)
INCOME-TAX 0
INCOME-CONTINUING (3,210)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (3,210)
EPS-PRIMARY (0.93)
EPS-DILUTED (0.93)
/TABLE
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
X THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 33-69286
WRIGHT MEDICAL TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 62-1532765
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5677 Airline Road, Arlington, Tennessee 38002-0100
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (901)867-9971
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Number of shares outstanding of Class A Common Stock, par value
$.001 at June 30, 1997: 9,198,270
<PAGE> 293
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Wright Medical Technology, Inc. & Subsidiaries:
Consolidated Balance Sheets - June 30, 1997
and December 31, 1996.......................................3
Condensed Consolidated Statements of Operations
for the Three and Six Month Periods Ended
June 30, 1997 and June 30, 1996.............................4
Consolidated Statements of Cash Flows for the
Six Month Periods Ended June 30, 1997 and
June 30, 1996...............................................5
Notes to Consolidated Financial Statements..................6
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS................................9
<PAGE> 294
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
June 30, December 31,
1997 1996
----------------- ------------------
(in thousands) (in thousands)
(unaudited)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 1,234 $ 910
Trade receivables, net 22,901 18,289
Inventories, net 57,347 59,107
Prepaid expenses 1,281 1,692
Deferred income taxes 978 978
Other 2,602 2,540
----------------- ------------------
Total Current Assets 86,343 83,516
----------------- ------------------
Property, Plant and Equipment, net 30,180 33,659
Investment in Joint Venture 3,005 3,597
Other Assets 44,158 45,554
----------------- ------------------
$ 163,686 $ 166,326
================= ==================
LIABILITIES AND STOCKHOLDERS' INVESTMENT
Current Liabilities:
Current portion of long-term debt $ 86 $ 138
Short-term borrowing 15,775 8,390
Accounts payable 6,543 6,063
Accrued expenses and other current liabilities 14,887 18,453
----------------- ------------------
Total Current Liabilities 37,291 33,044
----------------- ------------------
Long-Term Debt 84,707 84,668
Preferred Stock Dividends 20,134 17,999
Other Liabilities 3,402 3,189
Deferred Income Taxes 978 978
----------------- ------------------
Total Liabilities 146,512 139,878
----------------- ------------------
Commitments and Contingencies
Mandatorily Redeemable Series B Preferred Stock, $.01 par value, (aggregate
liquidation value of $79.1 million, including accrued and unpaid dividends
of $2.6 million, 800,000 shares authorized, 765,395 and 711,910 shares
issued and outstanding) 66,314 59,959
Redeemable Convertible Series C Preferred Stock, $.01 par value, (aggregate
liquidation value of $42.4 million, including accrued and unpaid dividends
of $7.4 million, 350,000 shares authorized, issued and outstanding) 27,218 24,995
Stockholders' Investment:
Series A preferred stock, $.01 par value, (aggregate liquidation value of
$26.6 million, including accrued and unpaid dividends of $10.1 million),
1,200,000 shares authorized, 915,325 shares issued 9 9
Undesignated preferred stock, $.01 par value, 650,000 shares authorized,
no shares issued - -
Class A common stock, $.001 par value, 46,000,000 shares authorized,
10,077,650 and 10,023,421 shares issued 10 10
Class B common stock, $.01 par value, 1,000,000 shares authorized,
no shares issued - -
Additional capital 55,000 53,853
Accumulated deficit (129,659) (111,855)
Other (678) 516
----------------- ------------------
(75,318) (57,467)
Less - Notes receivable from stockholders (1,038) (1,037)
Series A preferred treasury stock, 86,688 shares (1) (1)
Class A common treasury stock, 879,380 shares (1) (1)
----------------- ------------------
Total Stockholders' Investment (76,358) (58,506)
----------------- ------------------
$ 163,686 $ 166,326
================= ==================
The accompanying notes are an integral part of these consolidated balance sheets.
</TABLE>
<PAGE> 295
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except earnings per share)
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------- ------------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
--------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 32,130 $ 31,430 $ 64,383 $ 62,137
Cost of goods sold 11,080 10,557 23,524 20,134
--------------- ---------------- ---------------- ----------------
Gross profit 21,050 20,873 40,859 42,003
--------------- ---------------- ---------------- ----------------
Operating expenses:
Selling 13,494 12,578 25,744 24,034
General and administrative 4,590 4,027 9,102 9,023
Research and development 3,235 3,251 6,172 6,299
Equity in loss of joint venture 275 - 592 -
---------------- ---------------- ---------------- ----------------
21,594 19,856 41,610 39,356
---------------- ---------------- ---------------- ----------------
Operating income (loss) (544) 1,017 (751) 2,647
Interest expense, net 3,153 2,948 6,227 5,913
Other (income) expense, net 196 (422) 125 (293)
---------------- ---------------- ----------------- ----------------
Loss before income taxes (3,893) (1,509) (7,103) (2,973)
Provision for income taxes - - - 25
---------------- ---------------- ----------------- ----------------
Net loss $ $(3,893) $ (1,509) $ (7,103) $ (2,998)
================ ================ ================= ================
Loss applicable to common stock $ (9,257) $ (6,688) $ (17,816) $ (13,368)
================ ================ ================= ================
Loss per share of common stock $ (1.01) $ (0.74) $ (1.94) $ (1.49)
================ ================ ================= ================
Weighted average common shares outstanding 9,198 9,016 9,167 8,987
================ ================ ================= ================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 296
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<CAPTION>
Six Months Ended
--------------------------------------
June 30, June 30,
1997 1996
---------------- -----------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net loss $ (7,103) $ (2,998)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation 3,328 3,750
Instrument amortization 2,881 2,065
Provision for instrument reserves 1,874 -
Provision for excess/obsolete inventory 1,471 (475)
Provision for sales returns 12 (109)
Deferred income - 870
Amortization of intangible assets 1,760 1,446
Amortization of deferred financing costs 694 702
Loss on disposal of equipment 35 96
Equity in loss of joint venture 592 -
Amortization of deferred income 180 -
Other (1,065) 165
Changes in assets and liabilities net of effect of purchases of
businesses:
Increase in Accounts Receivable (4,634) (2,549)
Increase in Inventories (1,579) (2,316)
Decrease in Other Current Assets 349 926
Increase in Accounts Payable 480 423
Decrease in Accrued Expenses and Other Liabilities (689) (3,829)
Increase in Other Assets (799) (283)
---------------- -----------------
Net cash used in operating activities (2,213) (2,116)
---------------- -----------------
Cash Flows From Investing Activities:
Capital expenditures (2,708) (3,951)
Other (119) (61)
---------------- -----------------
Net cash used in investing activities (2,827) (4,012)
---------------- -----------------
Cash Flows From Financing Activities:
Net proceeds from short-term borrowings 7,385 5,875
Proceeds from issuance of stock and stock warrants - 633
Payments of debt (1,964) (228)
Other (57) (26)
---------------- -----------------
Net cash provided by financing activities 5,364 6,254
---------------- -----------------
Net increase in cash and cash equivalents 324 126
Cash and cash equivalents, beginning of period 910 1,126
---------------- -----------------
Cash and cash equivalents, end of period $ 1,234 $ 1,252
================ =================
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest $ 5,399 $ 5,205
================ =================
Cash paid for income taxes $ - $ -
================ =================
The accompanying notes are an integral part of these statements.
</TABLE>
<PAGE> 297
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements as of June 30, 1997 and for the
three and six month periods ended June 30, 1997 and June 30, 1996 include the
accounts of Wright Medical Technology, Inc. and its wholly-owned domestic and
foreign subsidiaries and joint ventures ("the Company").
The accompanying unaudited financial information, in management's
opinion, includes all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. The results of the periods
presented are not necessarily indicative of the results to be expected for the
full year.
The financial information has been prepared in accordance with the
instructions to Form 10-Q and, therefore, does not include all information and
footnote disclosures necessary for fair presentation of financial statements
prepared in accordance with generally accepted accounting principles. These
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1996 Annual Report on Form 10-K.
NOTE 2 - INVENTORIES
Components of inventory are as follows (in thousands):
June 30, Dec. 31,
1997 1996
--------------------- -------------------
(unaudited)
Raw materials $ 2,378 $ 2,214
Work in process 8,983 10,186
Finished goods 35,405 36,388
Surgical instrument 10,581 10,319
--------------------- -------------------
Total $ 57,347 $ 59,107
===================== ===================
<PAGE> 298
NOTE 3 - ACCRUED EXPENSES
A detail of accrued expenses is as follows (in thousands):
June 30, Dec. 31,
1997 1996
------------------- -----------------
(unaudited)
Interest $ 4,718 $ 4,668
Employee benefits 2,004 3,489
Joint venture 1,488 2,105
Commissions 1,383 1,358
Professional fees 779 1,088
Taxes - other than income 892 761
Other 3,623 4,984
------------------- -----------------
Total $ 14,887 $ 18,453
=================== =================
NOTE 4 - LEGAL PROCEEDINGS
No material developments occurred in the Company's legal proceedings in
the period covered by this report.
NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS
No. 128"), which establishes new standards for computing and presenting earnings
per share. SFAS No. 128 is in effect for financial statements for both interim
and annual periods ending after December 15, 1997. At this time, management does
not believe that adoption of this standard will have a material impact on the
Company's earnings per share.
SUBSEQUENT EVENT
On August 6, 1997, the Company accepted the tender to exchange $84.95
million of its 10 3/4% Series B Senior Secured Notes (the "Series B Notes") for
11 3/4% Series C Senior Secured Step Up Notes ("Series C Notes"). The terms of
those Series C Notes are governed by a new indenture ("New Indenture") which is
similar to the indenture for the Series B Notes (The "Old
<PAGE> 299
Indenture") except that i)the Series B Notes bear interest at 10 3/4% and the
Series C Notes will bear interest at 11 3/4% which may increase to 12 1/4% on
the first anniversary of the effective date of the Exchange Offer under certain
circumstances; ii)the New Indenture does not contain the sinking fund
requirements of the Old Indenture, and, iii)certain covenants in the New
Indenture are less restrictive than those in the Old Indenture, specifically (1)
the definition of Consolidated Net Worth does not require a deduction for
accrued dividends on the Company's Series B and Series C Preferred Stock, and
(2) the limit on Purchase Money indebtedness is $10 million as opposed to $5
million in the Old Indenture.
The terms of The Series B Notes which were not tendered in the Exchange
Offer in the aggregate amount of $0.05 million are governed by the Old Indenture
as modified by the Third Supplemental Indenture that eliminated most restrictive
covenants of the Old Indenture, but did not modify the Company's sinking fund
obligations with respect to those notes.
In consideration of the Exchange Offer, the Company has entered into a
Registration Rights Agreement with the holders of the Series C Notes to use its
reasonable best efforts, by September 1997, to file a registration statement,
and upon becoming effective, to offer the holders of the Series C Notes the
opportunity to exchange the Series C Notes for registered notes. In the
alternative, under certain circumstances, the Company will be required to file a
shelf registration statement with respect to the Series C Notes. The Company may
be required to pay liquidated damages if the Company does not fulfill its
obligations under the Registration Rights Agreement.
Jeffries & Company, Inc. is the Dealer Manager in connection with the
Exchange Offer. The expenses related to the Exchange Offer will be approximately
$2.8 million and will be expensed in the Company's third quarter operating
results.
<PAGE> 300
ITEM 2. MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
This discussion includes forecasts and projections that are forward
looking statements based on management's current expectations of the Company's
near term results, based on currently available information pertaining to the
Company. Actual future results and trends may differ materially depending on a
variety of factors, including competition in the marketplace, changing market
conditions, demographic trends, product research and development, government
approvals, government reimbursement schedules and other factors. The Company
assumes no obligation for updating any such forward looking statements.
The Company was satisfied with second quarter 1997 results. Sales for
the second quarter were $32.1 million representing a slight improvement over the
prior year period bringing the Company's sales increase to approximately 4% over
the prior year to date. The Company believes these rates of increase approximate
those of the reconstructive orthopaedic industry. Adjusted earnings before
interest, taxes, depreciation, and amortization for the six months ended June
30, 1997, increased 15% when compared to the same period for the prior year. The
Company was particularly encouraged by its strong international sales growth,
with sales increasing 18% over the same period in the prior year. Sales of its
OSTEOSET(R) products, its new ADVANCE(R) Knee System and its VERSALOK(R) Spine
System continued to accelerate in the quarter. Also, net of interest expenses,
the Company had positive cash flow from operations during the first half of the
year.
In July 1997, the Company received regulatory approval to market and
sell its OSTEOSET(R) T product in both Australia and Canada. OSTEOSET(R) T is
the Company's first medicated OSTEOSET(R) product and is indicated to treat bone
voids that are infected. It contains 4% of the antibiotic tobramycin sulfate.
With OSTEOSET(R) T, a therapeutic dose of tobramycin sulfate is released at the
local infection site over an extended period of time with little or no systemic
traces of the drug. At the same time that the antibiotic is being released, the
OSTEOSET(R) causes a bone healing response that fills the bone defect or void
with new
<PAGE> 301
bone. The Company recently filed for FDA clearance for OSTEOSET(R) T. The
Company believes that this product is unique and has no real counterparts in the
market.
Results of Operations
The Company's net sales for the quarter ended June 30, 1997 were $32.1
million as compared to prior year's sales of $31.4 million for the same period.
Net sales for the six months ended June 30, 1997 were $64.4 million representing
an increase in sales of $2.2 million compared to the same period in 1996.
Contributing to the sales growth over prior quarters were increases in sales of
spinal products, including the Company's VERSALOK(R) Spine Fixation System,
OSTEOSET(R) and the Company's new ADVANCE(R) Knee.
International sales were strong during the second quarter with sales
increasing 16% over the same period in the prior year, while domestic sales
growth remained relatively flat. Year-to- date international sales for 1997
increased $2.9 million or 18% when compared to the same period in 1996.
Cost of Sales
Cost of sales for the three months and six months ended June 30, 1997,
increased $0.5 million and $3.4 million respectively, over the same periods in
the prior year. Regarding the three month period ended June 30, 1997, the
increase was primarily due to higher unit sales, although domestic discounting
and a higher mix of lower unit price international sales adversely impacted
second quarter sales when compared to prior year, and an unfavorable variance of
$0.7 million due to instrument reserves attributable to the 1996 reclass of
instruments from property, plant and equipment. Offsetting these unfavorable
variances was a favorable adjustment of $1.3 million due to reserve adjustments
related to surgical instrument sales.
For the six month period ended June 30, 1997 cost of sales increased
$3.4 million compared to the same period primarily due to those factors noted
above.
<PAGE> 302
Selling
Selling expenses for the three months ended June 30, 1997 were $13.5
million, or $0.9 million higher than the same period in 1996. The increase was
primarily due to the first quarter purchase of two of the Company's independent
distributorships and to the reorganization of operations in the New England
territories.
For the six month period ended June 30, 1997 selling expenses were
$25.7 million, or $1.7 million higher when compared to the same period in 1996.
Domestic selling expenses increased $1.8 million, whereas international selling
expenses remained relatively flat in comparison to the prior year. The domestic
selling expense increases were attributable to increased instrument amortization
($1.0 million), non employee stock compensation expense ($0.2 million), freight
expense for customer shipments ($0.3 million), and purchase of the independent
distributorships and the New England territory reorganization.
General and Administrative
General and administrative expenses for the three months ended June 30,
1997 increased $0.6 million, or approximately 14% when compared to the same
period in 1996. For the six months ended June 30, 1997, general and
administrative expenses remained relatively flat with less than a 1% increase
over prior year.
Research and Development
Research and development expenses of $3.2 million for the second
quarter of 1997 remained consistent with the second quarter of 1996. For the six
months ended June 30, 1997, expenses were $6.2 million compared to $6.3 million
in 1996.
Other
Equity in loss of joint venture of $0.3 million and $0.6 million for
the second quarter and 1997 year to date respectively, represented the Company's
50% share of expenses incurred related to the joint venture with Tissue
Engineering, Inc. Progress continues to be made in that venture in the
development of a collagen based tissue patch, a collagen and
<PAGE> 303
calcium phosphate based bone cement, and a collagen based
ligament prosthesis.
Interest expense remained relatively flat for the three month and six
month periods ending June 30, 1997 when compared to the same period in 1996.
Other (income) expense for the three months and six month periods ended
June 30, 1997, decreased $0.6 million and $0.4 million respectively, due
primarily to the sale of the company jet in 1996 which had a favorable impact
during the second quarter of 1996.
For the three and six month periods ended June 30, 1997 earnings before
interest, taxes, depreciation, and amortization ("EBITDA") is detailed in the
table below.
Three Six
Months Months
Ended Ended
June 30, June 30,
1997 1997
-------------- --------------
Operating Loss $ (544) $ (751)
Depreciation and Instrument Amortization 3,181 6,209
Provision for Instrument Reserves 871 1,874
Provision for Excess/Obsolete Inventory 545 1,471
Amortization of Intangibles 922 1,760
Amortization of Other Assets 134 267
Other Non Cash Addbacks 107 211
-------------- --------------
EBITDA after Certain Adjustments $ 5,216 $ 11,041
============== ==============
Liquidity and Capital Resources
Since the DCW Acquisition, the Company's strategy has been to attain
growth aggressively through new product development and acquisition of new
technologies through license agreements, joint ventures and purchases of other
companies in the orthopaedic field. As anticipated, the Company's substantial
needs for working capital have been funded through the sale of $85 million of
senior debt securities and $15 million of equity at the time of the DCW
Acquisition, through the issuance of Series B
<PAGE> 304
Preferred Stock in 1994 to the California Public Employees' Retirement System
($60 million), through the issuance of Series C Preferred Stock to the Princes
Gate purchasers in September 1995 ($35 million), and through borrowings on the
Company's revolving line of credit, that are discussed below.
The Company has available to it a $25 million revolving line of credit
under the Sanwa Agreement (the "Sanwa Agreement") which provided an eligible
borrowing base at June 30, 1997 of $23.7 million. That borrowing base is likely
to increase under the Sanwa Agreement as a result of the Exchange Offer. As of
June 30, 1997, the Company had drawn $15.8 million under this agreement. The
Company's continued growth has resulted in an increase in its capital
requirements and it has been dependent upon the Sanwa Agreement and other
funding sources to meet working capital needs. During the first half of 1997,
borrowings under the Sanwa Agreement reached $18.1 million compared to the first
half of 1996 when borrowings (under the former Heller Agreement) reached $14.4
million.
The Company's capitalization includes debt facilities totaling $86.7
million of which $84.95 million were recently exchanged pursuant to an Exchange
Offer (See Subsequent Event above) and various series of preferred stock with an
aggregate liquidation value of $148.1 million including accrued but unpaid
dividends of $20.1 million at June 30, 1997. These securities currently bear
interest or dividend rates ranging from 10.0% to 18.9% and, in certain
circumstances, these rates can increase to 21.7%. The New Indenture eliminated
provisions related to the Company's obligation to make the sinking fund payments
and certain restrictive covenants of the Old Indenture; there was no assurance
that the Company could have met the obligations of these provisions prior to the
Exchange Offer.
The expenses of soliciting the tenders will be borne by the
Company. Jeffries & Company, Inc. acted as the Dealer Manager in
connection with the Exchange Offer. The estimated aggregate
expenses of the Exchange Offer will be approximately $2.8
million.
At June 30, 1997, the Company had approximately $4.2 million in
outstanding capital commitments, and has budgeted expenditures for 1997 of
approximately $4.3 million for the purchase of machinery and related capital
equipment. The Company has spent $2.7 million through the first half of the
year. In assessing
<PAGE> 305
the impact of the "Year 2000" on the Company's information systems, as well as
other information system needs, management has begun discussion with a limited
number of computer software companies. Currently, management estimates the cost
of new information system software to approximate $1.5 million, a portion of
which may be incurred during the remainder of calendar year 1997.
As of June 30, 1997, the Company had net working capital (current
assets less current liabilities) of $49.1 million, compared with $50.5 million
as of December 31, 1996. Of this $1.4 million decline, $1.8 million was due to a
decrease in inventories and $7.4 million was attributed to growth in short term
borrowings against the Company's line of credit. These decreases to working
capital were offset principally by $4.6 million growth in accounts receivable
and $3.6 million decrease to accrued expenses.
<PAGE> 306
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note 4. in the "NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS" On Page 7.
ITEM 2. CHANGES IN SECURITIES.
See Subsequent Event in the "NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS" On Pages 7-8.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
A) See Exhibit Index at page 17.
B) No reports on Form 8-K were filed during the
quarter for which this report on Form 10-Q is
filed.
<PAGE> 307
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: 8/11/97 /s/Richard D. Nikolaev
Richard D. Nikolaev
President and Chief Executive Officer
Date: 8/11/97 /s/Gregory K. Butler
Gregory K. Butler
Vice President and
Chief Financial Officer
<PAGE> 308
Exhibit Index
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT PAGE
4.1 Form of Indenture to 11 3/4% Series C Senior 18
Secured Step Up Notes between The Company
and State Street Bank and Trust Company, as
Trustee
4.2 Form of Series C 11 3/4% Senior Secured Step 101
Up Note
4.3 Form of Registration Rights Agreement, 112
between the Company and holders of the
Company's 11 3/4% Series C Senior Secured
Step Up Notes
4.4 Form of Third Supplemental Indenture to 10 143
3/4% Series B Senior Secured Notes between
the Company and State Street Bank and Trust
Company, as Trustee
11.1 Statement regarding Computation of Earnings 153
Per Share
12.1 Statement regarding Computation of Ratio of 154
Earnings to Fixed Charges and Preferred
Dividends
27.1 Financial Data Schedule 155
<PAGE> 309
Exhibit 4.1
Form of Indenture to Series C Senior Secured Notes
Wright Medical Technology, Inc.
$85,000,000
11 3/4 % Senior Secured Step-Up Notes
due July 1, 2000
FORM OF INDENTURE
Dated as of August 6, 1997
State Street Bank and Trust Company
Trustee
<PAGE> 310
TABLE OF CONTENTS
Article 1 Definitions And Incorporation By Reference.........................1
Section 1.01. Definitions.................................................1
Section 1.02. Other Definitions..........................................12
Section 1.03. Incorporation By Reference Of Trust Indenture Act..........12
Section 1.04. Conflict With Trust Indenture Act..........................13
Section 1.05. Rules Of Construction......................................13
Article 2 The Securities....................................................13
Section 2.01. Form And Dating............................................13
Section 2.02. Execution And Authentication...............................14
Section 2.03. Registrar And Paying Agent.................................15
Section 2.04. Paying Agent To Hold Money In Trust........................15
Section 2.05. Securityholder Lists.......................................16
Section 2.06. Transfer And Exchange......................................16
Section 2.07. Replacement Securities.....................................21
Section 2.08. Outstanding Securities.....................................22
Section 2.09. Treasury Securities........................................22
Section 2.10. Temporary Securities.......................................22
Section 2.11. Cancellation...............................................23
Section 2.12. Defaulted Interest.........................................23
Article 3 Redemption........................................................23
Section 3.01. Notices To Trustee.........................................23
Section 3.02. Selection Of Securities To Be Redeemed.....................23
Section 3.03. Notice Of Redemption.......................................24
Section 3.04. Effect Of Notice Of Redemption.............................25
Section 3.05. Deposit Of Redemption Price................................25
Section 3.06. Securities Redeemed In Part................................25
Section 3.07. Optional Redemption............................... ........25
Section 3.08. Offer To Redeem By Application Of Net Proceeds.............25
Article 4 Covenants..........................................................26
Section 4.01. Payment Of Securities......................................26
Section 4.02. Sec Reports: Financial Statements.........................27
Section 4.03. Compliance Certificate.....................................28
Section 4.04. Stay, Extension And Usury Laws.............................29
Section 4.05. Corporate Existence........................................29
Section 4.06. Taxes......................................................29
Section 4.07. Limitations On Restricted Payments.........................29
Section 4.08. Limitations On Incurrence Of Indebtedness And Issuance
Of Preferred Stock.......................................31
Section 4.09. Limitation On Liens........................................32
Section 4.10. Limitation On Granting Liens And Restrictions On
Subsidiary Dividends....................................33
Section 4.11. Limitations On Certain Asset Sales.........................34
Section 4.12. Change Of Control..........................................35
Section 4.13. Transactions With Affiliates...............................37
Section 4.14. Maintenance Of Consolidated Net Worth......................37
Section 4.15. Liquidation................................................37
Section 4.16. Rule 144a Information Requirement..........................38
Section 4.17. Payments For Consent.......................................38
Section 4.18. Restrictions On Indirect Subsidiaries......................38
Article 5 Successors.........................................................39
Section 5.01. When Company May Merge, Etc................................39
<PAGE> 311
Section 5.02. Successor Corporation Substituted..........................39
Article 6 Defaults And Remedies..............................................40
Section 6.01. Events Of Default..........................................40
Section 6.02. Acceleration...............................................42
Section 6.03. Other Remedies.............................................42
Section 6.04. Waiver Of Past Defaults....................................42
Section 6.05. Control By Majority........................................42
Section 6.06. Limitation On Suits........................................43
Section 6.07. Rights Of Holders To Receive Payment.......................43
Section 6.08. Collection Suit By Trustee.................................43
Section 6.09. Trustee May File Proofs Of Claim...........................44
Section 6.10. Priorities.................................................44
Section 6.11. Undertaking For Costs......................................45
Article 7 Trustee, Collateral, Agent And Co-Trustee..........................45
Section 7.01. Duties Of Trustee..........................................45
Section 7.02. Rights Of Trustee..........................................46
Section 7.03. Individual Rights Of Trustee...............................46
Section 7.04. Trustee's Disclaimer.......................................47
Section 7.05. Notice Of Defaults.........................................47
Section 7.06. Reports By Trustee To Holders..............................47
Section 7.07. Compensation And Indemnity.................................47
Section 7.08. Replacement Of Trustee.....................................48
Section 7.09. Successor Trustee By Merger, Etc...........................49
Section 7.10. Eligibility; Disqualification..............................49
Section 7.11. Preferential Collection Of Claims Against Company..........49
Section 7.12. Appointment Of Co-Trustee And Collateral Agent.............49
Section 7.13. Trustee And Collateral Agent To Cooperate..................50
Article 8 Discharge Of Indenture.............................................50
Section 8.01. Termination Of Company's Obligations.......................50
Section 8.02. Application Of Trust Money.................................51
Section 8.03. Repayment To Company.......................................52
Section 8.04. Reinstatement..............................................52
Article 9 Amendments.........................................................52
Section 9.01. Without Consent Of Holders.................................52
Section 9.02. With Consent Of Holders....................................53
Section 9.03. Compliance With Trust Indenture Act........................53
Section 9.04. Revocation And Effect Of Consents..........................54
Section 9.05. Notation On Or Exchange Of Securities......................54
Section 9.06. Trustee Protected..........................................54
Article 10 Security..........................................................54
Section 10.01. Collateral Agreements.....................................54
Section 10.02. Recording, Etc............................................57
Section 10.03. Authorization Of Actions To Be Taken By The Collateral
Agent Under The Collateral Agreements....................58
Section 10.04. Release Of Lien...........................................58
Section 10.05. Lien Subordination........................................59
Section 10.06. Reliance On Opinion Of Counsel............................60
Section 10.07. Purchaser May Rely........................................60
Section 10.08. Payment Of Expenses.......................................60
Section 10.09. Trustee's And Collateral Agent's Duties...................60
Section 10.10. Authorization Of Receipt Of Funds By The Trustee
And The Collateral Agent
<PAGE> 312
Under The Collateral Agreements...........................61
Section 10.11. Termination Of Security Interests.........................61
Section 10.12. Certificates And Opinions.................................61
Article 11 Miscellaneous.....................................................62
Section 11.01. Trust Indenture Act Controls..............................62
Section 11.02. Notices...................................................62
Section 11.03. Communication By Holders With Other Holders...............62
Section 11.04. Certificate And Opinion As To Conditions Precedent........62
Section 11.05. Statements Required In Certificate Or Opinion.............63
Section 11.06. Rules By Trustee And Agents...............................63
Section 11.07. Legal Holidays............................................63
Section 11.08. No Recourse Against Others................................63
Section 11.09. Counterparts..............................................64
Section 11.10. Variable Provisions.......................................64
Section 11.11. Governing Law.............................................65
Section 11.12. No Adverse Interpretation Of Other Agreements.............66
Section 11.13. Successors................................................66
Section 11.14. Severability..............................................66
Section 11.15. Table Of Contents, Headings, Etc..........................66
Section 11.16. Qualification Of Indenture................................66
Section 11.17. Amendments To Collateral Agreements.......................66
Section 11.18. Registration Rights.......................................67
<PAGE> 313
INDENTURE dated as of August 6, 1997 between Wright Medical Technology,
Inc., a Delaware corporation ("Company"), and State Street Bank and Trust
Company, a Massachusetts trust company
("Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Company's 11 3/4 % Series C
Senior Secured Step-Up Notes due July 1, 2000 (the "Series C Notes") and the
class of 11 3/4 % Series D Senior Secured Step-Up Notes due July 1, 2000 to be
exchanged for the Series C Notes (the "Exchange Notes" and, together with the
Series C Notes, the "Securities"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
Section 1.01. Definitions.
"Acquired Debt" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other person merged
with or into or became a Subsidiary of such specified person, including
Indebtedness incurred in connection with, or in contemplation of, such other
person merging with or into or becoming a Subsidiary of such specified person.
"Acquisition" means the acquisition of substantially all of the assets
of the large joint orthopedic implant business of Dow Corning Corporation and
its subsidiary Dow Corning Wright Corporation by the Company pursuant to that
certain Purchase and Sale Agreement, dated as of May 14, 1993, by and among the
Company, Dow Corning Corporation and its subsidiary Dow Corning Wright
Corporation.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlled by" and
"under common control with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of
<PAGE> 314
10% or more of the voting securities of a Person shall be deemed to
control. Notwithstanding the above, neither Jefferies & Company, Inc.
nor any of its Affiliates shall be deemed to be Affiliates of the
Company.
"Agent" means any Registrar, Paying Agent, or co-registrar.
"Board of Directors" means the Board of Directors of the Company or
any authorized committee of the Board.
"Business Day" means any day other than a Legal Holiday.
"Business Segment" means (i) each Significant Subsidiary or (ii) any
assets or properties of the Company or any of its Subsidiaries, now owned or
hereafter acquired, with an aggregate value of $5 million or greater. For the
purposes of determining the "value" for this definition, such assets or
properties shall be deemed to be valued at $5 million or greater if (a) they are
sold by the Company or any of its Subsidiaries for $5 million or more or (b)
they otherwise have a fair market value at the time of transfer of $5 million or
more.
"capital lease obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be so required to be capitalized on the balance sheet in
accordance with GAAP.
"Capital Stock" means any and all shares, interests, participations,
rights or other equivalents (however designated) of corporate stock, including,
without limitation, partnership interests.
"Cash Equivalents" means (i) readily marketable obligations of or
obligations guaranteed by the United States of America or issued by any agency
thereof and backed by the full faith and credit of the United States of America,
(ii) readily marketable direct obligations issued by any state of the United
States of America or any political subdivision thereof having the highest rating
obtainable from either Moody's Investors Service, Inc. or Standard & Poor's
Corporation, Inc., (iii) commercial paper having a rating in one of the two
highest rating categories of Moody's Investors Services, Inc. or Standard &
Poor's Corporation, Inc., (iv) certificates of deposit issued by, bankers'
acceptances and deposit accounts of, and time deposits with, commercial banks of
recognized standing chartered in the United States of America or Canada with
capital, surplus and undivided profits aggregating in excess of $500,000,000,
(v) readily marketable debt securities issued by domestic corporations and (vi)
shares of money market funds that invest solely in Investments of the kind
described in clauses (i) through (v) above.
<PAGE> 315
"Collateral" means (i) all "Collateral" as defined in the Security
Agreement and the Intellectual Property Security Agreements; (ii) all "Pledged
Collateral" as defined in the Pledge Agreement; (iii) all real property
mortgaged pursuant to the Deed of Trust; and (iv) any property or interest, in
which a security interest is required to be, or has been,
granted pursuant to Section 10.01(b) hereof.
"Collateral Agent" means State Street Bank and Trust Company, N.A.
or any successor thereto and thereafter means the successor.
"Collateral Agreements" means, collectively, the following agreements
between the Company and the Collateral Agent, each dated the date hereof: (i)
the Security Agreement attached hereto as Exhibit C; (ii) the Pledge Agreement
attached hereto as Exhibit D; (iii) the Intellectual Property Security
Agreements; (iv) the Deed of Trust attached hereto as Exhibit E; and (v) all
other agreements, documents and instruments from time to time required to create
or grant a Security Interest as contemplated in Section 10.01(b) hereof.
"Company" means the party named as such above until a successor
replaces it in accordance with Article 5 and thereafter means the successor.
"Consolidated Cash Flow" means, with respect to any Person for any
period, the Consolidated Net Income of such Person for such period plus (a) an
amount equal to any extraordinary loss plus any net loss realized in connection
with an Asset Sale (to the extent such losses were deducted in computing
consolidated Net Income), plus (b) provision for taxes based on income or
profits to the extent such provision for taxes was included in computing
Consolidated Net Income, plus (c) consolidated interest expense of such Person
for such period, whether paid or accrued (including amortization of original
issue discount, non-cash interest payments and the interest component of capital
lease obligations), to the extent such expense was deducted in computing
Consolidated Net Income, plus (d) amortization (including amortization of
goodwill and other intangibles) of such person for such period to the extent
such amortization was deducted in computing Consolidated Net Income, in each
case, on a consolidated basis and determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP;
provided, that (i) the Net Income of any Person that is not a Subsidiary or that
is accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid to the referent
Person or a wholly owned Subsidiary, (ii) the Net Income of any Person that is a
Subsidiary (other than a Subsidiary of which at least 80% of the Capital Stock
having
<PAGE> 316
ordinary voting power for the election of directors or other governing body of
such Subsidiary is owned by the referent Person directly or indirectly through
one or more Subsidiaries) shall be included only to the extent of the amount of
dividends or distributions paid to the referent Person or a wholly owned
Subsidiary, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person, the sum of
(i) the consolidated equity of the common stockholders of such Person and its
consolidated Subsidiaries plus (ii) the respective amounts reported on such
Person's most recent balance sheet with respect to any series of preferred stock
(other than Disqualified Stock) that by its terms is not entitled to the payment
of dividends unless such dividends may be declared and paid only out of net
earnings in respect of the year of such declaration and payment, but only to the
extent of (i) any cash received by such Person upon issuance of such preferred
stock and (ii) the fair market value of any non-cash consideration received by
such Person upon issuance of such preferred stock provided that such value has
been determined in good faith by a nationally-recognized investment bank, plus
(iii) with respect to the Company, the respective amounts reported on the
Company's most recent balance sheet for the Series A Preferred Stock, less (x)
all write-ups, subsequent to the date of the Indenture, in the book value of
assets owned by such Person or a consolidated Subsidiary of such Person, other
than (A) write-ups resulting from foreign currency translations and (B)
write-ups upon the acquisition of assets acquired in a transaction to be
accounted for by purchase accounting under GAAP, (y) all investments in
unconsolidated Subsidiaries and in persons that are not Subsidiaries (except, in
each case, a Permitted Investment), and (z) all unamortized debt discount and
expense and unamortized deferred financing charges (except deferred financing
charges arising from this issuance of the Securities), all of the foregoing
determined in accordance with GAAP; provided, however, that for the purposes of
Section 4.14 herein, the calculation of consolidated equity of the common
stockholders of the Company and its consolidated Subsidiaries as expressed in
the first clause (i) of this definition shall not require a deduction for
accrued dividends on the Company's Series B Preferred Stock and Series C
Preferred Stock.
"Corporate Trust Office of the Trustee" shall be at the address of the
Trustee specified in Section 11.10 or such other address as the Trustee may give
notice to the Company.
"Co-Trustee" means any Person appointed by the Trustee pursuant to
Section 7.12 hereof.
"Deed of Trust" means the Deed of Trust dated as of the date hereof,
<PAGE> 317
among the Company, the Collateral Agent and J. Martin Regan, Jr., as trustee for
the benefit of the Collateral Agent, for the further benefit of the Trustee and
the Holders, the form of which is attached hereto as Exhibit E.
"Default" means any event known to the Company or which should have
been known to the Company after due inquiry that is or with the passage of time
or the giving of notice or both would be an Event of Default.
"Definitive Securities" means Securities that are in the form of the
Series C Note (attached hereto as Exhibit A-1) or the Series D Note (attached
hereto as Exhibit A-2), that do not include the information called for by
footnotes 1 and 2 thereof.
"Depository" means, with respect to the Securities issuable or issued
in whole or in part in global form, the person specified in Section 2.03 as the
Depository with respect to the Securities, until a successor shall have been
appointed and become such pursuant to the applicable provision of this
Indenture, and, thereafter, "Depository" shall mean or include such successor.
"Disqualified Stock" means any Capital Stock which, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures, or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part, on or prior to the
maturity date of the Securities.
"Equity Interests" means Capital Stock or warrants, options or other
rights to acquire capital stock (but excluding any debt security which is
convertible into, or exchangeable for, Capital Stock).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exchange Notes" means the Series D Senior Secured Notes due 2000 to be
issued pursuant to this Indenture in connection with the offer to exchange such
notes for Series C Notes that may be made by the Company pursuant to the
Registration Rights Agreement.
"Fixed Charges" means, with respect to any Person for any period, the
sum of (a) consolidated interest expense of such Person for such period, whether
paid or accrued, to the extent such expense was deducted in computing
Consolidated Net Income (including amortization of original issue discount,
non-cash interest payments and the interest component of capital leases but
excluding amortization of deferred financing fees) and (b) the product of (i)
all cash dividend payments (and non-cash dividend payments in the case of a
person that is a Subsidiary) on any series of
<PAGE> 318
preferred stock of such Person, times (ii) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, guarantees, repays,
repurchases or redeems any Indebtedness (other than any Indebtedness under the
Revolving Credit Facility, or any other revolving credit borrowings) or issues
preferred stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but prior to the event for which the
calculation of the Fixed Charge Coverage Ratio is made, then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee, repayment, repurchase or redemption of Indebtedness, or
such issuance or redemption of preferred stock, as if the same had occurred at
the beginning of the applicable period.
"Foreign Subsidiary" means, for any Person, any Subsidiary of such
Person that derives substantially all of its revenues from sales to non-
U.S. Persons.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as approved by a significant segment of the accounting profession,
which are in effect on the date of the Indenture.
"Global Security" means a Security that contains the paragraph referred
to in footnote 1 and the additional schedule referred to in footnote 2 to the
form of the Series C Note attached hereto as Exhibit A- 1 or the Series D Note
attached hereto as Exhibit A-2.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Hedging Obligations" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person
<PAGE> 319
against fluctuations in interest rates.
"Holder" or "Securityholder" means a Person in whose name a Security
is registered.
"Indebtedness" means, with respect to any Person, any indebtedness of
such Person, whether or not contingent, in respect of borrowed money or
evidenced by bonds, notes, debentures or similar instruments or letters of
credit (or reimbursement agreements in respect thereof) or representing the
balance deferred and unpaid of the purchase price of any property (including
pursuant to capital leases, but excluding the balance deferred and unpaid of the
purchase price of currency) or representing any Hedging Obligations, except any
such balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing indebtedness (other than Hedging Obligations) would
appear as a liability upon a balance sheet of such person prepared in accordance
with GAAP, and also includes, to the extent not otherwise included, the
Guarantee of items which would be included within this definition.
"Indenture" means this Indenture dated as of August 6, 1997, as further
amended or supplemented from time to time.
"Intellectual Property" means patents, patent applications, trademarks,
trademark applications and registrations, trade names, service marks, service
mark applications and registrations, copyrights, designs, rights in confidential
and proprietary information (other than personal property described in Section
10.01(d)(i)(C)(3)) and other intellectual property and any license to use any of
the same and rights in any thereof.
"Intellectual Property Security Agreements" means, collectively, (i)
the Confirmation and Grant of Security Interest in Trademarks, the form of which
is attached hereto as Exhibit F, and (ii) the Confirmation and Grant of Security
Interest in Patents, the form of which is attached hereto as Exhibit G, each
dated the date hereof, between the Company and the Collateral Agent.
"Investments" means, with respect to any Person, all investments by
such Person in other persons (including Affiliates) in the forms of loans
(including Guarantees), advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities and all other items that are
or would be classified as investments on a balance sheet prepare in accordance
with GAAP.
"Kidd Kamm" means Kidd Kamm Equity Partners, L.P., and any successor
thereto.
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"Letters of Transmittal" means, collectively, those certain Letters of
Transmittal and Exit Consents by and among the Company and those Holders of
Series B Notes tendering in the offer to exchange Series B Notes for Series C
Notes.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Liquidated Damages" means all liquidated damages then owing pursuant
to Section 2.4 of the Registration Rights Agreement.
"Management Services Agreement" means that certain Management Services
Agreement, dated as of June 30, 1993, by and between the Company and Kidd, Kamm
& Company, pursuant to which Kidd, Kamm & Company will provide management
consulting services from time to time.
"Net Income" means, with respect to any person, the net income (loss)
of such person, determined in accordance with GAAP, excluding, however, any gain
(but not loss), together with any related provision for taxes on such gain (but
not loss), realized in connection with any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions), and
excluding any extraordinary gain (but not loss), together with any related
provision for taxes on such extraordinary gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the
Company or any of its Subsidiaries in respect of any Asset Sale, net of the
direct costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets the
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Offering Circular" means the Offering Circular, dated the date
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hereof, and all supplements thereto, and all exhibits, schedules or other
attachments thereto.
"Officer" means the Chairman of the Board, the Vice Chairman, the
President, any Vice-President, the Treasurer, the Controller, the Secretary, any
Assistant Treasurer or any Assistant Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers, one
of whom must be the Chairman of the Board, the President, the Treasurer or a
Vice-President of the Company. See Sections 11.04 and 11.05.
"Old Indenture" means the Indenture, dated as of June 30, 1993, between
the Company and State Street Bank and Trust Company as successor trustee for the
holders of the Company's Series A and B 10 3/4% Senior Secured Notes, as amended
and supplemented.
"Opinion of Counsel" means a written opinion from legal counsel who
is acceptable to the Trustee. The counsel may be an employee of or
counsel to the Company or the Trustee. See Sections 11.04 and 11.05
"Permitted Investments" means (a) any Investments in the Company; (b)
any Investments in Cash Equivalents; (c) Investments by the Company in a Person,
if as a result of such Investment (i) such Person becomes a wholly owned
Subsidiary of the Company and the Capital Stock of such Subsidiary is pledged to
secure the obligations under the Securities or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a wholly owned
Subsidiary of the Company; (d) Investments by the Company in any other Person
(whether or not the Investment is in the form of Capital Stock or Indebtedness
issued by, or other Equity Interests relating to, such other Person), provided
that (i) such other Person is not then, and does not thereby become, a
Subsidiary of the Company, (ii) the Board of Directors has adopted a resolution
evidencing its determination that such Investment is in furtherance of a
corporate purpose of the Company, (iii) no Default under Section 4.08 of the
Indenture would result from such Investment and (iv) the aggregate amount of all
Investments under this clause (d) does not exceed $10.0 million at any one time
outstanding; and (e) other Investments that do not exceed in the aggregate $2.0
million at any time outstanding.
"Permitted Liens" means (a) Liens in favor of the Company and/or its
Subsidiaries other than with respect to intercompany Indebtedness; (b) Liens on
property of a Person existing at a time such Person is acquired by, merged into
or consolidated with the Company or any Subsidiary of the Company; (c) Liens on
property existing at the time of
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acquisition thereof by the Company or any Subsidiary of the Company; provided,
that such Liens were not created in contemplation of such acquisition; (d) Liens
incurred in the ordinary course of business in respect of Hedging Obligations or
to support trade letters of credit; (e) Liens to secure Indebtedness for
borrowed money of a Subsidiary to the Company or to another wholly owned
Subsidiary; (f) Liens (other than pursuant to ERISA or environmental laws) to
secure the performance of statutory obligations, surety or appeal bonds,
performance bonds or other obligations of a like nature incurred in the ordinary
course of business; (g) Liens existing on the date of the Indenture including
those securing the Securities; (h) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested or
remedied in good faith by appropriate proceedings promptly instituted and
diligently concluded; provided, that any reserve or other appropriate provision
as shall be required in conformity with GAAP shall have been made therefor; (i)
Liens arising by reason of any judgment, decree or order of any court with
respect to which the Company or any of its Subsidiaries shall then in good faith
be prosecuting appeal or other proceedings for review, the existence of which
judgment, order or decree is not an Event of Default under the Indenture; (j)
encumbrances consisting of zoning restrictions, survey exceptions, utility
easements, licenses, rights of way, easements of ingress or egress over property
of the Company or any of its Subsidiaries, rights or restrictions of record on
the use of real property, minor defects in title, landlord's and lessor's liens
under leases on property located on the premises rented, any interest or title
of a lessor in respect of any capital lease, and similar encumbrances, rights or
restrictions on personal or real property not interfering in any material
respect with the ordinary conduct of the business of the Company or any of its
Subsidiaries; (k) Liens and priority claims incidental to the conduct of
business or the ownership of properties incurred in the ordinary course of
business and not in connection with the borrowing of money or the obtaining of
advances or credit, including, without limitation, liens incurred or deposits
made in connection with mechanic's liens, workers' compensation, unemployment
insurance and other types of social security, or to secure the performance of
tenders, bids, and government contracts; and (l) any extension, renewal, or
replacement (or successive extensions, renewals or replacements), in whole or in
part, of Liens described in clauses (a) through (k) above.
"Person" or "person" means any individual, corporation, partnership,
joint venture, association, joint stock company, limited liability company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Pledge Agreement" means the Pledge Agreement, dated the date hereof,
between the Company and the Collateral Agent, the form of which
<PAGE> 323
is attached hereto as Exhibit D.
"principal" of a debt security means the principal of the security plus
the premium, if any, on the security.
"Purchase Money Lienholder" means a lienholder of a Purchase Money Lien
permitted by this Indenture.
"Purchase Money Obligations" means Indebtedness representing, or
incurred to finance, the cost of acquiring any assets (including Purchase Money
Obligations of any other Person at the time such other Person is merged with or
into or is otherwise acquired by the Company), other than the assets acquired in
the Acquisition; provided that (i) the principal amount of such Indebtedness
does not exceed 100% of such cost, (ii) any Lien securing such Indebtedness does
not extend to or cover any other asset or property other than the asset or
property being so acquired and (iii) such Indebtedness is incurred, and any
Liens with respect thereto are granted, within 180 days of the acquisition of
such property or asset.
"Purchase Money Liens" means (i) Liens to secure or securing Purchase
Money Obligations permitted to be incurred under the Indenture and (ii) Liens to
secure Refinancing Indebtedness incurred solely to Refinance Purchase Money
Obligations provided that such Refinancing Indebtedness is incurred no later
than six (6) months after the
satisfaction of such Purchase Money Obligations.
"Registration Rights Agreement" means the Registration Rights Agreement
dated the date hereof, by and among the Tenderors and the Company, as such
agreement may be amended, modified or supplemented from time to time.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Securities" means Securities which were acquired by the
Holder thereof other than pursuant to an effective registration statement under
the Securities Act of 1933, as amended, or Rule 144 (or any successor rule)
thereunder.
"Revolving Credit Facility" means the credit facility which may provide
for revolving credit borrowings and/or trade letters of credit and/or standby
letters of credit, in an aggregate principal amount (as to borrowings) and
aggregate undrawn face amount (as to letters of credit) that does not in the
aggregate exceed $50 million at any one time outstanding, and which credit
facility does or may include one or more Subsidiaries of the Company or others
as obligors thereunder, and does or may include any related notes, guarantees,
collateral documents,
<PAGE> 324
instruments and agreements from time to time executed in connection therewith,
and in each case as amended, modified, renewed, refunded, replaced or refinanced
from time to time as permitted in this Indenture.
"Sale" means (i) the sale, lease or transfer of all or substantially
all of the Company's assets to any Person or group (other than the Principals
and their Related Parties (as defined in Section 4.12(b)) or (ii) the
acquisition by any Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act) (other than the Principals and their Related Parties (as
defined in Section 4.12(b)) of a direct or indirect majority interest (more than
50%) in the voting power of the Voting Stock of the Company by way of merger or
consolidation or otherwise.
"SEC" means the Securities and Exchange Commission.
"Securities" means, collectively, the Series C Notes issued pursuant to
this Indenture, and when and if issued as provided in the Registration Rights
Agreement, the Series D Notes.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the Trustee, as custodian with respect to
the Securities in global form, or any successor entity thereto.
"Security Agreement" means the Security Agreement, dated as of the date
hereof, between the Company and the Collateral Agent, the form of which is
attached hereto as Exhibit C.
"Security Interest" means the Liens on the Collateral created by this
Indenture and the Collateral Agreements (including the Liens required to be
granted and/or granted pursuant to Section 10.01(b)) in favor of the Collateral
Agent for the benefit of the Collateral Agent, the Trustee and the Holders.
"Series C Notes" means the Series C Notes issued pursuant to this
Indenture.
"Series D Notes" means the Exchange Notes.
"Series A Preferred Stock" means the Company's Series A Preferred
Stock, par value $.01 per share, issued and outstanding as of the date of this
Indenture.
"Series B Preferred Stock" means the Company's issued and outstanding
Series B Preferred Stock, par value $.01 per share.
"Series C Preferred Stock" means the Company's issued and outstanding
Series C Preferred Stock, par value $.01 per share.
<PAGE> 325
"Significant Subsidiary" means any Subsidiary which would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulations S-X,
promulgated pursuant to the Act, as such Regulation is in effect on the date
hereof.
"Subsidiary" means, with respect to any person, any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
person or one or more of the other Subsidiaries of that person or a combination
thereof.
"Tenderors" means the persons named on the signature pages attached to
the Letters of Transmittal who have tendered Securities.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss. 77aaa-
77bbbb), as amended, and as in effect on the date of execution of this
Indenture.
"Transfer Restricted Securities" means Securities that bear or are
required to bear the legend set forth in Section 2.06(g) hereof.
"Trustee" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor.
"Trust Officer" means any officer in the Corporate Trust Office of the
Trustee or any other officer or assistant officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
"Voting Stock" means, with respect to any Person, one or more classes
of the Capital Stock of such Person having general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of such Person (irrespective of whether or not at the time Capital
Stock of any other class or classes shall have or might have voting power by
reason of the happening of any contingency).
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years (rounded to the nearest
one-twelfth) obtained by dividing (a) the then outstanding principal amount of
such Indebtedness into (b) the total of the product obtained by multiplying (x)
the amount of each then remaining installment, sinking fund, serial maturity or
other required payments of principal, including payment at final maturity, in
respect thereof, by (y) the number of years (calculated to the nearest
one-twelfth) that will elapse between such date and the making of such payment.
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Section 1.02. Other Definitions.
Defined in Term Section
"Affiliate Transaction".........................................4.13(a)
"Asset Sale"....................................................4.11(a)
"Asset Sale Offer"................................................3.08
"Asset Sale Application Period"...................................4.11
"Bankruptcy Law"..................................................6.01
"Change of Control"...............................................4.12
"Change of Control Date"..........................................4.12
"Change of Control Offer".........................................4.12
"Change of Control Payment Date"..................................4.12
"Custodian".......................................................6.01
"DTC".............................................................2.03
"Event of Default"................................................6.01
"Excess Proceeds".................................................4.11
"Incur"...........................................................4.08
"Legal Holiday"..................................................11.07
"Minimum Equity"..................................................4.15
"Offer"...........................................................4.15
"Offer Amount"....................................................4.15
"Offer Period"....................................................4.15
"Paying Agent"....................................................2.03
"Purchase Money Indebtedness".....................................4.08
"Refinance".......................................................4.08
"Refinancing Indebtedness"........................................4.08
"Registrar".......................................................2.03
"Restricted Payments".............................................4.07
"Specified Asset"..............................................10.01(b)
"U.S. Government Obligations".................................. . 8.01
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Securities;
"indenture security holder" means a Securityholder;
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"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Securities means the Company.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.04. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with a provision
of the Trust Indenture Act or another provision that would be required or deemed
under such Act to be a part of and govern this Indenture if this Indenture were
subject thereto, the latter provision shall control. If any provision of this
Indenture modifies or excludes any provision of the Trust Indenture Act that may
be so modified or excluded, the latter provision shall be deemed to apply to
this Indenture as so modified or to be excluded, as the case may be.
Section 1.05. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the
plural include the singular; and
(5) provisions apply to successive events and transactions.
ARTICLE 2
THE SECURITIES
Section 2.01. Form and Dating.
The Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A-1 to this Indenture. The Exchange Notes
and the Trustee's certificate of authentication shall be
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substantially in the form of Exhibit A-2 to this Indenture. The aggregate
principal amount of Securities shall initially be no greater than $85,000,000.
In the event Exchange Notes are issued pursuant to the exchange offer
contemplated by the Registration Rights Agreement, the principal amount of
Series C Notes outstanding shall be reduced by the amount of Exchange Notes so
issued. The Securities may have notations, legends or endorsements required by
law, stock exchange rule or usage. Each Security shall be dated the date of its
authentication. The Securities shall be in denominations of $1,000 and integral
multiples thereof. After the Securities have ceased to be Restricted Securities,
the Company shall from time to time prepare and deliver to the Trustee printed
and engraved forms of Note certificates in quantities specified by the Trustee.
The terms and provisions contained in the Securities shall constitute,
and are hereby expressly made, a part of this Indenture and to the extent
applicable, the Company and the Trustee, by their execution and delivery of this
Indenture, and the Holders by accepting the Securities, expressly agree to such
terms and provisions and to be bound thereby. In case of a conflict, the
provisions of this Indenture shall control.
The Series C Notes will initially be issued in registered form as
Definitive Securities. Certain of the Series C Notes (after satisfaction of the
restrictions in Section 2.06 hereof) and Exchange Notes will be issued in global
form, substantially in the form of Exhibits A-1 and A-2, respectively, attached
hereto (including footnotes 1 and 2 thereto). The Global Securities shall
represent such of the outstanding Securities as shall be specified therein and
each shall provide that it shall represent the aggregate amount of outstanding
Securities from time to time endorsed thereon and that the aggregate amount of
outstanding Securities represented thereby may from time to time be reduced or
increased, as appropriate, to reflect exchanges and redemptions. Any endorsement
of a Global Security to reflect the amount of any increase or decrease in the
amount of outstanding Securities represented thereby shall be made by the
Trustee or the Securities Custodian, at the direction of the Trustee, in
accordance with instructions given by the Holder thereof.
Section 2.02. Execution and Authentication.
Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities
and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Security is authenticated by the Trustee, the Security
shall nevertheless be valid.
<PAGE> 329
A Security shall not be valid until authenticated by the authorized
manual signature of the Trustee. The signature shall be conclusive evidence that
the Security has been authenticated under this Indenture.
The Trustee shall authenticate Securities for original issue up to the
aggregate principal amount stated in paragraph 4 of the Securities, upon a
written order of the Company signed by two Officers or by one Officer and either
an Assistant Treasurer or Assistant Secretary of the Company, delivered to a
Trust Officer of the Trustee. The aggregate principal amount of Securities
outstanding at any time may not exceed such amount except as provided in Section
2.07 hereof. Such order shall specify the amount of the Series C Notes to be
authenticated and the date upon which the original issue thereof is to be
authenticated. In addition, on or prior to the registered exchange offer
consummation date contemplated hereby, the Trustee shall authenticate Exchange
Notes to be issued in the registered exchange offer in the same aggregate
principal amount as Series A Notes upon a written order of the Company signed by
two Officers or by one Officer and either an Assistant Treasurer or an Assistant
Secretary of the Company. Such order shall specify the amount of the Exchange
Notes to be authenticated in the registered exchange offer.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Securities. An authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company or
an Affiliate of the Company.
Section 2.03. Registrar and Paying Agent.
The Company shall maintain in the Borough of Manhattan, City of New
York, State of New York, and in such other locations as it shall determine, (i)
an office or agency where Securities may be presented for registration of
transfer or for exchange ("Registrar") and (ii) an office or agency where
Securities may be presented for payment ("Paying Agent"). The Registrar shall
keep a register of the Securities and of their transfer and exchange. The
Company may appoint one or more co-registrars and one or more additional paying
agents. The term "Registrar" includes any co-registrar and the term "Paying
Agent" includes any additional paying agent. The Company may change any Paying
Agent or Registrar without notice to any Holder. The Company shall notify the
Trustee in writing of the name and address of any Agent not a party to this
Indenture. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such. The Company or any of
its Subsidiaries may act as Paying Agent or Registrar.
<PAGE> 330
The Company initially appoints The Depository Trust Company ("DTC") to
act as Depository with respect to the Global Securities.
The Company initially appoints State Street Bank and Trust Company,
N.A., to act as Securities Custodian with respect to the Global Securities.
Section 2.04. Paying Agent to Hold Money in Trust.
Prior to each due date of the principal or interest on any Security,
the Company shall deposit with the Paying Agent sufficient funds to pay
principal, premium, if any, and interest then so becoming due. The Company shall
require each Paying Agent other than the Trustee to agree in writing that the
Paying Agent will hold in trust for the benefit of Holders or the Trustee all
money held by the Paying Agent for the payment of principal or interest on the
Securities, and will notify the Trustee of any default by the Company in making
any such payment. While any such default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. The Company at any time
may require a Paying Agent to pay all money held by it to the Trustee. Upon
payment over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. The
Company shall notify the Trustee in writing of the name and address of the
Paying Agent if a person other than the Trustee is named Paying Agent at any
time or from time to time.
Section 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders and shall otherwise comply with TIA ss. 312(a). If the Trustee is not
the Registrar, the Company shall furnish to the Trustee at least seven Business
Days before each Interest Payment Date and, at such other times as the Trustee
may request in writing, a list in such form and as of such date as the Trustee
may reasonably require of the names and addresses of Holders, and the Company
shall otherwise comply with TIA ss. 312(a).
Section 2.06. Transfer and Exchange.
(a) Transfer and Exchange of Definitive Securities. When
Definitive Securities are presented to the Registrar with the request:
(x) to register the transfer of the Definitive Securities;
or
(y) to exchange such Definitive Securities for an equal
<PAGE> 331
principal amount of Definitive Securities of other
authorized denominations.
the Registrar shall register the transfer or make the exchange as requested if
its requirements for such transactions are met; provided, however, that the
Definitive Securities presented or surrendered for register of transfer or
exchange:
(i) shall be duly endorsed or accompanied by a written
instruction of transfer in form satisfactory to the
Registrar duly executed by the Holder thereof or by his
attorney, duly authorized in writing; and
(ii) in the case of Transfer Restricted Securities that are
Definitive Securities, shall be accompanied by the
following additional information and documents, as
applicable:
(A) if such Transfer Restricted Securities is being
delivered to the Registrar by a Holder for
registration in the name of such Holder, without
transfer, a certification from such Holder to that
effect in substantially the form of Exhibit B
hereto); or
(B) if such Transfer Restricted Security is being
transferred pursuant to any available exemption
from the registration requirements of the
Securities Act, a certification to that effect (in
substantially the form of Exhibit B hereto),
subject to the Company's right prior to any such
transfer to further require the delivery of an
Opinion of Counsel, certifications and other
information reasonably acceptable to the Company
and to the Registrar to the effect that such
transfer is in compliance with the Securities Act,
provided, however, that an Opinion of Counsel shall
not be required in the event of a transfer pursuant
to Rule 144 or Rule 144A under the Securities Act.
(b) Restrictions on Transfer of a Definitive Security for a Beneficial
Interest in a Global Security. A Definitive Security may not be exchanged for a
beneficial interest in a Global Security except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Definitive
Security, duly endorsed or accompanied by appropriate instruments of transfer,
in form satisfactory to the Trustee, together with:
<PAGE> 332
(i) if such Definitive Security is a Transfer Restricted
Security, certification, substantially in the form of
Exhibit B hereto, that such Definitive Security is being
transferred to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act) in
accordance with Rule 144A under the Securities Act; and
(ii) whether or not such Definitive Security is a Transfer
Restricted Security, written instructions directing the
Trustee to make, or to direct the Securities Custodian to
make, an endorsement on the Global Security to reflect an
increase in the aggregate principal amount of the
Securities represented by the Global Security.
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased accordingly. If no Global Securities are then outstanding, the
Company shall issue and the Trustee shall authenticate a new Global Security in
the appropriate principal amount.
(c) Transfer and Exchange of Global Securities. The transfer and
exchange of Global Securities or beneficial interests therein shall be effected
through the Depository, in accordance with this Indenture (including the
restrictions on transfer set forth herein and the procedures of the Depository
therefor.
(d) Transfer of a Beneficial Interest in a Global Security for a
Definitive Security.
(i) Any Person having a beneficial interest in a Global
Security may upon request exchange such beneficial
interest for a Definitive Security. Upon receipt by the
Trustee of written instructions or such other form of
instructions as is customary for the Depository from the
Depository or its nominee on behalf of any Person having
a beneficial interest in a Global Security and upon
receipt by the Trustee of a written order or such other
form of instructions as is customary for the Depository
or the Person designated by the Depository as having
such a beneficial interest in a Transfer Restricted
Security only, the following additional information and
documents (all of which may be submitted by facsimile):
(A) if such beneficial interest is being transferred to
the Person designated by the Depository as being
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the beneficial owner, a certification from such
person to that effect (in substantially the form of
Exhibit B hereto); or
(B) if such beneficial interest is being transferred to
a "qualified institutional buyer" (as defined in
Rule 144A under the Securities Act) in accordance
with Rule 144A under the Securities Act or pursuant
to an exemption from registration in accordance
with Rule 144 or Regulation S under the Securities
Act or pursuant to an effective registration
statement under the Securities Act, a certification
to that effect from the transferor (in
substantially the form of Exhibit B hereto); or
(C) if such beneficial interest is being transferred in
reliance on another exemption from the registration
requirements of the Securities Act, a certification
to that effect from the transferee or transferor
(in substantially the form of Exhibit B hereto) and
an Opinion of Counsel from the transferee or
transferor reasonably acceptable to the Company and
to the Registrar to the effect that such transfer
is in compliance with the Securities Act.
then the Trustee or the Securities Custodian, at the direction of the Trustee,
will cause, in accordance with the standing instructions and procedures existing
between the Depository and the Securities Custodian, the aggregate principal
amount of the Global Security to be reduced and following such reduction, the
Company will execute and, upon receipt of an authentication order in the form of
an Officers' Certificate, the Trustee will authenticate and deliver to the
transferee a Definitive Security.
(ii) Definitive Securities issued in exchange for a
beneficial interest in a Global Security pursuant to
this Section 2.06(d) shall be registered in such names
and in such authorized denominations as the Depository,
pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee.
The Trustee shall deliver such Definitive Securities to
the persons in whose names such Securities are so
registered.
(e) Restrictions on Transfer and Exchange of Global Securities.
Notwithstanding any other provisions of this Indenture (other than the
provision set forth in subsection (f) of this Section 2.06), a Global
Security may not be transferred as a whole except by the Depository to
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a nominee of the Depository or by a nominee of the Depository to the Depository
or another nominee of the Depository or by the Depository or any such nominee to
a successor Depository or a nominee of such successor Depository.
(f) Authentication of Definitive Securities in Absence of
Depository. If at any time:
(i) the Depository for the Securities notifies the Company
that the Depository is unwilling or unable to continue
as Depository for the Global Securities and a successor
Depository for the Global Securities is not appointed by
the Company within 90 days after deliver of such notice;
or
(ii) the Company, at its sole discretion, notifies the
Trustee in writing that it elects to cause the issuance
of Definitive Securities under this Indenture.
then the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate requesting the authentication and delivery of Definitive Securities,
will authenticate and deliver Definitive Securities, in an aggregate principal
amount equal to the principal amount of the Global Securities, in exchange for
Global Securities.
(g) Legends.
(i) Except as permitted by the following paragraph (ii),
each Security certificate evidencing the Global
Securities and the Definitive Securities (and all
Securities issued in exchange therefor or substitution
thereof) shall bear a legend in substantially the
following form:
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
<PAGE> 335
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE
DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO
YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND
THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATED PERSON OR
THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR
OF SUCH SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, OR (C) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT, SUBJECT TO THE COMPANY'S RIGHT PRIOR TO ANY SUCH OFFER,
SALE OR TRANSFER PURSUANT TO CLAUSE (C), TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND OTHER
INFORMATION SATISFACTORY TO IT, AND SUBJECT TO THE REQUIREMENT
THAT IN EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER
IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED AND
DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS LEGEND WILL
BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security
represented by a Global Security) pursuant to Rule 144
under the Act or an effective registration statement
under the Act.
(A) in the case of any Transfer Restricted Security
that is a Definitive Security, the Registrar shall
permit the Holder thereof to exchange such Transfer
Restricted Security for a Definitive Security that
does not bear the legend set forth above and
rescind any restriction on the transfer of such
Transfer Restricted Security; and
(B) any such Transfer Restricted Security represented
by a Global Security shall not be subject to the
provisions set forth in (i) above (such sales or
transfers being subject only to the provisions of
<PAGE> 336
Section 2.06(c) hereof); provided, however, that
with respect to any request for an exchange of a
Transfer Restricted Security that does not bear a
legend, which request is made in reliance upon Rule
144, the Holder thereof shall certify in writing to
the Registrar that such request is being made
pursuant to Rule 144 (such certification to be
substantially in the form of Exhibit B hereto).
(h) Cancellation and/or Adjustment of Global Security. At such time as
all beneficial interest in a Global Security have either been exchanged for
Definitive Securities, redeemed, repurchased or canceled, such Global Security
shall be returned to or retained and canceled by the Trustee. At any time prior
to such cancellation, if any beneficial interest in a Global Security is
exchanged for Definitive Securities, redeemed, repurchased or canceled, the
principal amount of Securities represented by such Global Security shall be
reduced and an endorsement shall be made on such Global Security, by the Trustee
or the Securities Custodian, at the direction of the Trustee, to reflect such
reduction.
(i) Obligations with respect to Transfers and Exchanges of
Definitive Securities.
(A) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate
Definitive Securities and Global Securities at the
Registrar's request.
(B) No service charge shall be made to a Holder for any
registration or transfer or exchange, but the Company
may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in
connection therewith (other than any such transfer taxes
or similar governmental charge payable upon exchange or
transfer pursuant to Sections 3.07, 3.08, 4.12 or 9.05
hereof).
(C) The Registrar shall not be required to register the
transfer or exchange of any Definitive Security selected
for redemption in whole or in part, except the
unredeemed portion of any Definitive Security being
redeemed in part.
(D) All Definitive Securities and Global Securities issued
upon any registration of transfer or exchange of
Definitive Securities or Global Securities shall be the
valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under the
<PAGE> 337
Indenture, as the Definitive Securities or Global
Securities surrendered upon such registration of
transfer or exchange.
(E) The Company shall not be required
(1) to issue, register the transfer of or exchange
Securities during a period beginning at the opening
of business 15 days before the day of any selection
of Securities for redemption under Section 3.02 and
ending at the close of business on the day of
selection, or
(2) to register the transfer of any Security so
selected for redemption in whole or in part, except
the unredeemed portion of any Security being
redeemed in part.
(F) Prior to due presentment for registration of transfer of
any Security, the Trustee, any Agent and the Company may
deem and treat the person in whose name any Security is
registered as the absolute owner of such Security for
the purpose of receiving payment of principal of and
interest on such Security is overdue, and neither the
Trustee, any Agent nor the Company shall be affected by
notice to the contrary.
Section 2.07. Replacement Securities.
If any mutilated Security is surrendered to the Trustee, or the Company
and the Trustee receive evidence to their satisfaction of the destruction, loss
or theft of any Security, the Company shall issue and the Trustee, upon the
written order of the Company signed by an Officer, shall authenticate a
replacement Security if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be supplied by the Holder that is
sufficient in the judgment of the Trustee and the Company to protect the
Company, the Trustee, any Agent or any authenticating agent from any loss which
any of them may suffer if a Security is replaced. The Company may charge for its
expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company
and shall be entitled to all benefits of this Indenture equally and
proportionately with all other Securities duly issued hereunder.
Section 2.08. Outstanding Securities.
The Securities outstanding at any time are all the Securities
authenticated by the Trustee except for those canceled by it, those
<PAGE> 338
delivered to it for cancellation, those reductions in the interest in a Global
Security effected by the Trustee hereunder, and those described in this Section
as not outstanding.
If a Security is replaced pursuant to Section 2.07 hereof, it ceases to
be outstanding unless the Trustee receives proof satisfactory to it that the
replaced Security is held by a bona fide purchaser.
If the principal amount of any Security is considered paid under
Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to
accrue.
Except as set forth in Section 2.09 hereof, a Security does not cease
to be outstanding because the Company or an Affiliate holds the Security.
Section 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or an Affiliate of the Company shall be considered as though they
are not outstanding, except that for the purposes of determining whether the
Trustee shall be protected in relying on any such direction, waiver or consent,
only Securities which the Trustee knows are so owned shall be so disregarded.
Section 2.10. Temporary Securities.
Until Definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary Securities.
Without unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities. Holders
of temporary Securities shall be entitled to all benefits of this Indenture.
Section 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Securities surrendered for registration of
transfer, exchange, payment, replacement or cancellation and shall dispose of
canceled Securities as the Company directs, subject to requirements of
applicable law. The Company may not issue new Securities to replace Securities
that it has paid or that have been delivered to the Trustee for cancellation.
<PAGE> 339
Section 2.12. Defaulted Interest.
If the Company fails to make a payment of interest on the Securities,
it shall pay such defaulted interest plus any interest payable on the defaulted
interest, in any lawful manner. It may pay such defaulted interest, plus any
such interest payable on it, to the persons who are Securityholders on a
subsequent special record date. The Company shall fix any such record date and
payment date. At least 15 days before any such record date, the Company shall
mail to Securityholders a notice that states the record date, payment date, and
amount of such interest to be paid.
ARTICLE 3
REDEMPTION
Section 3.01. Notices to Trustee.
If the Company elects to redeem Securities pursuant to the optional
redemption provisions of paragraph 5 of the Securities and Section 3.07 hereof,
it shall notify the Trustee by delivery of an Officers' Certificate at least 45
days but not more than 60 days (unless a shorter notice period shall be
satisfactory to the Trustee) prior to the redemption date and the principal
amount of Securities to be redeemed and the redemption price.
If the Registrar is not the Trustee, the Company shall, concurrently
with each notice of redemption, cause the Registrar to deliver to the Trustee a
certificate (upon which the Trustee may rely) setting forth the principal
amounts of and identifying Restricted Securities held by any Holder.
Section 3.02. Selection of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the Trustee shall
select the Securities to be redeemed pro rata or by lot or by a method that
occupies with the requirements of any exchange on which the Securities are
listed, if any, and that the Trustee considers fair and appropriate. The Trustee
shall make the selection not more than 60 days and not less than 30 days before
the redemption date form Securities outstanding not previously called for
redemption. The Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000. Securities and portions
of them it selects shall be in amounts of $1,000 or integral multiples of
$1,000; except that if all of the Securities of a Holder are to be redeemed, the
entire outstanding amount of Securities held by such Holder shall be redeemed.
Provisions of this Indenture that apply to Securities called
<PAGE> 340
for redemption also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or portions of
Securities to be called for redemption.
Section 3.03. Notice of Redemption.
Subject to the provisions of Section 3.08 hereof, at least 30 days but
not more than 60 days before a redemption date, the Company shall mail a notice
of redemption to each Holder whose Securities are to be redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) if any security is being redeemed in part, the portion of
the principal amount of such Security to be redeemed and that, after
the redemption date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion will be
issued;
(4) the name and address of the Paying Agent;
(5) that Securities called for redemption must be surrendered
to the Paying Agent to collect the redemption price, that upon
surrender to the Paying Agent such Securities shall be paid at the
redemption price stated in the notice plus accrued interest to the
redemption date, that if fewer than all of the outstanding Securities
are to be redeemed, the identification numbers and principal amounts of
particular Securities to be redeemed and that no representation is made
as to the correctness or accuracy of the Cusip number, if any, set
forth in such notice or printed on the Securities;
(6) that, unless the Company defaults in making the redemption
payment, interest on Securities or portions thereof called for
redemption ceases to accrue on and after the redemption date; and
(7) the paragraph of the Securities pursuant to which the
Securities called for redemption are being redeemed. Failure to give
notice or any defect in the notice to any Holder shall not affect the
validity of notice given to any other Holder.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at its expense.
<PAGE> 341
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date at the price set forth in the
notice.
Section 3.05. Deposit of Redemption Price.
On or before the redemption date, the Company shall deposit with the
Trustee or with the Paying Agent (or, if the Company or a subsidiary of the
Company is acting as Paying Agent, sufficient funds are deposited with, and
segregated and held in trust by, such Paying Agent in accordance with the terms
of this Indenture) money sufficient to pay the redemption price of and accrued
interest on all Securities to be redeemed on that date (other than Securities or
portions of Securities which have been surrendered by the Company to the Trustee
for cancellation in accordance with the terms of the Indenture). The Trustee or
the Paying Agent shall, after paying itself any sums due it from the Company,
return to the Company promptly any money not required for that purpose.
Section 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Company
shall issue and the Trustee shall authenticate for the Holder at the expense of
the Company a new Security equal in principal amount to the unredeemed portion
of the Security surrendered.
Section 3.07. Optional Redemption.
The Company may redeem all or any of the Securities, upon the terms and
subject to the conditions set forth in paragraph 5 of the Securities. Any
redemption pursuant to this Section 3.07 shall be made pursuant to the
provisions of Sections 3.01 through 3.06 hereof. The restrictions set forth in
paragraph 5 of the Securities shall not be deemed to limit the Company's right
to make open market purchases of the Securities from time to time.
Section 3.08. Offer to Redeem by Application of Net Proceeds.
No later than 5 days following the expiration of the Asset Sale
Application Period for any Asset Sale in which Excess Proceeds remain from such
Asset Sale (or in the event that the Excess Proceeds from such Asset Sale, plus
the Excess Proceeds from all prior Asset Sales which have not been applied to an
Asset Sale Offer pursuant to Section 3.08, are less than $2.0 million, no later
than 5 days after such time as such aggregate Excess Proceeds, plus the
aggregate amount of Excess Proceeds resulting from any subsequent Asset Sale(s)
which have not been applied to an Asset Sale Offer pursuant to Section 3.08, are
at least equal to $2.0 million), the Company shall notify the Trustee in writing
setting
<PAGE> 342
forth (i) that an Asset Sale Offer shall be made, (ii) the redemption date,
(iii) the amount of Excess Proceeds and the maximum principal amount of
Securities that may be purchased out of the Excess Proceeds and (iv) the
redemption price, and shall furnish to the Trustee an Officer's Certificate to
the effect and setting forth that (x) the Company has consummated (an) Asset
Sale(s), (y) the conditions set forth in Section 4.11 hereof have been satisfied
and (z) the total amount of Net Proceeds from the Asset Sale(s), the amount of
Net Proceeds, if any, applied by the Company to permanently reduce the
availability under the Revolving Credit Facility and the amount of Net Proceeds,
if any, reinvested by the Company in accordance with Section 4.11. Within 15
days thereafter, the Trustee shall select the Securities to be offered to be
redeemed in accordance with Section 3.02 hereof. Within 10 days thereafter, the
Company shall mail or cause the Trustee to mail (in the Company's name and at
its expense) an offer to redeem (the "Asset Sale Offer") to each Holder of
Securities whose Securities are to be offered to be redeemed. The Asset Sale
Offer shall identify the Securities to which it relates and shall contain the
information required by clauses (1) through (7) of Section 3.03 hereof. The
redemption price shall be 100% of principal amount of the Securities plus
accrued interest to the redemption date. The redemption date shall be at least
75 but not more than 90 days after the mailing of Notice of the Asset Sale
Offer.
A Holder receiving an Asset Sale Offer may elect to have redeemed the
Securities to which the Asset Sale Offer relates by completing and delivering to
the Trustee and the Company, on or before 50 days preceding the redemption date,
the form entitled "Option of Holder to Elect Purchase" on the reverse side of
the Security. A Holder may not elect to have redeemed less than all of the
Securities to which the Asset Sale Offer relates. In the event that less than
all of the Holders receiving an Asset Sale Offer elect to have Securities
redeemed, the Trustee shall promptly select, in accordance with Section 3.02
hereof, additional Securities held by Holders who have elected to have
Securities redeemed in an amount equal to the Securities held by Holders who
received the Asset Sale Offer but did not elect to have Securities redeemed. The
Company or the Trustee (in the Company's name and at its expense) shall, no
later than 40 days preceding the redemption date, mail an additional Asset Sale
Offer to the Holders of the Securities so selected. Such additional Asset Sale
Offer shall be deemed accepted by the Holder unless such Holder provides written
notice of non-acceptance to the Trustee and to the Company on or before 30 days
preceding the redemption date. The Trustee shall thereafter mail a notice of
redemption in accordance with Section 3.03 hereof at least 15 days prior to the
redemption date.
In the event the Excess Proceeds are not evenly divisible by $1,000,
the Trustee shall promptly refund to the Company the remaining portion of such
Excess Proceeds that are not so divisible. The Trustee shall, after paying
itself any sums due it from the Company, return promptly to
<PAGE> 343
the Company any Excess Proceeds remaining after the redemption of Securities
pursuant to offers to redeem.
Other than as specifically provided in this Section 3.08, any
redemption pursuant to this Section 3.08 shall be made pursuant to the
provisions of Section 3.01 through 3.06 hereof.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Securities.
The Company shall duly pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities. Principal
and interest shall be considered paid on the date due if the Paying Agent (other
than the Company or a subsidiary of the Company) holds on that date money
designated for and sufficient to pay all principal and interest then due or, if
the Company or a subsidiary of the Company is then acting as Paying Agent, such
Paying Agent holds on that date the full amount of such sufficient money
segregated and held in trust in accordance with the terms of this Indenture. To
the extent lawful, the Company shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on (i) overdue principal,
at the rate borne by the Securities, compounded semiannually; and (ii) overdue
installments of interest (without regard to any applicable grace period) at the
same rate, compounded semiannually.
Section 4.02. SEC Reports: Financial Statements.
(a) The Company and any other obligor upon the Securities shall file
with the Trustee, within 15 days after filing with the SEC, copies of the annual
reports and of the information, documents and other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) which the Company or any other obligor upon the Securities is
required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act. If either the Company or any other obligor upon the Securities is not
subject to the requirements of such Section 13 or 15(d) of the Exchange Act, the
Company or such other obligor, as the case may be, shall file with the Trustee,
within 15 days after it would have been required to file with the SEC, financial
statements, including any notes thereto (and with respect to annual reports, an
auditors' report by a firm of established national reputation reasonably
satisfactory to the Trustee), and a "Management's Discussion and Analysis of
Financial Condition and Results of Operations," both comparable to that which
the Company or such other obligor, as the case may be, would have been required
to include in such annual reports,
<PAGE> 344
information, documents or other reports if the Company or such other obligor, as
the case may be, were subject to the requirements of such Section 13 or 15(d) of
the Exchange Act. Subsequent to the qualification of the Indenture under the
TIA, the Company and any other obligor upon the Securities shall also comply
with the provisions of TIA ss. 314(a).
(b) If the Company or any other obligor upon the Securities is required
to furnish annual or quarterly reports to its stockholders pursuant to the
Exchange Act, the Company or such other obligor, as the case may be, shall cause
any annual report furnished to its stockholders generally and any quarterly or
other financial reports furnished by it to its stockholders generally to be
filed with the Trustee and mailed to the Holders at their addresses appearing in
the register of Securities maintained by the Registrar. If either the Company or
any other obligor upon the Securities is not required to furnish annual or
quarterly reports to its stockholders pursuant to the Exchange Act, the Company
or such other obligor, as the case may be, shall cause its financial statements
referred to in Section 4.02(a) above, including any notes thereto (and with
respect to annual reports, an auditors' report by a firm of established national
reputation), and a "Management's Discussion and Analysis of Financial Condition
and Results of Operations," to be so mailed to the Holders within 120 days after
the end of each of its fiscal years and within 60 days after the end of each of
its first three fiscal quarters. The Company and any other obligor upon the
Securities will cause to be disclosed in a statement accompanying any annual
report or comparable information as of the date of the most recent financial
statements in each such report or comparable information the amount available
for payments pursuant to Section 4.07(a) hereof. As of the date hereof, the
Company's fiscal year ends on December 31.
Section 4.03. Compliance Certificate.
(a) The Company (and any other obligor upon the Securities) shall
deliver to the Trustee, within 120 days after the end of each fiscal year of the
Company, an Officers' Certificate stating that a review of the activities of the
Company and its Subsidiaries (or of such obligor) during the preceding fiscal
year has been made under the supervision of the signing Officers with a view to
determining whether each has kept, observed, performed and fulfilled its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his knowledge each has kept,
observed, performed and fulfilled each and every covenant contained in this
Indenture and is not in default in the performance or observance of any of the
terms, provisions and conditions hereof (or, if a Default or Event of Default
shall have occurred, describing all such Defaults or Events of Default of which
he may have knowledge and what action the Company or such other obligor, as the
case may be is taking or proposes to take with respect thereto) and that to the
best of his knowledge no event has occurred and
<PAGE> 345
remains in existence by reason of which payments on account of the principal of
or interest, if any, on the Securities are prohibited or if such event has
occurred, a description of the event and what action the Company or such other
obligor, as the case may be, is taking or proposes to take with respect thereto.
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, the annual financial
statements delivered pursuant to Section 4.02 above shall be accompanied by a
written statement of the Company's independent public accountants (who shall be
a firm of established national reputation) that in making the examination
necessary for certification of such financial statements nothing has come to
their attention which would lead them to believe that the Company has violated
any provisions of Article 4 (other than Sections 4.02, 4.03, 4.04 and 4.16
thereof) or 5 of this Indenture or, if any such violation has occurred,
specifying the nature and period of existence thereof, it being understood that
such accountants shall not be liable directly or indirectly to any Person for
any failure to obtain knowledge of any such violation.
(c) The Company (and any obligor upon the Securities) will, so long as
any of the Securities are outstanding, deliver to the Trustee, forthwith upon
any Officer becoming aware of (i) any Default or Event of Default or (ii) any
event of default (continuing beyond any applicable grace period) under any other
mortgage, indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed by the
Company or any of its Subsidiaries (or the payment of which is guaranteed by the
Company or any of its Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, an Officers' Certificate
specifying such Default, Event of Default or event of default and what action
each is taking or proposes to take with respect thereto.
Section 4.04. Stay, Extension and Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, which may affect the covenants
or the performance of this Indenture; and the Company (to the extent it may
lawfully do so) hereby expressly waives all benefit or advantage of any such
law, and covenants that it will not, by resort to any such law, hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law has been
enacted.
<PAGE> 346
Section 4.05. Corporate Existence.
Subject to Article 5, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect its corporate
existence and the corporate, partnership or other existence of each Subsidiary
of the Company in accordance with the respective organization documents of each
Subsidiary of the Company and the rights (charter and statutory), licenses and
franchises of the Company and its Subsidiaries; provided, however, that the
Company shall not be required to preserve any such right, license or franchise,
or the corporate, partnership or other existence of any Subsidiary, if the Board
of Directors shall determine that the preservation thereof is no longer
desirable in the conduct of the business of the Company and its subsidiaries
taken as a whole and that the loss thereof is not adverse in any material
respect to the Holders.
Section 4.06. Taxes.
The Company shall, and shall cause each of its Subsidiaries to, pay
prior to delinquency all material taxes, assessments and governmental levies,
except as contested in good faith and by appropriate proceedings or where
failure to effect such payment is not adverse in any material respect to the
Holders.
Section 4.07. Limitations on Restricted Payments.
(a) The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly: (i) declare or pay any dividend or make any
distribution on account of the Company's or any of its Subsidiaries' Equity
Interests (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or such Subsidiary or dividends
or distributions payable to the Company or any Wholly Owned Subsidiary of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company or any Subsidiary or other Affiliate of the
Company (other than any such Equity Interests owned by the Company or any Wholly
Owned Subsidiary of the Company) in each case except for Permitted Investments;
(iii) voluntarily purchase, redeem or otherwise acquire or retire for value any
Indebtedness that is pari passu with or subordinated to the Securities; or (iv)
make any Restricted Investment (all such payments and other actions set forth in
clauses (i) through (iv) above being collectively referred to as "Restricted
Payments") unless, at the time of such Restricted Payment:
(1) no Default or Event of Default shall have
occurred and be continuing or would occur as a
consequence thereof; and
<PAGE> 347
(2) immediately after such Restricted Payment (the value of
any such payment, if other than cash, being determined by the Board of
Directors and evidenced by a resolution) and after giving effect
thereto on a pro forma basis, the Consolidated Net Worth of the Company
would be at least $25 million; and
(3) the Company's Fixed Charge Coverage Ratio for the
Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the
date on which such Restricted Payment is made, calculated on a pro
forma basis as if such Restricted Payment had been made at the
beginning of such four-quarter period, would have been at least 3 to 1;
and
(4) such Restricted Payment, together with the aggregate of
all other Restricted Payments made by the Company and its Subsidiaries
after the date of the Old Indenture (including Restricted Payments
permitted by clause (ii) of Section 4.07(b) hereof), is less than the
sum of (x) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
quarter immediately after the first date on which the Company's
Consolidated Net Worth exceeds $25 million to the end of the Company's
most recently ended four full fiscal quarters for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, 100% of such deficit), plus (y) 100% of the aggregate net cash
proceeds received by the Company from the issue or sale of Equity
Interests of the Company (other than Equity Interests sold to a
Subsidiary of the Company and other than Disqualified Stock) since the
date of the Old Indenture, plus (z) 100% of the net cash proceeds
received by the Company from the issuance or sale, other than to a
Subsidiary of the Company, of any debt security of the Company that has
been converted into Equity Interests of the Company (other than
Disqualified Stock) since the date of the Old Indenture.
For purposes of Section 4.07(a)(4) hereof, the net proceeds from the
issuance of shares of Capital Stock of the Company or any Subsidiary issued upon
conversion of debt securities shall be deemed to be the net
<PAGE> 348
book value of such debt securities at the date of conversion (plus the
additional amount required to be paid upon such conversion, if any), less any
cash payment on account of fractional shares. For the purposes of this
paragraph, the net book value of a security shall be the amount received by the
Company on the issuance of such security, as adjusted on the books of the
Company to the date of conversion. The foregoing shall not be interpreted to
limit the authority of the Board of Directors, as set forth above, to determine
the value of other securities of the Company or other property received as net
proceeds; provided, however, that the value of the other property shall not
exceed the net book value on the Company's books of such property. For purposes
of determining under clause (iv) above the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount thereof and
property other than cash shall be valued at its fair market value.
(b) Notwithstanding the foregoing provisions, the provisions of this
Section 4.07 shall not prohibit: (i) the payment of any dividend within 60 days
after the date of declaration thereof, if at said date of declaration such
payment would have complied with the provisions of the Indenture; (ii) the
redemption, repurchase, retirement or other acquisition of any Equity Interests
of the Company in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other Equity
Interests of the Company (other than any Disqualified Stock); (iii) the
redemption, repurchase or payoff of Indebtedness (whether revolving credit
borrowings, letters of credit, or otherwise) under the Revolving Credit
Facility; (iv) the redemption, repurchase or payoff of Purchase Money
Indebtedness; (v) the redemption, repurchase or payoff of any Indebtedness with
proceeds of any Refinancing Indebtedness permitted to be incurred under Section
4.08; or (vi) the repurchase, redemption or other acquisition or retirement for
value of any Equity Interests of the Company or any Subsidiary of the Company
held by any officer or employee of the Company (other than Principals or any
Related Party) or any of the Company's distributors or sales representatives;
provided, however, that the aggregate amount of all such repurchases,
redemptions and other acquisitions and retirements under this clause (vi) on or
after the date of the Indenture shall not exceed $2 million.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant "Restricted Payments" were computed, which
calculations may be based upon the Company's latest available financial
statements.
<PAGE> 349
Section 4.08. Limitations on Incurrence of Indebtedness and Issuance of
Preferred Stock.
(a) The Company will not, and will not permit any of its Subsidiaries
to, directly or indirectly, create, incur, issue, assume, guaranty or otherwise
become directly or indirectly liable with respect to (collectively, "incur") any
Indebtedness (including Acquired Debt) and will not issue any Disqualified Stock
and will not permit any of its Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company may incur Indebtedness or issue
shares of Disqualified Stock if:
(i) the Fixed Charged Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least equal to the ratio of 2.5:1, determined
on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock had been issued, as the case may
be, at the beginning of such four-quarter period; and
(ii) the Weighted Average Life to Maturity of such
Indebtedness is greater than the remaining Weighted Average Life to
Maturity of the Securities.
(b) The limitations of Section 4.08(a) will not apply to (i) the incurrence by
the Company and its Subsidiaries of Indebtedness (whether revolving credit
borrowings, trade letters of credit, standby letters of credit or a combination
thereof) pursuant to the Revolving Credit Facility in an aggregate principal
amount (as to borrowings) and in an aggregate undrawn face amount (as to letters
of credit, whether or not constituting Indebtedness) not to exceed $50 million
in the aggregate at any one time outstanding (as such aggregate amount may be
permanently reduced from time to time pursuant to Section 4.11 of this
Indenture); (ii) the incurrence by the Company and its Foreign Subsidiaries of
Hedging Obligations incurred to fix the interest rate on any variable rate
Indebtedness otherwise permitted by this Section 4.08; (iii) the incurrence by
the Company and its Foreign Subsidiaries of Indebtedness in connection with or
arising out of sale and leaseback transactions, capital lease obligations or
Purchase Money Obligations, provided, that the aggregate principal amount at any
one time outstanding of all such otherwise unpermitted sale and leaseback
transactions, capital lease obligations and Purchase Money Obligations does not
exceed $10 million (collectively, "Purchase Money Indebtedness"); (iv) the
incurrence by the Company of Indebtedness represented by the Securities; (v)
Indebtedness owed by the Company to any of its Subsidiaries or any such
Subsidiary to
<PAGE> 350
the Company or any other Subsidiary of the Company; (vi) the incurrence by the
Company (and its Subsidiaries, as to clause (i) above; and its Foreign
Subsidiaries, as to clause (iii) above) of Indebtedness issued in exchange for,
or the proceeds of which are contemporaneously used to extend, refinance, renew,
replace, or refund (collectively, "Refinance") Indebtedness referred to in
clauses (i), (iii) and (iv) above, and outstanding Indebtedness incurred in
compliance with Section 4.08(a) hereof (the "Refinancing Indebtedness");
provided, however, that such Refinancing Indebtedness (A) in the case of a
Refinance of Indebtedness under the Revolving Credit Facility, is limited to an
aggregate commitment (inclusive of revolving credit borrowings and the undrawn
face amount of letters of credit, whether or not constituting Indebtedness) not
in excess of $50 million (as such amount may be permanently reduced from time to
time pursuant to Section 4.11 of this Indenture), and (B) in the case of other
Refinancing Indebtedness (1) the principal amount of such Refinancing
Indebtedness shall not exceed the principal amount of Indebtedness so Refinanced
(plus the amount of reasonable expenses incurred in connection therewith), (2)
the Refinancing Indebtedness shall have a Weighted Average Life to Maturity
equal to or greater than the Weighted Average Life to Maturity of the
Indebtedness being extended, refinanced, renewed, replaced or refunded, and (3)
the Refinancing Indebtedness shall rank in right of payment no more senior (and
at least as subordinated) to the Securities than did the Indebtedness being
Refinanced; or (vii) the incurrence by the Company of trade letters of credit
incurred in the ordinary course of business in an amount not to exceed $5
million at any one time outstanding.
Section 4.09. Limitation on Liens.
The Company will not, and will not permit its Subsidiaries to, directly or
indirectly create, incur, assume or suffer to exist any Lien on any asset now
owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except: (i) Liens on accounts
receivable and inventory of the Company and its Subsidiaries, and on the other
assets described in clause (C) of subdivision (i) of Section 10.01(d) of this
Indenture, and the proceeds thereof, securing Indebtedness (and, whether or not
included as Indebtedness, trade letters of credit and/or standby letters of
credit and/or reimbursement obligations in respect thereof, and any and all
related interest, fees and related obligations) pursuant to the Revolving Credit
Facility in an aggregate principal amount (as to borrowings) and an aggregate
undrawn face amount (as to letters of credit, whether or not constituting
Indebtedness) not to exceed $50 million in the aggregate at any one time
outstanding (as such aggregate amount may be permanently reduced from time to
time pursuant to Section 4.11 of this Indenture), (ii) Purchase Money Liens and
Liens for construction mortgages created on any type of property, construction
or improvement of such property by the Company or a Foreign Subsidiary to secure
the purchase price or
<PAGE> 351
construction cost or improvement cost of only such property in an amount up to
100% of the total cost of such property, construction or improvement, (iii)
Liens to secure obligations for which the Company is fully indemnified by Dow
Corning, provided that the Company provides the Trustee with an Officer's
Certificate setting forth the good faith opinion of the Company's Board of
Directors that Dow Corning is indemnifying the Company in full for all
liabilities, damages and costs relating to such Lien and the obligations it
secures, (iv) Liens on property of the Company or its Subsidiaries which secure
environmental claims of any governmental authority, provided that all such
claims do not exceed $1 million in the aggregate, provided further that such
environmental claims are being contested or remedied in good faith by the
Company, and provided further that if the Company obtains security (in the form
of a letter of credit, cash collateral, escrow account or third party indemnity
from a third party which the Company deems financially capable of performing its
obligations under said indemnity) to secure the payment and satisfaction of any
such claim, such adequately secured environmental claim shall not be counted
towards such $1 million aggregate limitation to the extent such security secures
such payment and satisfaction, (v) Liens securing the obligations under the
Securities and the Indenture, and (vi) Permitted Liens.
For the purposes of determining "adequate security" under clause (iv)
above, the Company shall provide the Trustee with an Officer's Certificate
certifying the basis for the Company's opinion that such security (in both
amount and form) secures the payment of, and satisfaction of liabilities with
respect to, the environmental claim for which such security relates and the
extent to which such security secures such payment and satisfaction.
Section 4.10. Limitation on Granting Liens and Restrictions on Subsidiary
Dividends.
The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create or otherwise cause or suffer to exist or become
effective any encumbrance or restriction on the ability of (a) the Company or
any Subsidiary to grant Liens on the assets of such Person in favor of the
Holders, or (b) any Subsidiary to (i) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (A) on its Capital Stock
or (B) with respect to any other interest or participation in, or measured by,
its profits, or (ii) pay any Indebtedness owed to the Company or any of its
Subsidiaries or (c) any Subsidiary to make loans or advances to the Company or
any of its Subsidiaries or (d) any Subsidiary to transfer any of its properties
or assets to the Company or any of its Subsidiaries, except for such
encumbrances or restrictions existing under or by reasons of (i) the Revolving
Credit Facility, provided that such restrictions do not restrict the granting or
perfecting of Liens on the Collateral to the Collateral Agent, Trustee and
Holders as contemplated by this Indenture
<PAGE> 352
and the Collateral Agreements, (ii) the Indenture and the Securities, (iii)
applicable law, (iv) any instrument governing Indebtedness or Capital Stock of a
Person acquired (including by way of merger or consolidation) by the Company or
any of its Subsidiaries as in effect at the time of such acquisition (except to
the extent such Indebtedness was incurred in contemplation of such acquisition),
which encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property or
assets of the Person, so acquired, (v) with respect to clauses (a) and (d)
above, (1) restrictions on encumbering in leases and other agreements entered
into prior to the date of the Indenture or acquired from a third party into on
or after the date of the Indenture in the ordinary course of business, (vi) with
respect to clauses (a) and (d) above, Purchase Money Obligations, provided that
such encumbrance or restriction does not apply to any other property or asset of
the Company or its Subsidiaries, and (vii) permitted Refinancing Indebtedness,
provided that such restrictions contained in any agreement governing such
Refinancing Indebtedness are no more restrictive taken as a whole than those
contained in any agreements governing the Indebtedness being refinanced.
Section 4.11. Limitations on Certain Asset Sales.
(a) The Company will not, and will not permit any of its Subsidiaries
to, (i) sell, lease, transfer or otherwise dispose of (including by way of a
sale-and-leaseback) any Business Segment, other than the sale of inventory or
materials in the ordinary course of business (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company shall be governed by Section 5.01 hereof), or (ii) sell Equity Interests
of any of its Subsidiaries for net proceeds in excess of $5 million, in each
case whether in a single transaction or a series of related transactions (each
of the foregoing, an "Asset Sale"), unless (x) the Company (or the Subsidiary,
as the case may be) receives consideration at the time of such Asset Sale at
least equal to the fair market value (evidenced by a resolution of the Board of
Directors set forth in an Officers' Certificate delivered to the Trustee) of the
assets sold or otherwise disposed of and (y) at least 80% of the consideration
therefor received by the Company or such Subsidiary is in the form of cash;
provided, however, that the amount of (A) any liabilities (as shown on the
Company's or such Subsidiary's most recent balance sheet or in the notes
thereto), of the Company or any Subsidiary that are assumed by the transferee of
any such assets and (B) any notes or other obligations received by the Company
or any such Subsidiary from such transferee that are promptly, but in no event
more than 30 days after receipt, converted by the Company or such Subsidiary
into cash, shall be, deemed to be cash (to the extent of the cash received) for
purposes of this provision.
(b) Within 180 days after any Asset Sale (the "Asset Sale
<PAGE> 353
Application Period"), the Company may apply the Net Proceeds from such Asset
Sale to either (i) permanently reduce the availability under the Revolving
Credit Facility (and if the outstanding principal amount under the Revolving
Credit Facility exceeds the availability thereunder after such reduction, then
reduce the amount outstanding to an amount at least equal to such availability),
or (ii) make an investment in another business or capital expenditure or a
purchase of other fixed assets in the same or a similar line of business as the
Company was engaged in on the date of the Old Indenture. Any Net Proceeds from
the Asset Sale that are not applied or invested as provided in the preceding
sentence constitute "Excess Proceeds." Prior to each application of Net Proceeds
from an Asset Sale, excluding any application pursuant to any Asset Sale Offer,
the Company shall deliver an Officers' Certificate to the Trustee setting forth
the intended application of such Net Proceeds and certifying that such Net
Proceeds are being applied in accordance with this Section 4.11(b).
In accordance with the provisions of Section 3.08 hereof, the Company
shall make an Asset Sale Offer to all Securityholders to purchase the maximum
principal amount of Securities that may be purchased out of the Excess Proceeds,
at an offer price in cash in an amount equal to 100% of the outstanding
principal amount thereof plus accrued and unpaid interest, if any, to the date
fixed for the closing of such offer; provided, however, that in the event that
the Excess Proceeds from such Asset Sale, plus the Excess Proceeds from all
prior Asset Sales which have not been applied to an Asset Sale Offer pursuant to
the Old Indenture or Section 3.08 of this Indenture, are less than $2.0 million,
the application of such aggregate Excess Proceeds to an Asset Sale Offer may be
deferred until such time as such aggregate Excess Proceeds, plus the aggregate
amount of Excess Proceeds resulting from any subsequent Asset Sale(s), are at
least equal to $2.0 million.
Section 4.12. Change of Control.
(a) Upon the occurrence of a Change of Control, each Securityholder
shall have the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder' Securities pursuant
to the offer described below (the "Change of Control Offer") at a purchase price
equal to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest, if any, to the date of purchase (the "Change of Control Payment"). The
Change of Control Offer shall remain open for a period of at least 20 Business
Days after its commencement unless a longer offering period is required by law.
(b) Within 40 days following any Change of Control, the Company
shall mail a notice to each holder stating: (1) that the Change of
Control Offer is being made pursuant to the covenant entitled "Change of
<PAGE> 354
Control" and that all Securities tendered will be accepted for payment; (2) the
purchase price and the purchase date, which shall be no earlier than 30 days nor
later than 40 days from the date such notice is mailed (the "Change of Control
Payment Date"); (3) that any Security not tendered will continue to accrue
interest; (4) that, unless the Company defaults in the payment of the Change of
Control Payment, all Securities accepted for payment pursuant to the Change of
Control Offer shall cease to accrue interest after the Change of Control Payment
Date; (5) that Holders electing to have any Securities purchased pursuant to a
Change of Control Offer will be required to surrender the Securities, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Securities completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the third Business Day preceding the Change of
Control Payment Date; (6) that Holders will be entitled to withdraw their
election if the Paying Agent receives, not later than the close of business on
the second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of Securities delivered for purchase, and a
statement that such Holder is withdrawing his election to have Securities
purchased; and (7) that Holders whose Securities are being purchased only in
part will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered, which unpurchased portion must be equal
to $1,000 in principal amount or an integral multiple thereof. The Company will
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Securities
in connection with a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment Securities or portions thereof tendered pursuant
to the Change of Control Offer, (2) deposit with the Paying Agent an amount
equal to the Change of Control Payment in respect of all Securities or portions
thereof so tendered and (3) deliver or cause to be delivered to the Trustee the
Securities so accepted together with an Officers' Certificate stating the
Securities or portions thereof tendered to the Company. The Paying Agent shall
promptly mail to each Security Holder of Securities so accepted payment in an
amount equal to the purchase price for such Securities, and the Trustee shall
promptly authenticate and mail to each Holder a new Security equal in principal
amount to any unpurchased portion of the Securities surrendered, if any;
provided, that each such new Security shall be in a principal amount of $1,000
or an integral multiple thereof. The Company will publicly announce the results
of the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date.
"Change of Control" means (i) the sale, lease or transfer of all or
<PAGE> 355
substantially all of the Company's assets to any Person or group (as such term
is used in Section 13(d)(3) of the Exchange Act) (other than the Principals (as
defined below)), (ii) the liquidation or dissolution of the Company, (iii) the
acquisition by any Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act) (other than the Principals and their Related Parties) of a
direct or indirect majority in interest (more than 50%) of the voting power of
the Voting Stock of the Company by way of merger or consolidation or otherwise
or (iv) any transaction the result of which is (x) if such transaction occurs
prior to the first sale of common equity of the Company pursuant to a
registration statement under the Securities Act that results in at least 25% of
the then outstanding common equity of the Company being sold to the public, that
the Principals and their Related Parties beneficially own less, directly or
indirectly, than 35% of the voting power of the Voting Stock of the Company
beneficially owned by the Principals, directly or indirectly, on the date of the
Indenture, and (y) if such transaction occurs thereafter, that any Person or
group (as defined above) (other than the Principals and their Related Parties)
owns, directly or indirectly, more of the voting power of the Voting Stock of
the Company than the Principals and their Related Parties.
"Related Party" with respect to any Principal means (A) the general
partner and each limited partner of Kidd Kamm as of the date of the Indenture,
(B) any 50% (or more) owned Subsidiary of either Principal or both Principals
jointly, or (C) any spouse or immediate family member or trust (in the case of
an individual) of such Principal.
"Principals" means Kidd Kamm and Herbert W. Korthoff.
Section 4.13. Transactions with Affiliates.
The Company will not, and will not permit any of its Subsidiaries to,
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from, or enter into any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), except
for (a) Affiliate Transactions of aggregate value less than $1 million which is
on terms that are no less favorable to the Company or the relevant Subsidiary
than those that would have been obtained in a comparable transaction by the
Company or such Subsidiary with an unrelated person and which are conducted in
good faith and (b) Affiliate Transactions in which the Company delivers to the
Trustee an opinion as to the fairness to the Company or such Subsidiary from a
financial point of view issued by an investment banking firm of national
standing; provided, however, that (i) any employment agreement entered into by
the Company or any of its Subsidiaries in the ordinary course of business and
with the approval of the Company's board of directors, (ii) transactions between
or among the Company and/or its Subsidiaries,
<PAGE> 356
(iii) transactions permitted by Section 4.07 hereof, (iv) the rendering of
management services by Kidd, Kamm & Company and the payment by the Company for
such services pursuant to the Management Services Agreement and (v) the
rendering of services by Kidd, Kamm & Company in connection with the Acquisition
and the payment for such services by the Company on the closing date of the
Acquisition, in each case, shall not be deemed Affiliate Transactions.
Section 4.14. Maintenance of Consolidated Net Worth.
The Company shall not permit its Consolidated Net Worth at the end of
each fiscal year set forth below to be less than the amount set forth opposite
such fiscal year:
Minimum
Consolidated
Year Ending Net Worth
December 31, 1997........................17,500,000
Thereafter...............................20,000,000
Section 4.15. Liquidation.
The Board of Directors or the stockholders of the Company may not adopt
a plan of liquidation which provides for, contemplates or the effectuation of
which is preceded by (i) the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company otherwise than substantially
as an entirety (Section 5.01 of this Indenture being the Section hereof which
governs any such sale, lease, conveyance or other disposition substantially as
an entirety) and (ii) the distribution of all or substantially all of the
proceeds of such sale, lease, conveyance or other disposition and of the
remaining assets of the Company to the holders of capital stock of the Company,
unless the Company, prior to making any liquidating distribution pursuant to
such plan, makes provision for the satisfaction of the Company's obligations
hereunder and under the Securities as to the payment of principal and interest.
The Company shall be deemed to make provision for such payments only if the
Company delivers in trust to the Trustee or Paying Agent (other than the
Company) money or U.S. Government Obligations maturing as to principal and
interest in such amounts and at such times as are sufficient without
consideration of any reinvestment of such interest to pay, when due, the
principal of and interest on the Securities and also delivers to the Trustee an
Opinion of Counsel to the effect that Holders of the Securities will not
recognize income, gain or loss for Federal income tax purposes as a result of
such action and will
<PAGE> 357
be subject to Federal income tax on the same amount and in the same manner and
at the same times as would have been the case if such action had not been taken
and a favorable accountants' certificate as to the sufficiency of such
Obligations, without consideration of any reinvestment of interest, to pay, when
due, the principal of and interest on the Securities; provided, however, that
the Company shall not make any liquidating distribution until after the Company
shall have certified to the Trustee with an Officers' Certificate at least five
days prior to the making of any liquidating distribution that it has complied
with the provisions of this Section 4.15 and that no Default or Event of Default
then exists or would occur as a result of any such liquidating distribution. The
Company will pay the reasonable compensation and expenses of the Trustee and the
reasonable fees and expenses of the Trustee's agents and counsel incurred in
connection with this Section 4.15.
Section 4.16. Rule 144A Information Requirement.
The Company shall furnish to the Holders or beneficial holders of the
Securities and to prospective purchasers of Securities designated by the Holders
of Transfer Restricted Securities, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act until such
time as the Company either exchanges the Series C Notes for the Exchange Notes
or has registered the Series C Notes for resale under the Securities Act. The
Company will provide a copy of the Registration Rights Agreement to prospective
investors upon request.
Section 4.17. Payments for Consent.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder for or as an inducement to any
consent, waiver or amendment of any of the terms or provisions of the Indenture
or the Securities unless such consideration is offered to be paid or agreed to
be paid to all Holders that consent, waive or agree to amend in the time frame
set forth in the solicitation documents relating to such consent, waiver or
agreement.
Section 4.18. Restrictions on Indirect Subsidiaries.
The Company will not create, cause its Subsidiaries to create, or
otherwise suffer to exist any Subsidiary of a Subsidiary of the Company.
<PAGE> 358
ARTICLE 5
SUCCESSORS
Section 5.01. When Company May Merge, etc.
The Company shall not consolidate or merge with or into (whether or not
the Company is the surviving corporation), or sell, assign, transfer, lease,
convey or otherwise dispose of all or substantially all of its properties or
assets in one or more related transactions to, another corporation, person or
entity unless:
(1) the Company is the surviving corporation or the entity or
the Person formed by or surviving any such consolidation or merger (if
other than the Company) or to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made is a
corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia;
(ii) the corporation formed by or surviving any such
consolidation or merger (if other than the Company) or to which such
sale, assignment, transfer, lease, conveyance or other disposition will
have been made assumes all the obligations of the Company pursuant to a
supplemental indenture in a form reasonably satisfactory to the
Trustee, under the Securities and the Indenture;
(iii) immediately after such transaction no Default or
Event of Default exists; and
(iv) the Company or any corporation formed by or surviving any
such consolidation or merger, or to which such sale, assignment,
transfer, lease, conveyance or other disposition will have been made
(A) will have Consolidated Net Worth (immediately after the transaction
but prior to any purchase accounting adjustments resulting from the
transaction) equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the transaction and (B) will, at the time
of such transaction and after giving pro forma effect thereto as if
such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth
in Section 4.08(a) hereof.
The Company shall deliver to the Trustee prior to the consummation of
the proposed transaction an Officers' Certificate to the foregoing effect and an
Opinion of Counsel stating that the proposed transaction and such supplemental
indenture comply with this Indenture.
<PAGE> 359
Section 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01, the successor corporation formed by such
consolidation or into or with which the Company is merged or to which such sale,
lease, conveyance or other disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture with the same effect as if such successor person has been named
as the Company herein; provided, however, that the predecessor Company in the
case of a sale, lease, conveyance or other disposition shall not be released
from the obligation to pay the principal of and interest on the Securities.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any
Security when the same becomes due and payable and the default
continues for a period of 30 days;
(2) the Company defaults in the payment of the principal of
any Security when the same becomes due and payable at maturity, upon
redemption or otherwise;
(3) the Company fails to comply with any of its other
agreements or covenants in, or provisions of, the Securities, this
Indenture, the Registration Rights Agreement or the Collateral
Agreements and the default continues for the period and after the
notice specified below;
(4) a default under (after giving effect to any applicable
grace periods or any extension of any maturity date) any mortgages,
indenture or instrument under which there may be issued or by which
there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of
the Indenture, if (a) either (A) such default results from the failure
to pay principal of or interest on such Indebtedness or (B) as a result
of such default the maturity of such Indebtedness has been accelerated,
and (b) the principal amount of such Indebtedness with respect to which
a default (after the expiration of any applicable grace period or any
extension of the
<PAGE> 360
maturity date) has occurred, or the maturity of which has been
accelerated, exceeds $2 million in the aggregate;
(5) a final judgment or final judgments for the payment of
money are entered by a court or courts of competent jurisdiction
against the Company or any of its Subsidiaries (other than any judgment
as to which a reputable insurance company has accepted full liability)
aggregating in excess of $1 million which judgments are not stayed or
discharged within 60 days after their entry;
(6) (a) a breach by the Company of any material representation
or warranty set forth in the Collateral Agreements, (b) a repudiation
by the Company of its obligations under the Collateral Agreements, or
(c) the unenforceability of the Collateral Agreements against the
Company for any reason;
(7) the Company or any of its Subsidiaries pursuant to or
within the meaning of any Bankruptcy Law:
(A) commences a voluntary case,
(B) consents to the entry of an order for relief
against it in an involuntary case,
(C) consents to the appointment of a Custodian of it or
for all or substantially all of its property,
(D) makes a general assignment for the benefit of its
creditors, or
(E) generally is unable to pay its debts as the same
become due;
(8) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any of its
Subsidiaries in an involuntary case,
(B) appoints a Custodian of the Company or any of its
Subsidiaries or for all or substantially all of its property,
or
(C) orders the liquidation of the Company or any of its
Subsidiaries,
and the order or decree remains unstayed and in effect for 60 days.
The term "Bankruptcy Law" means title 11 U.S. Code or any similar
<PAGE> 361
Federal or State law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any Bankruptcy
Law.
A Default under clauses (3) (other than a Default under Sections 4.05,
4.07, 4.08, 4.11, 4.12, 4.15 or 5.01 which Default shall be an Event of Default
without the notice or passage of time specified in this paragraph), (5) or
(6)(a) is not an Event of Default until the Trustee or the Holders of at least
25% in principal amount of the then outstanding Securities notify the Company of
the Default and the Company does not cure the Default or such Default is not
waived within 30 days after receipt of the notice. The notice must specify the
Default, demand that it be remedied and state that the notice is a "Notice of
Default."
In the case of any Event of Default pursuant to the provisions of this
Section 6.01 occurring by reason of any willful action (or inaction) taken (or
not taken) by or on behalf of the Company with the intention of avoiding payment
of the premium which the Company would have to pay if the Company then had
elected to redeem the Securities pursuant to paragraph 5 of the Securities, an
equivalent premium (or in the event that the Company would not be permitted to
redeem the Securities pursuant to Section 5 of the Securities, the premium
payable on the first date thereafter on which such redemption would be
permissible) shall also become and be immediately due and payable to the extent
permitted by law, anything in this Indenture or in the Securities contained to
the contrary notwithstanding.
Section 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
clauses (7) and (8) of Section 6.01) occurs and is continuing, the Trustee by
notice to the Company, or the Holders of at least 25% in principal amount of the
then outstanding Securities by notice to the Company and the Trustee, may
declare the unpaid principal of and any accrued interest on all the Securities
to be due and payable. Upon such declaration the principal and interest shall be
due and payable immediately. If an Event of Default specified in clause (7) or
(8) of Section 6.01 occurs, such an amount shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of a majority in principal amount of the
then outstanding Securities by notice to the Trustee may rescind an acceleration
and its consequences if the rescission would not conflict with any judgment or
decree and if all existing Event of Default have been cured or waived except
nonpayment of principal or interest that has become due solely because of the
acceleration.
<PAGE> 362
Section 6.03. Other Remedies.
If an Event of Default occurs and its continuing, the Trustee may
pursue any available remedy to collect the payment of principal or interest on
the Securities or to enforce the performance of any provision of the Securities,
its rights in and to the Collateral, this Indenture or the Collateral
Agreements, including without limitation directing the Collateral Agent to act
under any or all of the Collateral Agreements as contemplated by Section 7.13
hereof.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies are
cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
The Holders of a majority in principal amount of the then outstanding
Securities by notice to the Trustee may, on behalf of all the Holders, waive an
existing Default or Event of Default and its consequences except a continuing
Event of Default in the payment of the principal of or interest on any Security.
Section 6.05. Control by Majority.
The Holders of a majority in principal amount of the then outstanding
Securities 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. However, the Trustee (i) may refuse to follow any
direction that conflicts with law or this Indenture or, subject to Section 7.01,
that the Trustee determines is unduly prejudicial to the rights of other
Securityholders, or would involve the Trustee in personal liability or (ii) may
take any other action deemed proper by the Trustee that is not inconsistent with
such direction. Prior to taking any action hereunder, the Trustee shall be
entitled to indemnification satisfactory to it in its sole discretion against
all losses, liabilities and expenses, including the reasonable fees and expenses
of the Trustee's agents and counsel, caused by taking or not taking such action.
Section 6.06. Limitation on Suits.
A Securityholder may pursue a remedy with respect to this Indenture or
the Securities only if:
(1) the Holder gives to the Trustee notice of a continuing
<PAGE> 363
Event of Default;
(2) the Holders of at least 25% in principal amount of the
then outstanding Securities make a request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60
days after receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority in
principal amount of the then outstanding Securities do not give the
Trustee a direction inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights of another
Securityholder or to obtain a preference or priority over another
Securityholder.
Section 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Security to receive payment of principal and interest on the
Security, on or after the respective due dates expressed in the Security, or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of the Holder;
provided, however, that no Holder shall have the right to institute any such
suit, if and to the extent that the institution or prosecution thereof or the
entry of judgment therein would under applicable law result in the surrender,
impairment, waiver, or loss of any Liens of the Collateral Agreements upon any
property subject to such Lien.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(1) or (2) occurs and
is continuing, the Trustee may recover judgment in its own name and as trustee
of an express trust against the Company for the whole amount of principal and
interest remaining unpaid on the Securities and interest on overdue principal
and interest and such further amount as shall be sufficient to cover the costs
and, to the extent lawful, expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the
<PAGE> 364
claims of the Trustee (including any claim for the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel) and
the Securityholders allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Securities), its creditors or its property and
shall be entitled and empowered to collect, receive and distribute any money or
other property payable or deliverable on any such claims and any custodian in
any such judicial proceeding is hereby authorized by each Securityholder to make
such payments to the Trustee, and in the event that the Trustee shall consent to
the making of such payment directly to the Securityholders, to pay to the
Trustee any amount due to it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 7.07 hereof. To the extent that the
payment of any such compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof out of the estate is any such proceeding, shall be denied
for any reason, payment of the same shall be secured by a Lien on, and shall be
paid out of, any and all distributions, dividends, money, securities and other
properties which the Holders of the Securities may be entitled to receive in
such proceeding whether in liquidation or under any plan of reorganization or
arrangement or otherwise. Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Securityholder in
any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall
pay out the money in the following order:
First: to the Trustee and the Collateral Agent for amounts
due under Section 7.07;
Second: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably,
without preference or priority of any kind,
according to the amounts due and payable on the
Securities for principal and interest, respectively;
and
Third: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders.
<PAGE> 365
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by Holders of more than 10% in principal
amount of the then outstanding Securities.
ARTICLE 7
TRUSTEE, COLLATERAL, AGENT AND CO-TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent man would
exercise or use under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others, and no implied
covenants or obligations shall be read into this Indenture against the
Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements of
this Indenture. However, the Trustee shall examine the certificates and
opinions furnished to the Trustee to determine whether or not they
conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b)
of this Section 7.01.
<PAGE> 366
(2) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(4) The Trustee shall not be required to risk or expend its
own funds or otherwise incur financial liability in the performance of
any of its duties hereunder or the exercise of any of its rights or
powers if it shall have reasonable grounds to believe that repayment of
such funds or adequate indemnification against such risk or loss,
including the reasonable fees and expenses of the Trustee's agents and
counsel, is not reasonably assured to it.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.
(e) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity satisfactory to its against any loss,
liability or expense, including but not limited to reasonable fees and expenses
of the Trustee's agents and counsel.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel, or both. The Trustee shall not
be liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with
due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers.
<PAGE> 367
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company or an
Affiliate with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
7.10 and 7.11.
Section 7.04. Trustee's Disclaimer.
The Trustee is not responsible for and makes no representation as to
the validity or adequacy of this Indenture, the Collateral Agreements or the
Securities, it shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement of the
Company in the Indenture, any of the Collateral Agreements or any other document
in connection with the offer and sale or any of the Securities or any statement
in the Securities other than its authentication. The Trustee makes no
representation as to the validity, value or condition of any property covered or
intended to be covered by the Lien of the Collateral Agreements or any part
thereof or as to the title of the Company thereto or as to the security afforded
hereby or thereby. The Trustee may rely on the opinions delivered pursuant to
Section 10.2 and need not make any independent inquiry into the creation or
perfection of any Liens required by this Indenture or the Collateral Agreements.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Securityholders a notice of the
Default or Event of Default within 90 days after it occurs. Except in the case
of a Default or Event of Default in payment on any Security (including any
failure to make any mandatory redemption payment required hereunder), the
Trustee may withhold the notice if and so long as a committee of its Trust
Officers in good faith determines that withholding the notice is in the
interests of Securityholders.
Section 7.06. Reports by Trustee to Holders.
Within 60 days after the reporting date stated in Section 11.10, the
Trustee shall mail to Securityholders a brief report dated as of such reporting
date that complies with TIA ss. 313(a). The Trustee also shall comply with TIA
ss. 313(b). The Trustee shall also transmit by mail all reports as required by
TIA ss. 313(c).
A copy of each report at the time of its mailing to Securityholders shall
be filed with the SEC and each stock exchange on which the Securities are
listed. The Company shall notify the Trustee when the
<PAGE> 368
Securities are listed on any stock exchange.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee and the Collateral Agent from time to
time reasonable compensation for their services hereunder. The Trustee's and
Collateral Agent's compensation shall not be limited by any law on compensation
of a trustee of an express trust. The Company shall reimburse the Trustee and
the Collateral Agent upon request for all reasonable out-of-pocket expenses
incurred by them (including costs of collection in addition to its compensation
for its services). Such expenses shall include the reasonable fees and expenses
of the Trustee's and the Collateral Agent's agents, accountants, experts and
counsel.
The Company shall indemnify the Trustee and the Collateral Agent (in their
individual and fiduciary capacities) and each of their officers, directors,
employees, attorneys-in-fact and agents for, and shall hold each of such persons
harmless against any loss, liability, expense, disbursement (including any and
all environmental claims, liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever incurred by or asserted against the Trustee, its officers,
directors, employees, attorneys-in-fact, agents or counsel) in connection with
the administration of the Trust created by this Indenture, the performance of
its duties hereunder or the exercise of its rights hereunder. Each of the
Trustee and the Collateral Agent shall notify the Company promptly of any claim
for which it may seek indemnity. The Company shall defend the claim and the
Trustee and the Collateral Agent shall cooperate in the defense. The Trustee and
the Collateral Agent may have separate counsel and the Company shall pay the
reasonable fees and expenses of such counsel. The Company need not pay for any
settlement made without its consent, which consent shall not be unreasonably
withheld.
Notwithstanding the preceding paragraph, the Company need not reimburse any
expense or indemnify against any loss or liability incurred by the Trustee or
the Collateral Agent (or any other party listed in the foregoing paragraph)
through its own negligent action, its own negligent failure to act or own
willful misconduct.
To secure the Company's payment obligations in this Section, the Trustee
and the Collateral Agent shall have a lien prior to the Securities on all money
or property held or collected by the Trustee, except that held in trust to pay
principal and interest on particular Securities.
When the Trustee or the Collateral Agent incurs expenses or renders
services after an Event of Default specified in Section 6.01(7) or (8) occurs,
the expenses and the compensation for the services are intended
<PAGE> 369
to constitute expenses of administration under any Bankruptcy Law.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign by so notifying the Company. The Holders of
a majority in principal amount of the then outstanding Securities may
remove the Trustee by so notifying the Trustee and the Company. The
Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent or an
order for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(3) a custodian or public officer takes charge of the
Trustee or it property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then outstanding Securities may appoint
a successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the then outstanding Securities
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon the resignation or removal
of the retiring Trustee shall become effective, and the successor Trustee shall
have all the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Securityholders. The
retiring Trustee shall promptly transfer all property held by it as Trustee to
the successor Trustee, subject to the lien provided for in Section 7.07.
<PAGE> 370
Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the
Company's obligations under Section 7.07 hereof shall continue for the benefit
of the retiring trustee with respect to expenses and liabilities incurred by it
prior to such replacement.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the requirements
of TIA ss. 310(a). The Trustee shall always have a combined capital and surplus
as stated in Section 11.16. The Trustee is subject to TIA ss. 310(b), including
the optional provision permitted by the second sentence of TIA ss. 310(b)(9).
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated therein.
Section 7.12. Appointment of Co-Trustee and Collateral Agent.
If the Trustee deems it necessary or desirable in connection with the
ownership of the Collateral and the enforcement of the Collateral Agreements,
the Trustee may appoint a Collateral Agent or Co-Trustee with such powers of the
Trustee as may be designated by the Trustee at the time of such appointment or
subsequent thereto or as may be contemplated herein. Concurrently with the
execution of this Indenture, the Trustee hereby appoints The State Street Bank
and Trust Company, N.A., as the Collateral Agent to act as required by this
Indenture and the Collateral Agreements. The provisions of this Article 7 other
than the provisions of Section 7.05, 7.06 and 7.10 shall apply in favor of the
Collateral Agent or any Co-Trustee and each of their officers, directors,
employees, attorneys-in-fact and agents.
Section 7.13. Trustee and Collateral Agent To Cooperate.
In exercising any remedies under this Indenture and any or all of the
Collateral Agreements, the Trustee and the Collateral Agent shall cooperate. In
addition, in exercising any remedies under any or all of the Collateral
Agreements, the Collateral Agent shall act only upon the direction of the
Trustee. If the Collateral Agent fails to so act, the Trustee, as
attorney-in-fact of the Collateral Agent, may act for the
<PAGE> 371
Collateral Agent. When any notice to, or consent by, the Collateral Agent is
required by the provisions of this Indenture or any of the Collateral
Agreements, such notice or consent shall be sufficient if given to, or made by,
the Trustee, who shall for such purposes act as attorney-in-fact for the
Collateral Agent.
ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.01. Termination of Company's Obligations.
This Indenture shall cease to be of further effect (except that the
Company's obligations under Section 7.07 and the Trustee's and Paying Agent's
obligations under Section 8.03 shall survive) when all outstanding Securities
theretofore authenticated and issued have been delivered (other than destroyed,
lost or stolen Securities which have been replaced or paid) to the Trustee for
cancellation and the Company has paid all sums payable hereunder. In addition,
the Company may terminate all of its obligations under this Indenture if:
(1) the Company irrevocably deposits in trust with the Trustee
or, at the option of the Trustee, with a trustee satisfactory to the
Trustee and the Company under the terms of an irrevocable trust
agreement in form and substance satisfactory to the Trustee, money or
U.S. Government Obligations sufficient to pay when due principal and
interest on the Securities to maturity or redemption, as the case may
be, and to pay all other sums payable by it hereunder accompanied by a
favorable accountants' certificate as to the sufficiency of such
Obligations, without consideration of any reinvestment of interest, to
pay, when due, the principal of and interest on the Securities,
provided that (i) the trustee of the irrevocable trust shall have been
irrevocably instructed to pay such money or the proceeds of such U.S.
Government Obligations to the Trustee and (ii) the Trustee shall have
been irrevocably instructed to apply such money or the proceeds of such
U.S. Government Obligations to the payment of said principal and
interest with respect to the Securities;
(2) the Company delivers to the Trustee an Officer's
Certificate stating that all conditions precedent to satisfaction and
discharge of this Indenture have been complied with, and an Opinion of
Counsel to the same effect;
(3) no Default or Event of Default shall have occurred and
be continuing on the date of such deposit; and
(4) the Company shall have delivered to the Trustee an
<PAGE> 372
Opinion of Counsel or a ruling received from the Internal Revenue
Service to the effect that the Holders of the Securities will not
recognize income, gain or loss for Federal income tax purposes as a
result of the Company's exercise of its option under this Section 8.01
and will be subject to Federal income tax on the same amount and in the
same manner and as the same times as would have been the case if such
option had not been exercised.
Then, this Indenture shall cease to be of further effect (except as
aforesaid and except as provided in the next succeeding paragraph), and the
Trustee, on demand of the Company, shall execute proper instruments
acknowledging confirmation of and discharge under this Indenture and the release
of the Collateral under the Collateral Agreements. However, the Company's
obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07, 4.01, 4.04, 7.07, 7.08 and
8.04 and the Trustee's and Paying Agent's obligations in Section 8.03 shall
survive until the Securities are no longer outstanding. Thereafter, only the
Company's obligations in Section 7.07 and the Company's and the Trustee's and
Paying Agent's obligations in Section 8.03 shall survive.
After such irrevocable deposit made pursuant to this Section 8.01 and
satisfaction of the other conditions set forth herein, the Trustee and the
Collateral Agent, as applicable, upon request shall acknowledge in writing the
discharge of the Company's obligations under this Indenture and the Collateral
Agreements except for those surviving obligations specified above.
In order to have money available on a payment date to pay principal or
interest on the Securities, the U.S. Government Obligations shall be payable as
to principal or interest on or before such payment date in such amounts as will
provide the necessary money. U.S. Government Obligations shall not be callable
at the issuer's option.
"U.S. Government Obligations" means direct obligations of the United States
of America, or any agency or instrumentality thereof, for the payment of which
the full faith and credit of the United States of America is pledged.
Section 8.02. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal and interest on the
Securities.
<PAGE> 373
Section 8.03. Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the Company upon
request any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon request any
money held by them for the payment of principal or interest that remains
unclaimed for two years after the date upon which such payment shall have become
due; provided, however, that the Company shall have first caused notice of such
payment to the Company to be mailed to each Securityholder entitled thereto no
less than 30 days prior to such payment. After payment to the Company,
Securityholders entitled to the money must look to the Company for payment as
general creditors unless an applicable abandoned property law designates another
person.
Section 8.04. Reinstatement.
If (i) the Trustee or Paying Agent is unable to apply any money in
accordance with Section 8.02 by reason of any order or judgment of any court or
governmental authority enjoining restraining or otherwise prohibiting such
application and (ii) the Holders of at least a majority in principal amount of
the then outstanding Securities so request by written notice to the Trustee, the
Company's obligations under this Indenture, the Securities and the Collateral
Agreements shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.01 until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02; provided,
however, that if the Company makes any payment of interest on or principal of
any Security following the reinstatement of its obligations, the Company shall
be subrogated to the rights of the Holders of such Securities to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE 9
AMENDMENTS
Section 9.01. Without Consent of Holders.
The Company and the Trustee may amend this Indenture, the Securities or the
Collateral Agreements without the consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency,
(2) to comply with Section 5.01;
(3) to provide for uncertificated Securities in addition to
or in place of certificated Securities;
<PAGE> 374
(4) to make any change that does not adversely affect the
legal rights hereunder of any Securityholder; or
(5) to comply with any requirement of the SEC in connection
with the qualification of this Indenture under the TIA.
Section 9.02. With Consent of Holders.
Subject to Section 6.07, the Company and the Trustee may amend this
Indenture, the Securities or the Collateral Agreements with the written consent
of the Holders of at least a majority in principal amount of the then
outstanding Securities. Subject to Sections 6.04 and 6.07, the Holders of a
majority in principal amount of the Securities then outstanding may also waive
compliance in a particular instance by the Company with any provision of this
Indenture, the Securities or the Collateral Agreements. However, without the
consent of each Securityholder affected, an amendment or waiver under this
Section may not (with respect to any Securities held by non-consenting Holders):
(1) reduce the amount of Securities whose Holders must
consent to an amendment or waiver;
(2) reduce the rate of or change the time for payments of
interest on any Security;
(3) reduce the principal of or change the fixed maturity of
any Security or alter the redemption provisions of Section 3.07 hereof
or of paragraph 5 of the Securities with respect thereto;
(4) make any Security payable in money other than that stated
in the Security;
(5) make any change in Section 6.04, 6.07 or 9.02 (this
sentence); or
(6) waive a Default in the payment of the principal of, or
interest on, any Security.
To secure a consent of the Holders under this Security, it shall not be
necessary for the Holders to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof.
After an amendment or waiver under this Section becomes effective, the
Company shall mail to Securityholders a notice briefly describing the amendment
or waiver. Any failure of the Company to mail such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such amended or supplemental Indenture or waiver.
<PAGE> 375
Section 9.03. Compliance with Trust Indenture Act.
Every amendment to this Indenture or the Securities shall be set forth in a
supplemental indenture that complies with the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a Holder
of a Security is a continuing consent by the Holder and every subsequent Holder
of a Security or portion of a Security that evidences the same debt as the
consenting Holder's Security, even if notation of the consent is not made on any
Security. However, any such Holder or subsequent Holder may revoke the consent
as to his Security or portion of a Security if the Trustee receives the notice
of revocation before the date on which the Trustee receives an Officer's
Certificate certifying that the Holders of the requisite principal amount of
Securities have consented to the amendment or waiver, but in any event before
the effective date thereof.
The Company may, but shall not be obligated to fix a record date for the
purpose of determining the Holders entitled to consent to any amendment or
waiver. If a record date is fixed, then notwithstanding the provisions of the
immediately preceding paragraph, those persons who were Holders at such record
date (or their duly designated proxies), and only those persons shall be
entitled to consent to such amendment or waiver or to revoke any consent
previously given, whether or not such persons continue to be Holders after such
record date. No consent shall be valid or effective for more than 90 days after
such record date unless consents from Holders of the principal amount of
Securities required hereunder for such amendment or waiver to be effective shall
have also been given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every
Securityholder, unless it is of the type described in any of clauses (1) through
(6) of Section 9.02. In such case, the amendment or waiver shall bind each
Holder of a Security who has consented to it and every subsequent Holder or a
Security that evidences the same debt as the consenting Holder's Security.
Section 9.05. Notation on or Exchange of Securities.
The Trustee may place an appropriate notion about an amendment or waiver on
any Security thereafter authenticated. The Company in exchange for all
Securities may issue and the Trustee shall authenticate new Security that
reflect the amendment or waiver.
<PAGE> 376
Section 9.06. Trustee Protected.
The Trustee shall sign all supplemental Indentures, except that the Trustee
need not sign any supplemental indenture that adversely affects its rights.
ARTICLE 10
SECURITY
Section 10.01. Collateral Agreements.
(a) The Company hereby agrees to grant to the Collateral Agent for the
benefit of the Collateral Agent (it being understood that, except as expressly
stated otherwise, throughout this Indenture and the Collateral Agreements and in
this Article 10 specifically, references to the Collateral Agent are to it
solely as Collateral Agreements and not in its individual capacity), the Trustee
and Securityholders a Security Interest in the Collateral, all as more
particularly set forth in this Indenture and the Collateral Agreements.
(b) After the original issuance of the Securities, if the Company shall
from time to time acquire any asset or property (including real property) (i)
which, in the case of any asset or property other than real property,
constitutes or, but for any release provide pursuant to Section 10.04, would
constitute "Collateral" under the Security Agreement or the Intellectual
Property Security Agreements or "Pledged Collateral" under the Pledge Agreement,
(ii) which, at any time after acquisition by the Company, is not subject to any
Purchase Money Lien permitted by this Indenture for a period of 180 consecutive
days or more, and (iii) which is not a Specified Asset, then within thirty (30)
days of the expiration of the applicable 180 day period, the Company agrees to
grant to the Collateral Agent (provided such asset or property is not already
subject to, or which will not upon acquisition by the Company, become subject
to, a perfected Security Interest) for the benefit of the Trustee, the
Collateral Agent and the Holders a Lien in such asset or property and shall from
time to time execute, acknowledge, deliver and cause to be recorded all further
agreements, instruments and documents, and take all further action that may be
necessary or desirable, or that the Trustee, the Collateral Agent or the Holders
may reasonably request, to grant, perfect, protect and preserve such security
interest and Lien in favor of the Collateral Agent, for the benefit of itself,
the Trustee and the Holders in such asset or property (provided such asset or
property is not already subject to, or which will not, upon acquisition by the
Company, become subject to, a perfected Security Interest) as security for the
Obligations of the Company under this Indenture. "Specified Asset" means any
asset or property of the Company which (i) with respect to any real
<PAGE> 377
property, is acquired after the date of this Indenture and (ii) (A) has a fair
market value of $50,000 or less or (B) is an interest in real property the
encumbrance of which is prohibited by the agreement, document or instrument
governing such interest in real property or (C) constitutes a fixture which is
located on real property leased by the Company under an operating lease or (D)
is personal property the encumbrance of which is prohibited by a lease or other
agreement governing or evidencing that particular property or (E) is personal
property the encumbrance of which is prohibited by applicable law; provided,
that (i) Capital Stock of a Subsidiary, (ii) Intellectual Property, (iii) any
new lease of any significant manufacturing facility(ies) of the Company and (iv)
any asset or property already subject to, or which will, upon acquisition by the
Company, become subject to, a perfected Security Interest (whether or not it has
a fair market value of $50,000 or less) shall be excluded from this definition
and shall not under any circumstance constitute Specified Assets.
(c) Notwithstanding anything to the contrary in this Indenture (except
Section 10.1(d)) or the Collateral Agreements, the Holders acknowledge that
neither the Trustee, the Collateral Agent nor any other security trustee is or
will be perfecting Liens under the laws of jurisdictions other than the United
States and states and territories (including local jurisdictions) thereof,
taking possession of any instrument or document of title (other than
certificated securities in a Subsidiary), complying with the Assignment of
Claims Act, or perfecting or making effective Liens other than pursuant to (i)
the applicable Uniform Commercial Code (including any successor statute), (ii)
laws of the United States and states and territories (including local
jurisdictions) thereof pertaining to patents, trademarks, copyrights or other
Intellectual Property, (iii) laws of the United States and states and
territories (including local jurisdictions) thereof governing interests in real
property, and (iv) laws of the United States and states and territories
(including local jurisdictions) thereof governing Liens and security interests
in aircraft, ships, motor vehicles, trailers and similar personal property.
(d) Notwithstanding anything to the contrary in this Indenture or the
Collateral Agreements, (i) under no circumstance will the Company be required to
or will be deemed to (A) grant or perfect any Lien with respect to any Specified
Asset except to the extent granted under the Security Agreement, (B) continue
the perfection of any Security Interest in any Specified Asset having a fair
market value of $50,000 or less, or (C) grant or perfect any Lien against (1)
cash, "deposit accounts" (as such term is defined in Section 9105 of Uniform
Commercial Code as in effect in the State of New York), or Cash Equivalents, or
(2) "accounts" or "inventory" (as such terms are defined in the Uniform
Commercial Code as in effect in the State of New York), including receivables
and other rights to the payment of money arising out of the sale or other
<PAGE> 378
disposition of inventory, contractual obligations of account debtors relating to
accounts owing to the Company, and the Company's rights under purchase orders
for inventory or proceeds thereof or (3) books, records and information of the
Company pertaining to accounts or inventory, or proceeds thereof, including
without limitation, all documents, books, records and other media for the
storage of information (including without limitation, computer programs, tapes,
disks, punch cards, data processing software and related property and rights)
maintained by the Company or any of its agents or representatives with respect
to accounts or inventory, suppliers or purchasers of inventory or persons or
entities obligated under accounts, or (4) general intangibles and any other
intangible personal property (other than Intellectual Property) relating or
pertaining to accounts or inventory and (ii) no property set forth in the
foregoing clause (C) shall be included in the definition of "Collateral" or be
deemed to constitute collateral under the Indenture or any Collateral Agreement,
and (iii) no Security Interest or Lien against the property set forth in the
foregoing clause (C) shall be deemed to have been granted or to exist under the
Indenture or under any Collateral Agreement.
(e) Each Securityholder, by accepting a Security, agrees to all of the
terms and provisions of the Collateral Agreements as the same may be in effect
or may be amended from time to time. The due and punctual payment of the
principal, and premium, if any, of, and interest on the Securities when and as
the same shall be due an payable, whether on an interest payment date, at
maturity, by acceleration, call for redemption or otherwise, and interest on the
overdue principal, premium, if any, and interest, if any, of the Securities and
payment and performance of all other Obligations of the Company to the Holders,
the Collateral Agent or the Trustee under this Indenture and the Securities,
according to the terms hereunder or thereunder, shall be secured as provided
hereunder and in the Collateral Agreements.
(f) The Securityholders acknowledge that the Company has granted a prior
perfected security interest in the Collateral to a collateral agent under the
Old Indenture (the "Old Collateral Agent") for the benefit of the holders of the
Company's Series A and Series B 10 3/4% Senior Secured Notes, due 2000
(collectively, the "Old Notes"). The Trustee and the Collateral Agent hereby
agree to enter into an intercreditor agreement with the Old Trustee and the Old
Collateral Agent, pursuant to which the benefit of the Collateral will be shared
by the Old Trustee, the Old Collateral Agent, the holders of the Old Notes, the
Trustee, the Collateral Agent, and the Holders of the Securities, such sharing
to be ratable based on the aggregate principal amount outstanding of Securities
and Old Notes.
<PAGE> 379
Section 10.02. Recording, Etc.
The Company will cause the applicable Collateral Agreements including the
Deed of Trust, the Security Agreement, the Intellectual Property Security
Agreements, the Pledge Agreement, any financing statement and any fixture
filing, all amendments or supplements to each of the foregoing and any other
similar security documents as necessary to be registered, recorded and filed
and/or re-recorded, re-filed and renewed in such manner and in such place or
places, if any, as may be required by law or reasonably requested by the Trustee
in order to fully preserve and protect the Security Interests and to effectuate
and preserve the security therein of the Securityholders and all rights of the
Trustee.
The Company shall furnish to the Trustee:
(a) promptly after the execution and delivery of this Indenture, and
promptly after the execution and delivery of any other instrument of further
assurance or amendment granting, perfecting, protecting, preserving or making
effective a Security Interest pursuant to any Collateral Agreement, an Opinion
of Counsel either (i) stating that, in the opinion of such counsel, subject to
Sections 10.01(b), (c) and (d), this Indenture and the Collateral Agreements,
financing statements and fixture filings then executed and delivered, as
applicable, and all other instruments of further assurance or amendment then
executed and delivered have been properly recorded, registered and filed to the
extent necessary to perfect the Security Interests created by this Indenture and
the Collateral Agreements and reciting the details of such action or referring
to prior Opinions of Counsel in which such details are given, and stating that
as to such Collateral Agreements and such other instruments, such recording,
registering and filing are the only recordings, registerings and filings
necessary to perfect such Security Interests and that no re-recordings,
re-registerings or re-filings are then necessary to maintain such perfection,
and further stating that all financing statements and continuation statements
have been executed and filed that are then necessary to perfect such Security
Interests or (ii) stating that, in the opinion of such counsel, subject to
Sections 10.01(b), (c) and (d), no such action is necessary to perfect any
Security Interest created under this Indenture or any of the Collateral
Agreements as intended by this Indenture and such Collateral Agreements; and
(b) within 30 days after January 1, in each year beginning with the year
1998, an Opinion of Counsel, dated as of such date, either (i) stating that, in
the opinion of such counsel, such action has been taken with respect to the
recording, registering, filing, re-recording, re- registering and re-filing of
this Indenture, all Collateral Agreements, financing statements, continuation
statements or other instruments of
<PAGE> 380
further assurance as are then necessary to perfect or continue the perfection of
the Security Interests created thereunder and reciting the details of such
action or referring to prior Opinions of Counsel in which such details are
given, and stating that, subject to Section 10.01(b), (c) and (d), all financing
statements and continuation statements have been executed and filed that are
then necessary to perfect or continue the perfection of such Security Interests
or (ii) stating that, in the opinion of such counsel, subject to Sections
10.01(b), (c) and (d), no such action is then necessary to perfect or continue
the perfection of such Security Interests.
Section 10.03. Authorization of Actions to be Taken by the Collateral Agent
Under the Collateral Agreements.
The Collateral Agent upon the direction of the Trustee may, in its sole
discretion and without the consent of the Securityholders (but shall have no
obligation to), take all actions it deems necessary or appropriate in order to
(a) enforce any of the terms of the Collateral Agreements and (b) collect and
receive any and all amounts payable in respect of the Obligations of the Company
hereunder. Subject to the provisions of the Collateral Agreements, the
Collateral Agent upon the direction of the Trustee shall have power (but no
obligation) to institute and to maintain such suits and proceedings as it may
deem expedient to prevent any impairment of the Collateral by any acts which may
be unlawful or in violation of the Collateral Agreements or this Indenture, and
such suits and proceedings as the Trustee may deem expedient to preserve or
protect its interests and the interests of the Securityholders in the Collateral
(including power to institute and maintain suits or proceedings to restrain the
enforcement of or compliance with any legislative or other governmental
enactment, rule or order that may be unconstitutional or otherwise invalid if
the enforcement of, or compliance with, such enactment, rule or order would
impair the security hereunder or be prejudicial to the interests of the
Securityholders or of the Trustee).
Section 10.04. Release of Lien.
(a) All or any part of the Collateral may be released from the Security
Interests at any time or from time to time in accordance with the provisions of
the Collateral Agreements and as provided hereby.
(b) So long as no Default or Event of Default exists, upon the request of
the Company and the furnishing of an Officers' Certificate and Opinion of
counsel certifying that all conditions precedent to the release of the
Collateral have been met and any report, appraisal or other document required by
the TIA (including, without limitation, under TIA ss.ss. 314(b) and (d), to the
extent applicable) in connection with such release have been delivered, the
Collateral Agent upon the direction of
<PAGE> 381
the Trustee shall release (i) Collateral or any part thereof or interest therein
which is proposed to be sold by the Company, and (ii) Collateral which is
subject to a Purchase Money Lien permitted by this Indenture; provided that, in
the case of Section 10.04(b)(ii), the Trustee shall have received an Officers'
Certificate of the Company (x) stating that (A) the property or assets
constituting such Collateral has been subjected to a Purchase Money Lien
permitted by this Indenture and (B) the release is requested by a Purchase Money
Lienholder and (y) describing in reasonable detail the property or asset subject
to such Purchase Money Lien and setting forth the name and address of such
Purchase Money Lienholder.
(c) Upon receipt of such Officers' Certificates and Opinion of Counsel (and
other documents if applicable), the Collateral Agent upon the direction of the
Trustee shall execute, deliver or acknowledge any necessary or proper
instruments of termination, satisfaction or release to evidence the release of
any Collateral permitted to be released pursuant to this Indenture and the
Collateral Agreements, all without recourse or warranty and at the expense of
the Company.
(d) The release of any Collateral from the terms hereof and of the
Collateral Agreements will not be deemed to impair the security under this
Indenture in contravention of the provisions hereof if and to the extent the
Collateral is released pursuant to the applicable terms hereof and of the
Collateral Agreements. The Trustee, the Collateral Agent and each of the Holders
acknowledge that a release of the Collateral in accordance with the terms hereof
and of the Collateral Agreements will not be deemed for any purpose to be an
impairment of security under this Indenture.
(e) Notwithstanding the foregoing, the Company may, without requesting the
release or consent of the Trustee, sell, assign, transfer, or otherwise dispose
of, free from the Security Interests, any machinery, equipment, or other
personal property constituting Collateral that has become worn out, obsolete, or
unserviceable.
Section 10.05. Lien Subordination.
(a) Purchase Money Liens permitted by this Indenture shall be automatically
senior and prior in right to the Security Interests. The Trustee, the Collateral
Agent and each Holder acknowledge that the rights of any Purchase Money
Lienholders to receive proceeds from the disposition of Collateral subject to a
Purchase Money Lien permitted by this Indenture is senior to the rights of the
Holders, the Collateral Agent and those of the Trustee to receive proceeds from
the disposition of such Collateral.
(b) The priorities set forth in Section 10.05(a) are applicable
<PAGE> 382
irrespective of the order of creation, attachment or perfection of any Purchase
Money Liens permitted by this Indenture or the Security Interests or any
priority that might otherwise be available to the Holders, the Trustee, or any
Purchase Money Lienholder under the applicable law.
(c) The priorities set forth in Section 10.05(a) are premised upon the
assumption that Purchase Money Liens permitted by this Indenture are duly and
properly created and perfected and are not avoidable for any reason.
Accordingly, to the extent that (but only for so long as) any Purchase Money
Liens permitted by this Indenture are not duly and properly created an perfected
or are avoidable for any reason, then the subordinations provided for in this
Section 10.05 or as requested by a Purchase Money Lienholder as evidence of such
subordination shall not be effective as to the particular Collateral subject to
such Purchase Money Liens; provided, however, that the Trustee, the Collateral
Agent and each Holder, by accepting a Security, agree not to contest, or to
bring (or voluntarily join in) any action or proceeding for the purpose of
contesting, the validity, perfection or priority (as herein provided) of, or
seeking to avoid, any Purchase Money Liens permitted by this Indenture, and
provided further, that nothing herein shall be deemed or construed to prevent
any Purchase Money Lienholder from commencing an action or proceeding to assert
any right or claim it may have arising in connection with this Indenture or any
documents evidencing Purchase Money Liens permitted by this Indenture.
(d) If requested by a Purchase Money Lienholder to confirm that the rights
of Purchase Money Lienholders are prior to those of the Collateral Agent, the
Holders and the Trustee in any Collateral, the Collateral Agent upon the
direction of the Trustee shall execute such reasonable documents as such
Purchase Money Lienholder requests to evidence such prior rights upon delivery
to the Trustee of (i) such documents and (ii) an Officers' Certificate of the
Company (A) stating that (1) the property or assets constituting such Collateral
are subject to a Purchase Money Lien permitted by this Indenture and (2) the
execution of the documents is necessary to make effective the subordination of
the Security Interests to such Purchase Money Lien intended to be created by
this Section 10.05 or is requested by such Purchase Money Lienholder as evidence
of such subordination and (B) describing in reasonable detail the property
subject to such Purchase Money Lien and setting forth the name and address of
such Purchase Money Lienholder.
Section 10.06. Reliance on Opinion of Counsel.
The Trustee and the Collateral Agent shall, before taking any action under
this Article 10, be entitled to receive an Opinion of Counsel, stating the legal
effect of such action, and that such action will not
<PAGE> 383
be in contravention of the provisions hereof, and such opinion shall be full
protection to the Trustee and the Collateral Agent for any action taken or
omitted to be taken in reliance thereon; provided, that the Trustee's action
under this Article 10 shall at all times be and remain subject to its duties to
determine whether or not the evidence required to be provided by this Indenture
and by the Collateral Agreements conforms to the requirements of this Indenture
and the Collateral Agreements, as the case may be.
Section 10.07. Purchaser May Rely.
A purchaser in good faith of the Collateral or any part thereof or interest
therein which is purported to be transferred, granted or released by the
Collateral Agent as provided in this Article 10 shall not be bound (i) to
ascertain, and may rely on, the authority of the Collateral Agent to execute
such transfer, grant or release, or (ii) to inquire as to the satisfaction of
any conditions precedent to the exercise of such authority, or (iii) to
determine whether the application of the purchase price therefor complies with
the terms hereof.
Section 10.08. Payment of Expenses.
On demand of the Trustee, the Company forthwith shall pay or satisfactorily
provide for all reasonable expenditures incurred by Trustee or the Collateral
Agent under this Article 10 including the reasonable fees and expenses of
counsel and all such sums shall be a Lien upon the Collateral and shall be
secured thereby.
Section 10.09. Trustee's and Collateral Agent's Duties.
The powers and duties conferred upon the Trustee and the Collateral Agent
by this Article 10 are solely to protect the Security Interests and shall not
impose any duty upon the Trustee or the Collateral Agent to exercise any such
powers and duties except as expressly provided in this Indenture. The Trustee
and the Collateral Agent shall be under no duty to the Company whatsoever to
make or given any presentment, demand for performance, notice of nonperformance,
protest, notice of protest, notice of dishonor, or other notice or demand in
connection with any Collateral, or to take any steps necessary to preserve any
rights against prior parties except as expressly provided in this Indenture. The
Trustee and the Collateral Agent shall not be liable to the Company for failure
to collect or realize upon any or all of the Collateral, or for any delay in so
doing, nor shall the Trustee or the Collateral Agent be under any duty to the
Company to take any action whatsoever with regard thereto. Except for the
exercise of reasonable care in the custody of any Collateral in its possession
and the accounting for any monies actually received by it hereunder or under the
Collateral Agreements, the Trustee and the Collateral Agent shall have no duty
as to any Collateral or as
<PAGE> 384
to the taking of any Collateral. The Trustee and the Collateral Agent shall be
deemed to have exercised reasonable care in the custody of any Collateral in its
possession if such Collateral is accorded treatment substantially equal to that
which the Trustee or the Collateral Agent accords its own property of like
tenor.
Section 10.10. Authorization of Receipt of Funds by the Trustee and the
Collateral Agent Under the Collateral Agreements.
The Collateral Agent is authorized to receive any funds for the benefit of
the Trustee distributed under the Collateral Agreements, and upon receipt
thereof, immediately will distribute such funds to the Trustee for further
distributions of such funds to the Holders according to the provisions of this
Indenture.
Section 10.11. Termination of Security Interests.
Upon the payment in full of all Obligations of the Company under this
Indenture and the Securities, the Security Interests shall terminate and all
rights to the Collateral shall revert to the Company. Upon such termination of
the Security Interests, the Trustee and the Collateral Agent will reassign and
redeliver to the Company all of the Collateral which has not been sold, disposed
of, retained or applied by the Trustee or the Collateral Agent in accordance
with the terms hereof and the Collateral Agreements, and shall execute and
deliver to the Company such documents as the Company shall reasonably request to
evidence the termination of the Security Interests, all without recourse to or
warranty by the Trustee, the Collateral Agent or the Holders and at the expense
of the Company.
Section 10.12. Certificates and Opinions.
To the extent applicable, the Company shall cause (a) TIA ss. 314(b),
relating to Opinions of Counsel regarding the Security Interest and (b) TIA ss.
314(d), relating to the release of Collateral from the Security Interests and
Officers' Certificates or other documents regarding fair value of the
Collateral, to be complied with. Any certificate or opinion required by TIA ss.
314(d) may be made by an Officer or the Company to the extent permitted by TIA
ss. 314(d).
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies, or conflicts
<PAGE> 385
with another provision which is required to be included in this Indenture by the
TIA, the required provision shall control.
Section 11.02. Notices.
Any notice or communication by the Company or the Trustee to the other is
duly given if in writing and delivered in person or mailed by certified or
registered mail, return receipt requested, to the other's address stated in
Section 11.10. The Company or the Trustee by notice to the other may designate
additional or different addresses for subsequent notices or communications. If a
notice or communication is mailed in the manner so provided, it is duly given
when received.
Any notice or communication to a Securityholder shall be mailed by
first-class mail to his address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Securityholder or any defect in
it shall not affect its sufficiency with respect to other Securityholders.
If a notice or communication is mailed to a Securityholder in the manner
provided above within the time prescribed, it is duly given, whether or not the
addressee receives it.
If the Company mails a notice or communication to Securityholders, it shall
mail a copy to the Trustee and each Agent at the same time.
All other notices or communications shall be in writing.
Section 11.03. Communication by Holders with Other Holders.
Securityholders may communicate pursuant to TIA ss. 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA ss. 312(c).
Section 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officer's Certificate stating that, in the opinion of the
signers, all conditions precedent, if any provided for in this
Indenture relating to the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
<PAGE> 386
Section 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
Section 11.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a meeting of
Securityholders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 11.07. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions are not required to be open. If a payment date is a Legal Holiday
at a place of payment, payments may be made at that place on the next succeeding
day that is not a Legal Holiday, and no interest shall accrue for the
intervening period. Notwithstanding anything to the contrary contained in this
Section 11.07, if the principal amount of a Transfer Restricted Security is
payable on a Legal Holiday, and is paid on the next succeeding day which is not
a Legal Holiday, interest shall accrue on such principal amount until the date
on which such principal amount is paid and payment of such accrued interest
shall be made concurrently with the payment of such principal amount.
Section 11.08. No Recourse Against Others.
A director, officer, employee, incorporator or stockholder, as such, of the
Company shall not have any liability for any obligations of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Securityholder by excepting a
Security waives and releases all such liability. The waiver and release are part
of the consideration for the issue of the Securities.
<PAGE> 387
Section 11.09. Counterparts.
This Indenture may be executed in any number of counterparts and by the
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute one
and the same agreement.
Section 11.10. Variable Provisions.
The Company initially appoints the Trustee as Paying Agent, Registrar and
authenticating agent.
The first certificate pursuant to Section 4.03 shall be for the fiscal year
ending on December 31, 1997.
The reporting date for Section 7.06 is May 15 of each year. The first
reporting date is May 15, 1998.
<PAGE> 388
The Company's address is:
Wright Medical Technology, Inc.
5677 Airline Road
Arlington, Tennessee 38002
Attn: Treasurer
The Trustee's address is:
State Street Bank and Trust Company
Two International Place, 4th Floor
Boston, MA 02110
ATTN: Corporate Trust Department
(Wright Medical Technology, Inc.
11 3/4% Senior Secured Step-Up Notes)
The Collateral Agent's address is:
State Street Bank and Trust Company, N.A.
61 Broadway
Corporate Trust Window
New York, NY 10006
ATTN: Corporate Trust Department
(Wright Medical Technology, Inc.
11 3/4% Senior Secured Step-Up Notes)
Until such time as the Indenture shall have been qualified under the TIA
and one or more Securities shall be registered pursuant to a registration
statement filed under the Securities Act, and said Securities shall be
transferred pursuant to the terms of an effective registration statement, or
such earlier time as transfer of the Securities is no longer subject to the
legend requirements imposed by Section (e) of the Letter of Transmittal, the
Securities to the extent not so registered shall bear a legend to that effect,
and except as otherwise provided in Section (e) of the Letter of Transmittal,
transfer of such legended Securities shall be subject to the requirement that
the Company and the Trustee receive a Certificate of Transfer and to the
Company's right to require an Opinion of Counsel, reasonably satisfactory in
form and substance to the Company and to the Trustee, that an exemption from
registration under such Act is available.
Section 11.11. Governing Law.
THE INTERNAL LAWS OF THE STATE OF NEW YORK SHALL GOVERN THIS
INDENTURE AND THE SECURITIES, WITHOUT REGARD TO THE CONFLICT OF LAWS
PROVISIONS THEREOF.
<PAGE> 389
Section 11.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or a Subsidiary of the Company. Any such indenture,
loan or debt agreement may not be used to interpret this Indenture. In the event
of any inconsistency between the Indenture and the Collateral Documents, the
Indenture shall govern.
Section 11.13. Successors.
All agreements of the Company in this Indenture and the Securities shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
Section 11.14. Severability.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 11.15. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table, and headings of the Articles
and Sections of this Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
Section 11.16. Qualification of Indenture.
The Company shall qualify this Indenture under the TIA in accordance with
the terms and conditions of the Registration Rights Agreement and shall pay all
costs and expenses (including attorneys' fees and expenses for the Company, the
Trustee and the Holders of the Securities) incurred in connection therewith,
including, but not limited to, costs and expenses of qualification of the
Indenture and the Securities and printing this Indenture and the Securities. The
Trustee shall be entitled to receive from the Company any such Officers'
Certificates, Opinions of Counsel or other documentation as it may reasonably
request in connection with any such qualification of this Indenture under the
TIA. The Trustee shall always have a combined capital and surplus of at least
$50,000,000 as set forth in its most recent published annual report of
condition.
Section 11.17. Amendments to Collateral Agreements.
Unless the context otherwise requires, any reference to any of the
Collateral Agreements shall be deemed to be a reference to such
<PAGE> 390
Collateral Agreement as it may be amended, supplemented or otherwise modified
from time to time as permitted by this Indenture.
<PAGE> 391
Section 11.18. Registration Rights.
Certain Holders of Restricted Securities are entitled to certain
Registration Rights with respect to such Securities pursuant to, and subject to
the terms of, the Registration Rights Agreement.
SIGNATURES
Dated: as of ________________ WRIGHT MEDICAL TECHNOLOGY, INC.
By:_______________________________
Attest:_____________________ Title:____________________________
_____________________
Dated: as of ________________ STATE STREET BANK AND TRUST
COMPANY, AS TRUSTEE
By:_________________________________
Title:____________________________
(SEAL)
Agreement to Act and Acknowledgment
We agree to act as Collateral Agent as contemplated by Section 7.12 hereof,
acknowledge the provisions of this Indenture and agree to the terms hereof
including, in particular, the provisions of Section 7.12 hereof.
Dated: as of ________________
Dated: as of ________________ STATE STREET BANK AND TRUST
COMPANY, N.A., AS COLLATERAL
AGENT
By:________________________________
Title:_____________________________
<PAGE> 392
Exhibit 4.2
Form of Series C Senior Secured Step Up Note
(Face of Security)
Form of
11 3/4% Series C SENIOR SECURED STEP-UP NOTE
DUE JULY 1, 2000
No.
$--------------
WRIGHT MEDICAL TECHNOLOGY, INC.
promises to pay to
or registered assigns
the principal sum of __________________________________ Dollars on July 1, 2000.
Interest Payment Dates: July 1, and January 1
commencing January 1, 1998
Record Dates: June 15 and December 15
Authenticated: Date:_____________________
STATE STREET BANK and TRUST WRIGHT MEDICAL TECHNOLOGY,
COMPANY, as Trustee INC.
By:___________________________ By: _______________________
Authorized Officer Officer of the Company
Attest:___________________
Officer of the Company
(SEAL)
<PAGE> 393
(Back of Security)
--------------
11 3/4% Series C Senior Secured Step-Up Note due July 1, 2000
[Unless and until it is exchanged in whole or in part for Securities in
definitive form, this Security may not be transferred except as a whole by the
Depository to a nominee of the Depository or by a nominee of the Depository to
the Depository or another nominee of the Depository or by the Depository or any
such nominee to a successor Depository or a nominee of such successor
Depository. Unless this certificate is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"),
to the issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as requested by an authorized representative of DTC (and any payment is
made to Cede & Co. or such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]1
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE
DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO
YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND
THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATED PERSON OF
THE COMPANY WAS THE OWNER OF THIS SECURITY (OR
- --------
1 This paragraph should be included only if the Security is in global form.
<PAGE> 394
ANY PREDECESSOR OF SUCH SECURITY) ONLY (A) TO THE COMPANY, (B)
PURSUANT TO A REGISTRATION STATEMENT WHICH HAS BEEN DECLARED
EFFECTIVE UNDER THE SECURITIES ACT, OR (C) PURSUANT TO ANY
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY'S RIGHT PRIOR TO ANY
SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSE (C) TO REQUIRE
THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATIONS AND
OTHER INFORMATION SATISFACTORY TO IT, AND SUBJECT TO THE
REQUIREMENT THAT IN EACH OF THE FOREGOING CASES, A CERTIFICATE
OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS
COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRUSTEE. THIS
LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER
THE RESALE RESTRICTION TERMINATION DATE.
Capitalized terms used herein shall have the meanings ascribed to them in
the Indenture unless otherwise indicated.
1. Interest. Wright Medical Technology, Inc., a Delaware corporation (the
"Company"), promises to pay interest on the principal amount of this 11 3/4%
Series C Senior Secured Step-up Note (the "Series C Note") at 11 3/4% per annum
from the date of issuance until maturity provided that the interest rate will be
12 1/4% on the first anniversary of the consummation of the Exchange Offer if a
Sale (as defined in the Indenture), including a sale of all or substantially all
of the assets of the Company or a transaction whereby an unrelated person
acquires a direct or an indirect majority interest in the voting power of the
Company by way of merger, consolidation or similar transaction, has not
occurred. The Company will pay interest semiannually on July 1 and January 1 of
each year, or if any such day is not a Business Day, on the next succeeding
Business Day (each an "Interest Payment Date").
Interest on the Series C Notes will accrue from the most recent date on
which interest has been paid or, if no interest has been paid, from the date of
issuance; provided that if there is no existing Default in the payment of
interest, and if this Series C Note is authenticated between a record date
referred to on the face hereof and the next succeeding Interest Payment Date,
interest shall accrue from such next succeeding Interest Payment Date; provided,
further, that the first Interest Payment Date shall be January 1, 1998. The
Company shall pay interest (including post-petition interest in any proceeding
under Bankruptcy Law) on overdue principal and premium, if any, from time to
time on demand at the
<PAGE> 395
same rate per annum on the Series C Notes then in effect; it shall pay interest
(including post-petition interest in any proceeding under Bankruptcy Law) on
overdue installments of interest (without regard to any applicable grace
periods) from time to time on demand at the same rate to the extent lawful.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. Method of Payment. The Company will pay interest on the Series C Notes
(except defaulted interest) by check or wire transfer to the Persons who are
registered Holders of Series C Notes at the close of business on the record date
next preceding the Interest Payment Date, even if such Series C Notes are
cancelled after such record date and on or before such Interest Payment Date.
The Series C Notes will be payable both as to principal and interest at the
office of the Paying Agent maintained for such purpose within the City and State
of New York. The Company will pay or cause to be paid all amounts payable with
respect to any Series C Note (without any presentment of such Security and
without any notation of such payment being made thereon) by crediting by federal
funds bank wire transfer to the Holder's account in any bank in the United
States only as may be designated and specified in writing by such Holder. The
Purchaser's initial bank account for this purpose is set forth on its signature
page to the Purchase Agreement.
3. Paying Agent and Registrar. Initially, the Trustee under the Indenture
will act as Paying Agent and Registrar. The Company may change any Paying Agent
or Registrar without notice to any Holder. The Company or any of its
subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Series C Notes under an Indenture
dated as of August 6, 1997 ("Indenture") between the Company and the Trustee.
The terms of the Series C Notes include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939, as
amended (15 U.S. Code ss.ss.77aaa-77bbbb) (the "TIA"). The Series C Notes are
subject to all such terms, and Holders are referred to the Indenture and such
Act for a statement of such terms. The Series C Notes are limited to $85 million
in aggregate principal amount, plus amounts, if any, sufficient to pay interest
and premium, if any, on outstanding Series C Notes as set forth in Paragraph 2
hereof.
5. Optional Redemption. The Company may redeem all or any of the
Securities, in whole or in part, at any time on or after July 1, 1997, at a
redemption price equal to the percentages of the principal amount thereof set
forth below, plus accrued and unpaid interest to the redemption date if redeemed
during the twelve months commencing on or after July 1, in the years set forth
below:
<PAGE> 396
Year Percentage
1997.......................................... 103%
1998 and thereafter........................... 100%
6. Mandatory Offers to Repurchase.
(a) Following the occurrence of any Change of Control, the Company will be
required to offer (a "Change of Control Offer") to purchase all outstanding
Securities at a purchase price equal to 101% of the aggregate principal amount
of such Securities plus accrued and unpaid interest, if any, to the date of
purchase (the "Change of Control Payment"), in each case in accordance with and
to the extent provided in the Indenture. The Change of Control Offer shall
remain open for a period of 20 Business Days after its commencement unless a
longer offering period is required by law. No earlier than 30 days nor later
than 40 days after the notice of the Change of Control Offer has been mailed
(the "Change of Control Payment Date"), the Company shall deposit, to the extent
lawful, with the Paying Agent an amount equal to the Change of Control Payment
in respect of all Securities or portions thereof tendered by Holders. The Paying
Agent shall promptly mail or deliver payment for all Securities tendered in the
Change of Control Offer.
A Holder of Series C Notes may tender or refrain from tendering all or any
portion of his Series C Notes at his discretion by completing the form entitled
"Option of Holder to Elect Purchase" appearing on the reverse side of this
Series C Note. Any portion of Series C Notes tendered must be in integral
multiples of $1,000.
(b) If the Company consummates any Asset Sale (as such term is defined in
the Indenture), the Company may be required to utilize a certain portion of the
Net Proceeds received from such Asset Sale to offer to redeem Securities at par.
Holders of Series C Notes which are the subject of an offer to redeem will
receive an offer to redeem from the Company prior to any related redemption
date, and may elect to have such Series C Notes redeemed by completing the form
entitled "Option of Holder to Elect Purchase" appearing on the reverse side of
this Series C Note.
7. Notice of Redemption. Subject to Section 3.08 of the Indenture relating
to repurchases in connection with Asset Sales, notice of redemption will be
mailed at least 30 days but not more than 60 days before the redemption date to
each Holder whose Series C Notes are to be redeemed at such Holder's registered
address. Series C Notes in denominations larger than $1,000 may be redeemed in
part but only in whole multiples of $1,000 unless all of the Series C Notes held
by a Holder are to be redeemed. On and after the redemption date interest ceases
to accrue on Series C Notes or
<PAGE> 397
portions thereof called for redemption.
8. Denominations, Transfer, Exchange. The Series C Notes are in registered
form without coupons in denominations of $1,000 and integral multiples of
$1,000. The transfer of Series C Notes may be registered and Series C Notes may
be exchanged as provided in the Indenture. The Registrar and the Trustee may
require a Holder, among other things, to furnish appropriate endorsements,
transfer documents and opinions and the Company may require a Holder to pay any
taxes and fees required by law or permitted by the Indenture. The Company need
not exchange or register the transfer of any Series C Note or portion of a
Series C Note selected for redemption, except for the unredeemed portion of any
Series C Note being redeemed in part. Also, it need not exchange or register the
transfer of any Series C Notes for a period of 15 days before a selection of
Series C Notes to be redeemed or during the period between a record date and the
corresponding Interest Payment Date.
9. Persons Deemed Owners. The registered Holder of a Series
C Note may be treated as its owner for all purposes.
10. Amendments and Waivers. Subject to certain exceptions, the Indenture or
the Series C Notes may be amended or supplemented and any existing Default
under, or compliance with any provision of, the Indenture may be waived with the
written consent of the Holders of at least a majority in principal amount of the
Securities then outstanding (including consents obtained in connection with a
tender offer or exchange offer for Securities). Without the consent of any
Holder, the Company and the Trustee may amend or supplement the Indenture or the
Securities to cure any ambiguity, defect or inconsistency; to provide for
uncertificated Securities in addition to or in place of certificated Securities;
to comply with Section 5.01 of the Indenture; to make any change that would
provide any additional rights or benefits to the Holders or that does not
adversely affect the rights under the Indenture of any Holder; or to comply with
requirements of the SEC in order to effect or maintain the qualification of the
Indenture under the TIA.
11. Defaults and Remedies. An Event of Default is (i) default for 30 days
in payment of interest on the Securities; (ii) default in payment of principal
on them; (iii) failure by the Company for 30 days after notice to it to comply
with any of its other agreements in the Indenture, the Securities, the
Registration Rights Agreement or the Collateral Agreements or, in the case of
failure of the Company to maintain its corporate existence or its consolidated
net worth, or to comply with the restrictions on restricted payments, incurrence
of indebtedness, asset sales, changes of control or on consolidation, merger or
transfer or sale of substantially all its assets, without such notice or passage
of
<PAGE> 398
time; (iv) certain defaults under and acceleration prior to maturity of other
indebtedness; (v) certain final judgments which remain undischarged; (vi) and
certain events of bankruptcy or insolvency. If an Event of Default occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the then outstanding Securities may declare all the Securities to be due and
payable immediately, except that in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, all outstanding Securities become
due and payable immediately without further action or notice. Holders of
Securities may not enforce the Indenture or the Securities except as provided in
the Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Securities. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Securities may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Security Holders notice of any continuing default (except a
default in payment of principal or interest) if it determines that withholding
notice is in their interests. The Company must furnish an annual compliance
certificate to the Trustee.
12. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not Trustee.
13. No Recourse Against Others. A director, officer, employee, incorporator
or stockholder, of the Company, as such, shall not have any liability for any
obligations of the Company under the Series C Notes or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder by accepting a Series C Note waives and releases all such
liability. The waiver and release are part of the consideration for the issuance
of the Series C Notes.
14. Authentication. This Series C Notes shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent.
15. Additional Rights of Holders of Transfer Restricted Securities. In
addition to the rights provided to Holders of Series C Notes under the
Indenture, Holders shall have all the rights set forth in the Registration
Rights Agreement.
16. Collateral Agreements, Etc. Each Holder of Series C Notes, by accepting
a Series C Note, agrees to be bound to all of the terms and provisions of the
Collateral Agreements (as defined in the Indenture), as such Collateral
Agreements may be amended from time to time.
<PAGE> 399
17. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as : TEN COM (= tenants in common), TEN ENT ( =
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts
to Minors Act).
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
WRIGHT MEDICAL TECHNOLOGY, INC.
5677 Airline Road
Arlington, Tennessee 38002
Attn: Treasurer
<PAGE> 400
ASSIGNMENT FORM
To assign this Series C Note, fill in the form below: (I) or (we) assign and
transfer this Series C Note to
- -----------------------------------------------------------------------------
(Insert assignee's So. Sec. or Tax I.D. No.)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint------------------------------------------------------
to transfer this Series C Note on the books of the Company. The
agent may substitute another to act for him.
- -----------------------------------------------------------------------------
Date:
Your Signature:
----------------------------------------------
(Sign exactly as your name appears on the face
of the Series C Note)
Signature Guarantee.
<PAGE> 401
Option of Holder to Elect Purchase
If you receive notice of an offer to repurchase pursuant to the terms of
the Indenture and if you want to elect to have this Series C Note purchased by
the Company pursuant to Section 4.11 or 4.12 of the Indenture, check the
appropriate box below:
------- Section 4.11 (Asset Sales)
------- Section 4.12 (Change of Control)
If you want to elect to have only part of the Series C Note purchased by
the Company pursuant to Section 4.11 or 4.12 of the Indenture, state the amount
you elect to have purchased:
$-------------.
Date: Your Signature:
-----------------------------------------
(Sign exactly as your name appears on the
Series C Note)
Tax Identification No.:
---------------------
Signature Guarantee.
<PAGE> 402
SCHEDULE OF EXCHANGES OF DEFINITIVE SECURITIES2
The following exchanges of a part of this Global Series C Note
for Definitive Securities have been made:
Principal
Amount of Amount of Amount Signature of
Date decrease increase of this Global authorized
of in Principal in Principal Series C Note officer of
Exchange Amount Amount following such Trustee or
of this Global of this Global decrease (or Securities
Series C Note Series C Note increase) Custodian
- --------- -------------- -------------- -------------- -------------
- --------
2 This should be included only if the Security is issued in global form.
<PAGE> 403
Exhibit 4.3
Form of Registration Rights Agreement
Registration Rights Agreement
Dated As of August 6, 1997
among
Wright Medical Technology, Inc.
and
the Initial Holders
of its
11 3/4 % Series C Senior Secured Step-Up Notes,
due July 1, 2000
<PAGE> 404
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into as of August 6, 1997, among WRIGHT MEDICAL TECHNOLOGY, INC., a
Delaware corporation (the "Company"), and the INITIAL HOLDERS of the Company's
11 3/4 % Series C Senior Secured Step-Up Notes due July 1, 2000 signatory hereto
(collectively, the "Initial Holders").
This Agreement is made in connection with the Company's offer to
the holders of the Company's $85 million principal amount Series B Senior
Secured Notes due July 1, 2000 (the "Old Notes") to exchange the Old Notes for
$85 million principal amount Series D Senior Secured Step-Up Notes due July 1,
2000 (the "New Notes"). The terms of this offer (the "Exchange Offer") are set
forth in an Exchange of Offer and Exit Consent Solicitation dated July 9, 1997.
To induce the Initial Holders to participate in the Exchange Offer, the Company
has agreed to provide to the Initial Holders and their direct and indirect
transferees the registration rights set forth in this Agreement. The execution
of this Agreement is a condition to the consummation of the Exchange Offer.
In consideration of the foregoing, the parties hereto agree as
follows:
1. Definitions.
As used in this Agreement, the following capitalized defined
terms shall have the following meanings:
"1933 Act" shall mean the Securities Act of 1933, as amended
from time to time, and the rules and regulations of the SEC promulgated
thereunder.
"1934 Act" shall mean the Securities Exchange Act of l934, as
amended from time to time, and the rules and regulations of the SEC
promulgated thereunder.
"Business Days" shall mean any day other than (i) Saturday or
Sunday, or (ii) a day on which banking institutions in the State of New
York are authorized or obligated by law or executive order to be closed.
"Closing Date" shall mean August __, 1997.
"Company" shall have the meaning set forth in the preamble and
shall also include the Company's successors.
"Delay Period" shall have the meaning set forth in
<PAGE> 405
Section 3(k).
"Depository" shall mean The Depository Trust Company, or any
other depository appointed by the Company, provided, however, that such
depository must have an address in the Borough of Manhattan, in the City
of New York.
"Event Date" shall have the meaning set forth in
Section 2.4(a).
"Exchange Offer Registration" shall mean a registration under
the 1933 Act effected pursuant to Section 2.1 hereof.
"Exchange Offer Registration Statement" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form), and all amendments and supplements to such
registration statement, including the Prospectus contained therein, all
exhibits thereto and all documents incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in
Section 2.1 hereof.
"Holder" shall mean an Initial Holder, for so long as it owns
any Registrable New Notes, and each of its successors, assigns and
direct and indirect transferees who become registered owners of
Registrable New Notes under the Indenture.
"Indenture" shall mean the Indenture relating to the New Notes,
dated as of the date hereof, between the Company and State Street Bank
and Trust Company, as trustee, as the same may be amended, supplemented,
waived or otherwise modified from time to time in accordance with the
terms thereof.
"Initial Holder" shall have the meaning set forth in
the preamble.
"Liquidated Damages Amount" shall have the meaning
set forth in Section 2.4(a).
"Majority Holders" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable New Notes;
provided that whenever the consent or approval of Holders of a specified
percentage of Registrable New Notes is required hereunder, Registrable
New Notes held by the Company and other obligors on the New Notes or any
Affiliate
<PAGE> 406
(as defined in the Indenture) of the Company shall be disregarded in
determining whether such consent or approval was given by the Holders of
such required percentage amount.
"NASD" shall mean the National Association of
Securities Dealers, Inc.
"Participating Broker-Dealer" shall mean any broker-dealer which
makes a market in the New Notes and exchanges Registrable New Notes in
the Exchange Offer for Registered
New Notes.
"Person" shall mean an individual, trustee, joint stock company,
joint venture, partnership, corporation, trust or unincorporated
organization, or a government or agency or political subdivision
thereof, union, business association, firm or other entity.
"Prospectus" shall mean the prospectus included in a
Registration Statement, including, without limitation, a prospectus that
discloses information previously omitted from a prospectus filed as part
of an effective registration statement in reliance upon Rule 430A
promulgated under the 1933 Act, as amended or supplemented by any
prospectus supplement, including any such prospectus supplement with
respect to the terms of the offering of any portion of the Registrable
New Notes covered by a Shelf Registration Statement, and by all other
amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by
reference therein or deemed to be incorporated by reference in the
prospectus.
"Registered Exchange Offer" shall mean the exchange offer by the
Company of Registered Exchange New Notes for Registrable New Notes
pursuant to Section 2.1 hereof.
"Registered New Notes" shall mean the 11 3/4 % Series D Senior
Secured Step-Up Notes due 2000 issued by the Company under the Indenture
containing terms identical to the New Notes in all material respects
(except for references to certain interest rate provisions, restrictions
on transfers and restrictive legends), to be offered to Holders of in
exchange for Registrable New Notes pursuant to the Registered Exchange
Offer.
"Registrable New Notes" shall mean the New Notes;
<PAGE> 407
provided, however, that New Notes shall cease to be Registrable New
Notes when (i) a Registration Statement with respect to such New Notes
shall have been declared effective under the 1933 Act and such New Notes
shall have been disposed of pursuant to such Registration Statement,
(ii) such New Notes have been sold to the public pursuant to Rule l44
(or any similar provision then in force, but not Rule 144A) under the
1933 Act, (iii) such New Notes shall have ceased to be outstanding or
(iv) the Registered Exchange Offer is consummated (except in the case of
New Notes purchased from the Company and continued to be held by the
Holders described in Section 2.2(iii)).
"Registration Default" shall have the meaning set forth
in Section 2.4(a).
"Registration Expenses" shall mean any and all expenses incident
to performance of or compliance by the Company with this Agreement,
including without limitation: (i) all SEC, stock exchange or NASD
registration and filing fees (but not including, if applicable, the fees
and expenses of any "qualified independent underwriter" (and its
counsel) that is required to be retained by any holder of Registrable
New Notes in accordance with the rules and regulations of the NASD),
(ii) all fees and expenses incurred in connection with compliance with
state securities or blue sky laws and compliance with the rules of the
NASD (including reasonable fees and disbursements of counsel for any
underwriters or Holders in connection with blue sky qualification of any
of the Registered New Notes or Registrable New Notes and any filings
with the NASD), (iii) all expenses of any Persons in preparing or
assisting in preparing, word processing, printing and distributing any
Registration Statement, any Prospectus, any amendments or supplements
thereto, any underwriting agreements, securities sales agreements and
other documents relating to the performance of and compliance with this
Agreement, (iv) all fees and expenses incurred in connection with the
listing, if any, of any of the Registrable New Notes on any securities
exchange or exchanges, (v) all rating agency fees, (vi) the fees and
disbursements of counsel for the Company and of the independent public
accountants of the Company, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance
and compliance, (vii) the fees and expenses of the Trustee, and any
escrow agent or custodian, (viii) the reasonable fees and disbursements
of one special counsel representing the
<PAGE> 408
Holders of Registrable New Notes in connection with a Shelf
Registration, such special counsel to be selected by the Majority
Holders and (ix) any fees and disbursements of the underwriters
customarily required to be paid by issuers or sellers of New Notes and
the fees and expenses of any special experts retained by the Company in
connection with any Registration Statement, but excluding underwriting,
brokerage, finder's or similar fees, discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of
Registrable New Notes by a Holder.
"Registration Statement" shall mean any registration statement
of the Company which covers any of the Registered New Notes or
Registrable New Notes pursuant to the provisions of this Agreement, and
all amendments and supplements to any such registration statement,
including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein or deemed to be incorporated by
reference in such registration statement.
"Rule 144" shall mean Rule 144 under the 1933 Act, as such Rule
may be amended from time to time, or any similar rule (other than Rule
144A) or regulation hereafter adopted by the SEC.
"Rule 144A" shall mean Rule 144A under the 1933 Act, as such
Rule may be amended from time to time, or any similar rule (other than
Rule 144) or regulation hereafter adopted by the SEC.
"Rule 415" shall mean Rule 415 under the 1933 Act, as such Rule
may be amended from time to time, or any similar rule or regulation
hereafter adopted by the SEC.
"SEC" shall mean the Securities and Exchange
Commission.
"Shelf Registration" shall mean a registration effected
pursuant to Section 2.2 hereof.
"Shelf Registration Statement" shall mean a "shelf" registration
statement of the Company pursuant to the provisions of Section 2.2 of
this Agreement which covers all of the Registrable New Notes on an
appropriate form under Rule 415, or any similar rule that may be adopted
by the SEC, and all amendments and supplements to such registration
statement, including post-effective amendments, in each case
<PAGE> 409
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"TIA" shall mean the Trust Indenture Act of 1939, as
amended.
"Trustee" shall mean the trustee with respect to the New Notes
under the Indenture.
"Underwritten Registration or Underwritten
Offering" shall mean a registration in which securities of the Company are
sold to an underwriter for reoffering to the public.
2. Registration Under the 1933 Act.
2.1 Registered Exchange Offer. The Company shall (A) prepare
and, as soon as practicable but not later than 30 days following the Closing
Date, file with the SEC an Exchange Offer Registration Statement on an
appropriate form under the 1933 Act with respect to a proposed Registered
Exchange Offer and the issuance and delivery to the Holders, in exchange for the
Registrable New Notes, a like aggregate principal amount of Registered New
Notes, (B) use its reasonable best efforts to cause the Exchange Offer
Registration Statement to be declared effective under the 1933 Act within 90
days following the Closing Date, (C) use its reasonable best efforts to keep the
Exchange Offer Registration Statement effective until consummation of the
Registered Exchange Offer pursuant to its terms and (D) unless the Registered
Exchange Offer would not be permitted by a policy of the SEC, use its reasonable
best efforts to cause the Registered Exchange Offer to be consummated not later
than 120 days following the Closing Date. The Registered New Notes will be
issued under, and entitled to the benefits of, the Indenture or a trust
indenture that is identical to the Indenture (other than such changes as are
necessary to comply with any requirements of the SEC to effect or maintain the
qualification thereof under the TIA). Upon the effectiveness of the Exchange
Offer Registration Statement, the Company shall promptly commence the Registered
Exchange Offer, it being the objective of such Registered Exchange Offer to
enable each Holder eligible and electing to exchange Registrable New Notes for
Registered New Notes (assuming that such Holder (a) is not an affiliate of the
Company within the meaning of Rule 405 under the 1933 Act, (b) is not a
broker-dealer tendering Registrable New Notes acquired directly from the Company
for its own account, (c) acquired the Registered New Notes in the ordinary
course of such Holder's business and (d) has no arrangements or understandings
with any person to participate in the Registered Exchange Offer for the purpose
of distributing the Registered New Notes) to transfer such Registered New Notes
from and after their receipt without any limitations or restrictions under the
1933 Act and without material restrictions under the securities laws of a
substantial
<PAGE> 410
proportion of the several states of the United States.
In connection with the Registered Exchange Offer, the Company
shall:
(a) mail to each Holder a copy of the Prospectus
forming part of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal that is an exhibit to the Exchange Offer
Registration Statement and related documents;
(b) keep the Registered Exchange Offer open for
acceptance for a period of not less than 30 calendar days after the date notice
thereof is mailed to the Holders (or longer if required by applicable law) (such
period referred to herein as the "Exchange Period");
(c) utilize the services of the Depository for the
Registered Exchange Offer;
(d) permit Holders to withdraw tendered
Registrable New Notes at any time prior to 5:00 p.m. (Eastern Standard Time), on
the last Business Day of the Exchange Period, by sending to the institution
specified in the notice, a telegram, telex, facsimile transmission or letter
setting forth the name of such Holder, the principal amount of Registrable New
Notes delivered for exchange, and a statement that such Holder is withdrawing
his election to have such New Notes exchanged;
(e) notify each Holder that any Registrable New
Note not tendered will remain outstanding and continue to accrue interest, but
will not retain any rights under this Agreement (except in the case of the
Initial Holders and Participating Broker-Dealers as provided herein); and
(f) otherwise comply in all respects with all
applicable laws relating to the Registered Exchange Offer.
As soon as practicable after the close of the Registered
Exchange Offer, the Company shall:
(i) accept for exchange all Registrable New Notes
validly tendered and not validly withdrawn pursuant to the
Registered Exchange Offer in accordance with the terms of the
Exchange Offer Registration Statement and the letter of
transmittal which shall be an exhibit thereto;
(ii) deliver to the Trustee for cancellation
all Registrable New Notes so accepted for exchange;
and
<PAGE> 411
(iii) cause the Trustee promptly to authenticate and
deliver Registered New Notes to each Holder of Registrable New
Notes so accepted for exchange in a principal amount equal to
the aggregate principal amount of the Registrable New Notes of
such Holder so accepted for exchange.
Interest on each Registered Exchange New Note will accrue from
the last date on which interest was paid on the Registrable New Notes
surrendered in exchange therefor or, if no interest has been paid on the
Registrable New Notes, from the date of original issuance. Each Registered
Exchange New Note shall bear interest at the rate set forth thereon; provided,
that interest with respect to the period prior to the issuance thereof shall
accrue at the rate or rates borne by the Registrable New Notes from time to time
during such period. The Registered Exchange Offer shall not be subject to any
conditions, other than (i) that the Registered Exchange Offer, or the making of
any exchange by a Holder, does not violate applicable law or any applicable
interpretation of the staff of the SEC, (ii) the due tendering of Registrable
New Notes in accordance with the Exchange Offer, (iii) that each Holder of
Registrable New Notes exchanged in the Registered Exchange Offer shall have
represented that all Registered New Notes to be received by it shall be acquired
in the ordinary course of its business and that at the time of the consummation
of the Registered Exchange Offer it shall have no arrangement or understanding
with any Person to participate in the distribution (within the meaning of the
1933 Act) of the Registered New Notes and shall have made such other
representations as may be reasonably necessary under applicable SEC rules,
regulations or interpretations to render the use of Form S-4 or other
appropriate form under the 1933 Act available, (iv) if such Holder is not a
broker-dealer, that it is not engaged in and does not intend to engage in, the
distribution of the Registered New Notes, (v) if such Holder is a broker-dealer
that will receive Registered New Notes that were acquired as a result of
market-making or other trading activities and that it will deliver a prospectus,
as required by law, in connection with any resale of such Registered New Notes,
and (vi) if such Holder is an affiliate of the Company, that it will comply with
the registration and prospectus delivery requirements of the 1933 Act applicable
to it and (vii) that no action or proceeding shall have been instituted or
threatened in any court or by or before any governmental agency with respect to
the Registered Exchange Offer which, in the Company's judgment, would reasonably
be expected to impair the ability of the Company to proceed with the Exchange
Offer.
2.2 Shelf Registration. (i) If, because of any changes
in law, SEC rules or regulations or applicable interpretations thereof by the
staff of the SEC, the Company is not permitted to effect the Registered
Exchange Offer as contemplated by Section 2.1 hereof, (ii) if for any
<PAGE> 412
other reason the Exchange Offer Registration Statement is not declared effective
within 90 days following the original issue of the Registrable New Notes or the
Registered Exchange Offer is not consummated prior to 120 days after the
original issue of the Registrable New Notes, or (iii) if a Holder is not
permitted by applicable law to participate in the Registered Exchange Offer
based upon written advice to counsel to the effect that such Holder may not
legally be able to participate in the Registered Exchange Offer or if a Holder
elects to participate in the Registered Exchange Offer but does not receive
fully tradable Registered New Notes pursuant to the Registered Exchange Offer,
the Company shall, at its cost:
(a) As promptly as practicable, file with the SEC, and
thereafter shall use its reasonable best efforts to cause to be declared
effective as promptly as practicable, a Shelf Registration Statement relating to
the offer and sale of the Registrable New Notes by the Holders from time to time
in accordance with the methods of distribution elected by the Majority Holders
participating in the Shelf Registration and set forth in such Shelf Registration
Statement.
(b) Use its reasonable best efforts to keep the Shelf
Registration Statement continuously effective in order to permit the prospectus
forming part thereof to be usable by Holders for a period of two years from the
date the Shelf Registration Statement is declared effective by the SEC, or for
such shorter period that will terminate when all Registrable New Notes covered
by the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement or cease to be outstanding or otherwise to be Registrable
New Notes.
(c) Notwithstanding any other provisions hereof, use its
reasonable best efforts to ensure that (i) any Shelf Registration Statement and
any amendment thereto and any Prospectus forming part thereof and any supplement
thereto complies in all material respects with the 1933 Act and the rules and
regulations thereunder, (ii) any Shelf Registration Statement and any amendment
thereto does not, when it becomes effective, contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any Prospectus
forming part of any Shelf Registration Statement, and any supplement to such
Prospectus (as amended or supplemented from time to time), does not include an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements, in light of the circumstances under which they
were made, not misleading.
The Company further agrees, if necessary, to supplement or amend
the Shelf Registration Statement, as required by Section 3(b) below, and to
furnish to the Holders of Registrable New Notes copies of any such supplement or
amendment promptly after its being used or filed with the
<PAGE> 413
SEC.
The Company agrees (i) not to effect any public or private
offer, sale or distribution of its debt securities, or any other security
convertible into or exchangeable or exercisable for such debt securities,
including a sale pursuant Regulation D under the 1933 Act, during the 10- day
period prior to, and during the 90-day period beginning on, the closing date of
each underwritten offering made pursuant to the Shelf Registration Statement, to
the extent timely notified in writing by the underwriter(s) (except as part of
such registration, if permitted, or pursuant to registration on Forms S-4 or S-8
or any successor form to such Forms) and (ii) to cause each holder of its
privately placed debt securities, or any other security convertible into or
exchangeable or exercisable for such debt securities purchased from the Company
at any time on or after the date of this Agreement to agree not to effect any
public sale or distribution of any such securities during such period, including
a sale pursuant to Rule 144 under the 1933 Act (except as part of such
underwritten offering, if permitted).
2.3 Expenses. The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2.1 or 2.2. Each Holder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of such Holders Registrable New Notes
pursuant to the Shelf Registration Statement.
2.4 Liquidated Damages.
(a) The Company acknowledges and agrees that the
holders of Registrable New Notes will suffer damages, and that it would not be
feasible to ascertain the extent of such damages with precision, if the Company
fails to fulfill its obligations hereunder. Accordingly, in the event of such
failure, the Company agrees to pay liquidated damages to each Holder under the
circumstances and to the extent set forth below:
(i) if the Exchange Offer Registration
Statement has not been filed with the SEC on or
prior to 30 days after the date hereof; or
(ii) if the Exchange Offer Registration
Statement is not declared effective by the SEC on or
prior to 90 days after the date hereof; or
(iii) if the Company has not accepted for
exchange Registered New Notes for all New Notes validly
tendered in accordance with the terms of the Exchange Offer
within 30 days after the date on which an Exchange Offer
Registration Statement is declared effective by the SEC; or
<PAGE> 414
(iv) if a Shelf Registration is filed and
declared effective by the SEC but thereafter ceases to be
effective without being succeeded within 30 days by a
subsequent Shelf Registration filed and declared effective;
(each of the foregoing a "Registration Default," and the date on which the
Registration Default occurs being referred to herein as an "Event Date").
Upon the occurrence of any Registration Default, the Company
shall pay, or cause to be paid, in addition to amounts otherwise due under the
Indenture and the Registrable New Notes, as liquidated damages, and not as a
penalty, to each holder of a Registrable New Note, an additional amount (the
"Liquidated Damages Amount") equal to, during the first 90-day period
immediately following the Event Date, .50% per annum on the principal amount of
Registrable New Notes held by such holder, increasing by an additional .50% per
annum at the beginning of each subsequent 90-day period up to a maximum of 2.0%
per annum; provided that such liquidated damages will, in each case, cease to
accrue (subject to the occurrence of another Registration Default) on the date
on which all Registration Defaults have been cured. A Registration Default under
clause (i) above shall be cured on the date that the Exchange Offer Registration
Statement is filed with the SEC; a Registration Default under clause (ii) above
shall be cured on the date that the Exchange Offer Registration Statement is
declared effective by the SEC; a Registration Default under clause (iii) above
shall be cured on the earlier of the date (A) the Exchange Offer is consummated
with respect to all Old Notes validly tendered or (B) the Company delivers
notice of the consummation of the Exchange Offer to the Holders; and a
Registration Default under clause (iv) above shall be cured on the earlier of
(A) the date on which the applicable Shelf Registration is no longer subject to
an order suspending the effectiveness thereof or proceedings relating thereto or
(B) a subsequent Shelf Registration is declared effective.
(b) The Company shall notify the Trustee within
five Business Days after each Event Date. The Company shall pay the liquidated
damages due on the Registrable New Notes by depositing with the Trustee, in
trust, for the benefit of the Holders thereof, by 12:00 noon, New York City
time, on or before the applicable semi-annual interest payment date for the
Registrable New Notes, immediately available funds in sums sufficient to pay the
liquidated damages then due. The liquidated damages amount due shall be payable
on each interest payment date to the Holder entitled to receive the interest
payment to be made on such date as set forth in the Indenture.
2.5 Effectiveness.
(a) Subject to the following Section 2.5(b),
the Company
<PAGE> 415
will be deemed not to have used its reasonable best efforts to cause the
Exchange Offer Registration Statement or the Shelf Registration Statement, as
the case may be, to become, or to remain, effective during the requisite period
if the Company voluntarily takes any action that would result in any such
Registration Statement not being declared effective or in the holders of
Registrable New Notes covered thereby not being able to exchange or offer and
sell such Registrable New Notes during that period as and to the extent
contemplated hereby, unless such action is required by applicable law.
(b) Notwithstanding the foregoing Section 2.5(a),
subject to the Holders rights under Section 2.4, if the Board of Directors of
the Company, in its good faith judgment, determines that the Registered Exchange
Offer should not be made or continued because it would materially interfere with
any material financing, acquisition, corporate reorganization or merger or other
material transaction involving the Company or any of its subsidiaries (a "Valid
Business Reason"), (x) the Company may postpone filing a registration statement
relating to the Registered Exchange Offer until such Valid Business Reason no
longer exists, but in no event for more than three months, and (y) in case a
registration statement has been filed relating to the Registered Exchange Offer,
the Company may cause registration statement to be withdrawn and its
effectiveness terminated or may postpone amending or supplementing such
registration statement until such Valid Business Reason no longer exists, but in
no event for more than three months (such period of postponement or withdrawal
under sub clause (x) or (y) of this Section 2.5(b), the "Postponement Period");
and the Company shall give the Trustee and the Holders written notice of its
determination to postpone or withdraw the Registered Exchange Offer and of the
fact that the Valid Business Reason for such postponement or withdrawal no
longer exists, in each case, promptly after the occurrence thereof provided,
however, that any such postponement or withdrawal shall be subject to the
payment by the Company of liquidated damages pursuant to Section 2.4 hereof.
The Holders agree that, upon receipt of any notice from the Company
that the Company has determined to withdraw any registration statement pursuant
to clause (y) above, the Holders will discontinue any disposition of Registrable
New Notes pursuant to such registration statement and, if so directed by the
Company, will deliver to the Company (at the Company's expense) all copies,
other than permanent file copies, then in such Holders possession of the
prospectus covering such Registrable New Notes that was in effect at the time of
receipt of such notice. If the Company shall give any notice of withdrawal or
postponement of a registration statement, the Company shall, at such time as the
Valid Business Reason that caused such withdrawal or postponement no longer
exists (but in no event later than three months after the date
<PAGE> 416
of the postponement or withdrawal), use its best efforts to effect the
registration under the Securities Act of Registrable New Notes covered by the
withdrawn or postponed registration statement.
(c) An Exchange Offer Registration Statement
pursuant to Section 2.1 hereof or a Shelf Registration Statement pursuant to
Section 2.2 hereof will not be deemed to have become effective unless it has
been declared effective by the SEC; provided, however, that if, after it has
been declared effective, the Exchange Offer, the Exchange Offer Registration
Statement or offering of Registrable New Notes pursuant to a Shelf Registration
Statement is interfered with by any stop order, injunction or other order or
requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have become effective during the
period of such interference, until the offering of Registrable New Notes
pursuant to such Registration Statement may legally resume.
3. Registration Procedures.
In connection with the obligations of the Company with respect
to Registration Statements pursuant to Sections 2.1 and 2.2 hereof, the Company
shall:
(a) prepare and file with the SEC a Registration Statement,
within the relevant time period specified in Section 2, on the appropriate form
under the 1933 Act, which form (i) shall be selected by the Company, (ii) shall,
in the case of a Shelf Registration, be available for the sale of the
Registrable New Notes by the selling Holders thereof and (iii) shall comply as
to form in all material respects with the requirements of the applicable form
and include or incorporate by reference all financial statements required by the
SEC to be filed therewith or incorporated by reference therein, and use its best
efforts to cause such Registration Statement to become effective and remain
effective in accordance with Section 2 hereof;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may be necessary
under applicable law to keep such Registration Statement continuously effective
for the time periods required hereby; and cause each Prospectus to be
supplemented by any prospectus supplement required by applicable law, and as so
supplemented to be filed pursuant to Rule 424 (or any similar provisions then in
force) under the 1933 Act and comply with the provisions of the 1933 Act and the
1934 Act applicable to them with respect to the disposition of all New Notes
covered by such Registration Statement, as so amended, or in such Prospectus, as
so supplemented, in accordance with the intended methods of distribution by the
selling Holders set forth in such Registration Statement or Prospectus as so
amended;
<PAGE> 417
(c) in the case of a Shelf Registration, (i) notify each Holder
of Registrable New Notes, at least five business days prior to filing, that a
Shelf Registration Statement with respect to the Registrable New Notes is being
filed and advising such Holders that the distribution of Registrable New Notes
will be made in accordance with the method selected by the Majority Holders
participating in the Shelf Registration; (ii) furnish to each Holder of
Registrable New Notes and to each underwriter of an underwritten offering of
Registrable New Notes, if any, without charge, as many copies of each
Registration Statement, Prospectus, including each preliminary Prospectus, and
any amendment or supplement thereto and such other documents as such Holder or
underwriter may reasonably request, including financial statements and schedules
and, if the Holder so requests, all exhibits in order to facilitate the public
sale or other disposition of the Registrable New Notes; and (iii) hereby consent
to the use of the Prospectus or any amendment or supplement thereto by each of
the selling Holders of Registrable New Notes in connection with the offering and
sale of the Registrable New Notes covered by the Prospectus or any amendment or
supplement thereto;
(d) use its reasonable best efforts to register or qualify the
Registrable New Notes under all applicable state securities or "blue sky" laws
of such jurisdictions as any Holder of Registrable New Notes covered by a
Registration Statement and each underwriter of an underwritten offering of
Registrable New Notes shall reasonably request by the time the applicable
Registration Statement is declared effective by the SEC, and do any and all
other acts and things which may be reasonably necessary or advisable to enable
each such Holder and underwriter to consummate the disposition in each such
jurisdiction of such Registrable New Notes owned by such Holder; provided,
however, that the Company shall not be required to (i) qualify as a foreign
corporation or as a dealer in securities in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), or (ii) take any
action which would subject it to general service of process or taxation in any
such jurisdiction where it is not then so subject;
(e) notify promptly each Holder of Registrable New Notes under a
Shelf Registration or any Participating Broker-Dealer who has notified the
Company that it is utilizing the Exchange Offer Registration Statement as
provided in paragraph (f) below and, if requested by such Holder or
Participating Broker-Dealer, confirm such advice in writing promptly (i) when a
Registration Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of any request by the
SEC or any state securities authority for post-effective amendments and
supplements to a Registration Statement and Prospectus or for additional
information after the Registration Statement has become effective, (iii) of the
issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration
<PAGE> 418
Statement or the initiation of any proceedings for that purpose, (iv) in the
case of a Shelf Registration, if, between the effective date of a Registration
Statement and the closing of any sale of Registrable New Notes covered thereby,
the representations and warranties of the Company contained in any underwriting
agreement, securities sales agreement or other similar agreement, if any,
relating to the offering cease to be true and correct in all material respects,
(v) of the happening of any event or the discovery of any facts during the
period a Shelf Registration Statement is effective which makes any statement
made in such Registration Statement or the related Prospectus or any document
incorporated or deemed to be incorporated by reference untrue in any material
respect or which requires the making of any changes in such Registration
Statement, Prospectus or document in order to make the statements therein, in
light of the circumstances under which they were made, not misleading and (vi)
of the receipt by the Company of any notification with respect to the suspension
of the qualification of the Registrable New Notes or the Registered New Notes,
as the case may be, for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose;
(f) (A) in the case of the Exchange Offer Registration Statement
(i) include in the Exchange Offer Registration Statement a section entitled
"Plan of Distribution" which shall contain a summary statement of the positions
taken or policies made by the staff of the SEC with respect to the potential
"underwriter" status of any Participating Broker-Dealer that will be the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Registered
New Notes to be received by such Participating Broker-Dealer in the Registered
Exchange Offer, whether such positions or policies have been publicly
disseminated by the staff of the SEC or such positions or policies, in the
reasonable judgment of the Company and its counsel, represent the prevailing
views of the staff of the SEC, including a statement that any such Participating
Broker-Dealer who receives Registered New Notes for Registrable New Notes
pursuant to the Registered Exchange Offer may be deemed a statutory underwriter
and must deliver a prospectus meeting the requirements of the 1933 Act in
connection with any resale of such Registered New Notes, (ii) furnish to each
Participating Broker-Dealer who has delivered to the Company the notice referred
to in Section 3(e), without charge, as many copies of each Prospectus included
in the Exchange Offer Registration Statement, including any preliminary
prospectus, and any amendment or supplement thereto, as such Participating
Broker-Dealer may reasonably request, (iii) hereby consent to the use of the
Prospectus forming part of the Exchange Offer Registration Statement or any
amendment or supplement thereto, by any person subject to the prospectus
delivery requirements of the SEC, including all Participating Broker-Dealers, in
connection with the sale or transfer of the Registered New Notes covered by the
Prospectus or any amendment or supplement thereto, and (iv) include in the
transmittal letter or similar documentation to be executed by an exchange
<PAGE> 419
offeree in order to participate in the Registered Exchange Offer (x) the
following provision:
"If the exchange offeree is a broker-dealer holding Registrable
New Notes acquired for its own account as a result of
market-making activities or other trading activities, it will
deliver a prospectus meeting the requirements of the 1933 Act in
connection with any resale of Registered New Notes received in
respect of such Registrable New Notes pursuant to the Registered
Exchange Offer;" and
(y) a statement to the effect that by a broker-dealer making the acknowledgment
described in clause (x) and by delivering a Prospectus in connection with the
exchange of Registrable New Notes, the broker-dealer will not be deemed to admit
that it is an underwriter within the meaning of the 1933 Act; and
(B) in the case of any Exchange Offer Registration Statement
or Shelf Registration, the Company agrees to deliver to the Holders upon the
effectiveness of the Registered Exchange Offer Registration Statement or Shelf
Registration (i) an opinion of counsel substantially in the form attached hereto
as Exhibit A, (ii) an officers' certificate substantially in the form
customarily delivered in a public offering of debt securities and (iii) a
comfort letter in customary form if permitted by Statement on Auditing Standards
No. 72 of the American Institute of Certified Public Accountants (or if such a
comfort letter is not permitted, an agreed upon procedures letter in customary
form);
(g) (i) in the case of a Registered Exchange Offer, furnish
counsel for the Holders and (ii) in the case of a Shelf Registration, furnish
counsel for the Holders of Registrable New Notes copies of any request by the
SEC or any state securities authority for amendments or supplements to a
Registration Statement and Prospectus or for additional information;
(h) make every reasonable effort to obtain the withdrawal
of any order suspending the effectiveness of a Registration Statement at the
earliest possible moment;
(i) in the case of a Shelf Registration, furnish to each Holder
of Registrable New Notes, and each underwriter, if any, without charge, at least
one conformed copy of each Registration Statement and any post-effective
amendment thereto, including financial statements and schedules (without
documents incorporated therein by reference and all exhibits thereto, unless
requested);
<PAGE> 420
(j) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable New Notes to facilitate the timely preparation
and delivery of certificates representing Registrable New Notes to be sold and
not bearing any restrictive legends; and enable such Registrable New Notes to be
in such denominations (consistent with the provisions of the Indenture) and
registered in such names as the selling Holders or the underwriters, if any, may
reasonably request at least three business days prior to the closing of any sale
of Registrable New Notes;
(k) in the case of a Shelf Registration, upon the occurrence of
any event or the discovery of any facts, each as contemplated by Sections
3(e)(v) and 3(e)(vi) hereof, use its best efforts to prepare a supplement or
post-effective amendment to the Registration Statement or the related Prospectus
or any document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the Registrable
New Notes or Participating Broker- Dealers, such Prospectus will not contain at
the time of such delivery any untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that once the Shelf Registration Statement has been declared effective the
Company may delay effecting or causing to be effected a supplement or
post-effective amendment to the Registration Statement or the related
Prospectus, for a period (the "Delay Period") (i) not to exceed 30 days during
the period beginning 121 days after the original issue of the New Notes and
ending 365 days after the original issue of the New Notes, (ii) not to exceed 90
days during the 365-day period beginning after the first anniversary of the
original issue of the New Notes and (iii) not to exceed 90 days during the
365-day period beginning after the second anniversary of the original issue of
the New Notes; provided, further, that the Company shall notify the Holders in
writing both of its intention to effect such delay and of the date on which such
supplement or post-effective amendment has been filed with the SEC or declared
effective, as the case may be and the Company shall extend the period during
which the Shelf Registration Statement shall be maintained effective pursuant to
this Agreement by the number of days in any Delay Period;
(l) in the case of a Shelf Registration, a reasonable time prior
to the filing of any Registration Statement, any Prospectus, any amendment to a
Registration Statement or amendment or supplement to a Prospectus or any
document which is to be incorporated by reference into a Registration Statement
or a Prospectus after initial filing of a Registration Statement, provide copies
of such document to the Holders; and make representatives of the Company as
shall be reasonably requested by the Holders of Registrable New Notes, available
for discussion of such document;
<PAGE> 421
(m) obtain a CUSIP number for all Registered New Notes or
Registrable New Notes, as the case may be, not later than the effective date of
a Registration Statement, and provide the Trustee with printed certificates for
the Registered New Notes or the Registrable New Notes, as the case may be, in a
form eligible for deposit with the Depositary;
(n) (i) provide an indenture trustee for the Registered New
Notes or the Registrable New Notes, as the case may be, and cause the Indenture
(or other indenture relating to the Registrable New Notes) to be qualified under
the TIA not later than the effective date of the first Registration Statement,
(ii) cooperate with the Trustee and the Holders to effect such changes to the
Indenture as may be required for the Indenture to be so qualified in accordance
with the terms of the TIA and (iii) execute, and use its best efforts to cause
the Trustee to execute, all documents as may be required to effect such changes,
and all other forms and documents required to be filed with the SEC to enable
the Indenture to be so qualified in a timely manner;
(o) in the case of a Shelf Registration, enter into agreements
(including underwriting agreements) and take all other customary and appropriate
actions in order to expedite or facilitate the disposition of such Registrable
New Notes and in such connection whether or not an underwriting agreement is
entered into and whether or not the registration is an underwritten
registration:
(i) make such representations and warranties to the
Holders of such Registrable New Notes and the underwriters, if
any, in form, substance and scope as are customarily made by
issuers to underwriters in similar underwritten offerings as may
be reasonably requested by them;
(ii) obtain opinions of counsel to the Company and
updates thereof (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managing
underwriters, if any, and the holders of a majority in principal
amount of the Registrable New Notes being sold) addressed to
each selling Holder and the underwriters, if any, covering the
matters customarily covered in opinions requested in sales of
New Notes or underwritten offerings and such other matters as
may be reasonably requested by such Holders and underwriters;
(iii) obtain "cold comfort" letters and updates thereof
from the Company's independent certified public accountants
addressed to the underwriters, if any, and use reasonable
efforts to have such letter
<PAGE> 422
addressed to the selling Holders of Registrable New Notes (to
the extent consistent with Statement on Auditing Standards No.
72 of the American Institute of Certified Public Accounts), such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters to underwriters in
connection with similar underwritten offerings;
(iv) enter into a securities sales agreement with the
Holders and an agent of the Holders providing for, among other
things, the appointment of such agent for the selling Holders
for the purpose of soliciting purchases of Registrable New
Notes, which agreement shall be in form, substance and scope
customary for similar offerings;
(v) if an underwriting agreement is entered into, cause
the same to set forth indemnification provisions and procedures
substantially equivalent to the indemnification provisions and
procedures set forth in Section 4 hereof with respect to the
underwriters and all other parties to be indemnified pursuant to
said Section or, at the request of any underwriters, in the form
customarily provided to such underwriters in similar types of
transactions;
(vi) deliver such documents and certificates as may be
reasonably requested and as are customarily delivered in similar
offerings to the Holders of a majority in principal amount of
the Registrable New Notes being sold and the managing
underwriters, if any, to evidence the continued validity of the
representations and warranties of the Company and its
subsidiaries made pursuant to clause (i) above and to evidence
compliance with any conditions contained in the underwriting
agreement or other similar agreement entered into by the
Company; and
(vii) use its reasonable best efforts to prevent the
issuance of any order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending
the use of a Prospectus or suspending the qualification (or
exemption from qualification) of any of the New Notes for sale
in any jurisdiction, and, if any such order is issued, to use
its reasonable best efforts to obtain the withdrawal of any such
order at the
<PAGE> 423
earliest possible time.
The above shall be done at (i) the effectiveness of such Registration Statement
(and each post-effective amendment thereto) and (ii) each closing under any
underwriting or similar agreement as and to the extent required thereunder;
(p) in the case of a Shelf Registration, make available for
inspection by representatives of the Holders of the Registrable New Notes and
any underwriters participating in any disposition pursuant to a Shelf
Registration Statement and any counsel or accountant retained by such Holders or
underwriters (collectively, the "Inspectors"), all financial and other records,
pertinent corporate documents and properties of the Company reasonably requested
by any such persons, and cause the respective officers, directors, employees,
and any other agents of the Company to supply all information reasonably
requested by any such representative, underwriter, special counsel or accountant
in connection with a Registration Statement, and make such representatives of
the Company available for discussion of such documents as shall be reasonably
requested by the Inspectors;
(q) in the case of a Shelf Registration, a reasonable time prior
to filing any Shelf Registration Statement, any Prospectus forming a part
thereof, any amendment to such Shelf Registration Statement or amendment or
supplement to such Prospectus, provide copies of such document to the Holders of
Registrable New Notes, to the Initial Holders, to counsel on behalf of the
Holders and to the underwriter or underwriters of an underwritten offering of
Registrable New Notes, if any, and make the representatives of the Company
available for discussion of such document as shall be reasonably requested by
the Holders of Registrable New Notes, or any underwriter;
(r) in the case of a Shelf Registration, use its best efforts to
cause all Registrable New Notes to be listed on any Securities exchange on which
similar debt securities issued by the Company are then listed if requested by
the Majority Holders, or if requested by the underwriter or underwriters of an
underwritten offering of Registrable New Notes, if any;
(s) in the case of a Shelf Registration, use its reasonable best
efforts to cause the Registrable New Notes to be rated by the appropriate rating
agencies, if so requested by the Majority Holders, or if requested by the
underwriter or underwriters of an underwritten offering of Registrable New
Notes, if any;
(t) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the SEC and make available to its
<PAGE> 424
security holders, as soon as reasonably practicable, an earnings statement
covering at least 12 months which shall satisfy the provisions of Section 11(a)
of the 1933 Act and Rule 158 thereunder or any similar rule promulgated under
the 1934 Act;
(u) cooperate and assist in any filings required to be made with
the NASD and, in the case of a Shelf Registration, in the performance of any due
diligence investigation by any underwriter and its counsel (including any
"qualified independent underwriter" that is required to be retained in
accordance with the rules and regulations of the NASD); and
(v) upon consummation of a Registered Exchange Offer, obtain a
customary opinion of counsel to the Company addressed to the Trustee for the
benefit of all Holders of Registrable New Notes participating in the Registered
Exchange Offer, and which includes an opinion that (i) the Company has duly
authorized, executed and delivered the Registered New Notes and the related
indenture, and (ii) each of the Registered New Notes and related indenture
constitute a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its respective terms (with customary
exceptions).
In the case of a Shelf Registration Statement, the Company may
(as a condition to such Holder's participation in the Shelf Registration)
require each Holder of Registrable New Notes to furnish to the Company such
information regarding the Holder and the proposed distribution by such Holder of
such Registrable New Notes as the Company may from time to time reasonably
request in writing.
In the case of a Shelf Registration Statement, each Holder and
each Participating Broker-Dealer agrees that, upon receipt of any notice from
the Company of the happening of any event or the discovery of any facts, each of
the kind described in Section 3(e)(v) hereof, such Holder will forthwith
discontinue disposition of Registrable New Notes pursuant to a Registration
Statement until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3(k) hereof, and, if so directed by
the Company, such Holder will deliver to the Company (at its expense) all copies
in such Holders possession, other than permanent file copies then in such
Holder's possession, of the Prospectus covering such Registrable New Notes
current at the time of receipt of such notice. If the Company shall give any
such notice to suspend the disposition of Registrable New Notes pursuant to a
Shelf Registration Statement as a result of the happening of any event or the
discovery of any facts, each of the kind described in Section 3(e)(v) hereof,
the Company shall be deemed to have used its reasonable best efforts to keep the
Shelf Registration Statement effective during such period of suspension provided
that the Company shall use its reasonable best efforts to file and have declared
effective (if an amendment) as soon as practicable an amendment or supplement to
the Shelf Registration
<PAGE> 425
Statement and shall extend the period during which the Shelf Registration
Statement shall be maintained effective pursuant to this Agreement by the number
of days during the period from and including the date of the giving of such
notice to and including the date when the Holders shall have received copies of
the supplemented or amended Prospectus necessary to resume such dispositions.
In the event that the Company fails to effect the Registered
Exchange Offer or file any Shelf Registration Statement and maintain the
effectiveness of any Shelf Registration Statement as provided herein, the
Company shall not file any Registration Statement with respect to any debt
securities of the Company other than Registrable New Notes and debt securities
issued or issuable by the Company and registered pursuant to Form S-4 under the
1933 Act or issuable under an employee benefit plan of the Company and
registered pursuant to Form S-8 under the 1933 Act.
If any of the Registrable New Notes covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
underwriter or underwriters and manager or managers that will manage such
offering will be selected by the Majority Holders of such Registrable New Notes
included in such offering and shall be reasonably acceptable to the Company. No
Holder of Registrable New Notes may participate in any underwritten registration
hereunder unless such Holder (a) agrees to sell such Holder's Registrable New
Notes on the basis provided in any underwriting arrangements approved by the
persons entitled hereunder to approve such arrangements and (b) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
(w) As a condition to its participation in a Registered Exchange
Offer pursuant to the terms of this Agreement, each Holder of Registrable New
Notes shall furnish, upon the request of the Company, prior to the consummation
thereof, a written representation to the Company that it is not engaged in, does
not intend to engage in, and has no arrangement or understanding with any person
to participate in, a distribution of the Registered Exchange Notes to be issued
in the Exchange Offer and that it is acquiring the Registered Exchange Notes in
its ordinary course of business and shall otherwise cooperate in the Company's
preparations for the Exchange Offer. Each Holder hereby acknowledges and agrees
that any such Holder using the Exchange Offer to participate in a distribution
of the securities to be acquired in the Exchange Offer (x) could not rely on the
position of the Commission enunciated in Morgan Stanley and Co., Inc. (available
June 5, 1991), Exxon Capital Holdings Corporation (available April 13, 1989) and
similar no-action letters (including any no-action letter by the Company in
connection with the transactions contemplated hereby), (y) must comply with
registration and
<PAGE> 426
prospectus delivery requirements of the 1933 Act in connection with a secondary
resale transaction, and (z) that such a secondary resale transaction should be
covered by an effective registration statement containing the selling security
holder information required by Item 507 of Regulation S-K.
4. Indemnification; Contribution.
(a) The Company agrees to indemnify and hold harmless each
Holder, each Participating Broker-Dealer, each Person who participates as an
underwriter (any such Person being an "Underwriter") and each Person, if any,
who controls any Holder or Underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act and the officers, directors, partners,
employees, representatives of each such Holder, Participating Broker-Dealer and
Underwriter to the fullest extent lawful, as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in any
Registration Statement (or any amendment or supplement thereto) pursuant
to which Registered New Notes or Registrable New Notes were registered
under the 1933 Act, including all documents incorporated therein by
reference, or the omission or alleged omission therefrom of a material
fact required to be stated therein or necessary to make the statements
therein not misleading, or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus
or form of prospectus (or any amendment or supplement thereto) or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 4(d) below) any such settlement is effected
with the written consent of the Company; and
(iii) against any and all expense whatsoever,
as incurred (including the fees and disbursements of
<PAGE> 427
counsel chosen by any indemnified party), reasonably incurred in
investigating, preparing, pursuing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body,
commenced or threatened, or any claim whatsoever based upon any such
untrue statement or omission, or any such alleged untrue statement or
omission, to the extent that any such expense is not paid under
subparagraph (i) or (ii) above; provided, however, that this indemnity
agreement shall not apply to any loss, liability, claim, damage or
expense to the extent arising out of any untrue statement or omission or
alleged untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by such
Holder or Underwriter expressly for use in a Registration Statement (or
any amendment thereto) or any Prospectus (or any amendment or supplement
thereto).
(b) Each Holder severally, but not jointly, agrees to indemnify
and hold harmless the Company, the other Holders and any Underwriter and the
other selling Holders, and each of their respective directors and officers
(including each officer of the Company who signed the Registration Statement),
agents and employees and each Person, if any, who controls the Company, the
other Holders or any Underwriter within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act, and the directors, officers, agents or
employees of such controlling persons, to the fullest extent lawful, against any
and all loss, liability, claim, damage and expense described in the indemnity
contained in Section 4(a) hereof, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Shelf Registration Statement (or any amendment thereto) or any Prospectus or
form of prospectus included therein (or any amendment or supplement thereto) or
in any preliminary prospectus in reliance upon and in conformity with written
information relating to such Holder furnished by such Holder to the Company
expressly for use in the Shelf Registration Statement (or any amendment thereto)
or such Prospectus or form of prospectus (or any amendment or supplement
thereto) or in any preliminary prospectus; provided, however, that no such
Holder shall be liable for any claims hereunder in excess of the amount of net
proceeds received by such Holder from the sale of Registrable New Notes pursuant
to such Shelf Registration Statement.
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action or proceeding
commenced against it in respect of which indemnity may be sought hereunder, but
failure so to notify an indemnifying party shall not relieve such indemnifying
party from any liability hereunder to the extent it is not materially prejudiced
as a result thereof and in any event shall
<PAGE> 428
not relieve it from any liability which it may have otherwise than on account of
this indemnity agreement. An indemnifying party may participate at its own
expense in the defense of such action; provided, however, that counsel to the
indemnifying party shall not (except with the consent of the indemnified party)
also be counsel to the indemnified party. In no event shall the indemnifying
party or parties be liable for the fees and expenses of more than one counsel
(in addition to any local counsel) separate from their own counsel for all
indemnified parties in connection with any one action or separate but similar or
related actions in the same jurisdiction arising out of the same general
allegations or circumstances. No indemnifying party shall, without the prior
written consent of the indemnified parties, settle or compromise or consent to
the entry of any judgment with respect to any litigation, or any investigation
or proceeding by any governmental agency or body, commenced or threatened, or
any claim whatsoever in respect of which indemnification or contribution could
be sought under this Section 4 (whether or not the indemnified parties are
actual or potential parties thereto), unless such settlement, compromise or
consent (i) includes an unconditional release of each indemnified party from all
liability arising out of such litigation, investigation, proceeding or claim and
(ii) does not include a statement as to or an admission of fault, culpability or
a failure to act by or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 4(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement at
least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this Section 4 is
for any reason held to be unenforceable by the indemnified parties although
applicable in accordance with its terms, the Company and the Holders shall have
a joint and several obligation to contribute to the aggregate losses,
liabilities, claims, damages and expenses of the nature contemplated by such
indemnity agreement incurred by the Company and the Holders; provided, however,
that no Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation. As between the Company
and the Holders, the Company and the applicable Holders shall contribute to the
<PAGE> 429
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by such indemnity agreement in such proportions as shall be
appropriate to reflect the relative benefits received by the Company and the
Holders, from the offering of the New Notes, the Registered New Notes and the
Registrable New Notes (taken together) included in such offering as well as any
other relevant equitable considerations. The Company and the Holders of the
Registrable New Notes agree that it would not be just and equitable if
contribution pursuant to this Section 4 were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the relevant equitable considerations. In no event shall a Holder be required to
contribute any amount in excess of the amount by which proceeds received by such
Holder from sales of Registrable New Notes exceeds the amount of damages that
such Holder has otherwise been required to pay or has paid by reason of such
untrue statements or omissions, or alleged untrue statements or omissions. For
purposes of this Section 4, each Person, if any, who controls a Holder within
the meaning of Section 15 of the 1933 Act shall have the same rights to
contribution as such Holder, and each director of the Company, each officer of
the Company who signed the Registration Statement, and each Person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act shall have
the same rights to contribution as the Company, as the case may be.
5. Miscellaneous.
5.1 Rule 144 and Rule 144A. For so long as the Company is
subject to the reporting requirements of Section 13 or 15 of the 1934 Act, the
Company covenants that it will file the reports required to be filed by it under
the 1933 Act and Section 13(a) or 15(d) of the 1934 Act and the rules and
regulations adopted by the SEC thereunder. If the Company ceases to be so
required to file such reports, it will upon the request of any Holder of
Registrable New Notes (a) make publicly available such information as is
necessary to permit sales pursuant to Rule 144 under the 1933 Act, (b) deliver
such information to a prospective purchaser as is necessary to permit sales
pursuant to Rule 144A under the 1933 Act and it will take such further action as
any Holder of Registrable New Notes may reasonably request, and (c) take such
further action that is reasonable in the circumstances, in each case, to the
extent required from time to time to enable such Holder to sell its Registrable
New Notes without registration under the 1933 Act within the limitation of the
exemptions provided by (i) Rule 144 under the 1933 Act, as such Rule may be
amended from time to time, (ii) Rule 144A under the 1933 Act, as such Rule may
be amended from time to time, or (iii) any similar rules or regulations
hereafter adopted by the SEC. Upon the request of any Holder of Registrable New
Notes, the Company will deliver to such Holder a written statement as to whether
it has complied with such requirements.
<PAGE> 430
5.2 Underwritten Registrations. If any of the Registrable New
Notes covered by any Shelf Registration are to be sold in an Underwritten
Offering, the investment banker or investment bankers and manager or managers
that will manage the offering will be selected by the Majority Holders and shall
be reasonably acceptable to the Company.
No Holder may participate in any Underwritten Registration
hereunder unless such Holder (a) agrees to sell such Holders Registrable New
Notes on the basis provided in any underwriting arrangements approved by the
Persons entitled hereunder to approve such arrangements and (b) completes and
executes all questionnaires, underwriting agreements and other documents
reasonably required under the terms of such underwriting arrangements.
5.3 Remedies. In the event of a breach by the Company of any of
its obligations under this Agreement, each Holder, in addition to being entitled
to exercise all rights provided herein, in the Indenture or granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under this Agreement. The Company agrees that monetary damages would not
be adequate compensation for any loss incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further agrees that, in the
event of any action for specific performance in respect of such breach, it shall
waive the defense that a remedy at law would be adequate.
5.4 No Inconsistent Agreements. The Company has not entered into
and the Company will not after the date of this Agreement enter into any
agreement which is inconsistent with the rights granted to the Holders of
Registrable New Notes in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with the rights granted to the holders of the Company's other issued
and outstanding securities under any such agreements.
5.5 Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable New Notes affected by such amendment, modification, supplement,
waiver or departure, excluding Registrable New Notes held by the Company and
other obligors on the New Notes and any Affiliate (as defined in the Indenture)
of the Company. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively to
the rights of Holders whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect the rights of other
Holders
<PAGE> 431
may be given by Holders of at least a majority in aggregate principal amount of
the Registrable New Notes being sold by such Holders pursuant to such
Registration Statement, provided that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence.
5.6 Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand delivery, registered
first-class mail, telex, telecopier, or any courier guaranteeing overnight
delivery (a) if to a Holder, at the most current address given by such Holder to
the Company by means of a notice given in accordance with the provisions of this
Section 5.4, which address initially is the address set forth on the signature
pages hereof with respect to the Initial Holders; and (b) if to the Company,
initially at the Company's address set forth on the signature pages hereof, and
thereafter at such other address of which notice is given in accordance with the
provisions of this Section 5.4.
All such notices and communications shall be deemed to have been
duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications
shall be concurrently delivered by the person giving the same to the Trustee
under the Indenture, at the address specified in such Indenture.
5.7 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders. If any transferee of any Holder shall
acquire Registrable New Notes, in any manner, whether by operation of law or
otherwise, such Registrable New Notes shall be held subject to all of the terms
of this Agreement, and by taking and holding such Registrable New Notes such
person shall be conclusively deemed to have agreed to be bound by and to perform
all of the terms and provisions of this Agreement, and such person shall be
entitled to receive the benefits hereof.
5.8 Third Party Beneficiaries. Each Holder of Registrable New
Notes not a party hereto shall be a third party beneficiary to the agreements
made hereunder and shall have the right to enforce such agreements directly to
the extent it deems such enforcement necessary or advisable to protect its
rights hereunder.
5.9 Counterparts. This Agreement may be executed in any number
<PAGE> 432
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
5.10 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
5.11 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF.
5.12 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE> 433
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first written above.
WRIGHT MEDICAL TECHNOLOGY, INC.
By:_____________________________
Name:
Title:
Confirmed and accepted as
of the date first above
written:
- --------------------------------------
[Type or print name of Initial Holder]
By:_________________________________
Name:
Title:
Address:
<PAGE> 434
Exhibit 4.4
Form of Third Supplemental Indenture
WRIGHT MEDICAL TECHNOLOGY, INC.
and
STATE STREET BANK AND TRUST COMPANY
as Successor Trustee
--------------------------------------------------
THIRD SUPPLEMENTAL INDENTURE
Dated as of August 6, 1997
to INDENTURE
Dated as of June 30, 1993
---------------------------------------------------
$85,000,000
10 3/4% Series A Senior Secured Notes due July 1, 2000
10 3/4% Series B Senior Secured Notes due July 1, 2000
<PAGE> 435
This Third Supplemental Indenture, dated as of August 6, 1997, is by
and between Wright Medical Technology, Inc., a Delaware corporation, (the
"Company"), and State Street Bank and Trust Company, a Massachusetts trust
company, as successor Trustee (the "Trustee").
Recitals
WHEREAS, the Company and the Trustee are parties to the Indenture,
dated as of June 30, 1993, as amended by the First Supplemental Indenture, dated
as of November 1, 1993 and the Second Supplemental Indenture, dated as of
September 28, 1995, (the "Existing Indenture"), and as amended by this Third
Supplemental Indenture (the "Indenture"), providing for the issuance thereunder
by the Company, and the authentication and delivery by the Trustee, of the
Company's 10 3/4% Series A Senior Secured Notes due July 1, 2000 (and providing
for the future issuance, authentication and delivery of the Company's 10 3/4%
Series B Senior Secured Notes due July 1, 2000) (the "Securities"). Capitalized
terms used and not otherwise defined in this Third Supplemental Indenture shall
have the meanings respectively assigned to them in the Existing Indenture.
WHEREAS, the Company has commenced an exchange offer (the "Exchange
Offer") for the Securities and, in connection therewith, a solicitation of exit
consents (the "Exit Consent Solicitation") from the Holders to certain
amendments to the Existing Indenture as set forth in the Offering Circular and
Exit Consent Solicitation Statement of the Company dated August 6, 1997 (the
"Proposed Amendments");
WHEREAS, pursuant to the Exit Consent Solicitation, the Holders of at
least a majority in aggregate principal amount of the Securities outstanding
have consented (the "Requisite Consent") to the amendments effected by this
Third Supplemental Indenture in accordance with the provisions of the Existing
Indenture; and
WHEREAS, the Third Supplemental Indenture evidences the Proposed
Amendments described in the Offering Circular.
Agreement
NOW, THEREFORE, in consideration of the foregoing, the mutual covenants
and agreements set forth herein and other good and valuable consideration (the
receipt and adequacy of which are hereby acknowledged), the Company and the
Trustee hereby agree as follows:
Section 1. Amendments to Existing Indenture and the
Securities. The amendments set forth in this Third Supplemental Indenture
shall become operative on the date that the Company notifies the
<PAGE> 436
Depository and the Trustee in connection with the Exchange Offer that the
Securities tendered are accepted for exchange pursuant to the Exchange Offer
(the "Acceptance Date"). If a majority in aggregate principal amount of the
Securities (the "Requisite Consent") are not accepted for exchange by the
Company for any reason and the Exchange Offer not effected, the amendments set
forth herein will not become operative. The Article and Section headings in this
Third Supplemental Indenture are for convenience only and shall not affect the
construction of the Existing Indenture or this Third Supplemental Indenture. The
Existing Indenture is hereby amended as follows:
1.1 Deletion of Sections. From and after the Acceptance Date, the
Existing Indenture is hereby automatically amended by deleting in their entirety
the following Sections of the Existing Indenture:
(a) Section 4.04. Stay, Extension and Usury Laws.
(b) Section 4.05. Corporate Existence.
(c) Section 4.06. Taxes.
(d) Section 4.07. Limitations on Restricted Payments.
(e) Section 4.08. Limitations on Incurrence of
Indebtedness and Issuance of Preferred Stock.
(f) Section 4.09. Limitation on Liens.
(g) Section 4.10. Limitation on Granting Liens and
Restrictions on Subsidiary Dividends.
(h) Section 4.13. Transactions with Affiliates.
(i) Section 4.14. Maintenance of Consolidated Net Worth.
(j) Section 4.15. Liquidation.
(k) Section 4.17. Payments for Consent.
(l) Section 4.18. Restrictions on Indirect Subsidiaries.
(m) Section 5.01. When Company May Merge, etc.
All other Articles and Sections of the Existing Indenture shall remain
in effect and shall retain their Article or Section numbers.
<PAGE> 437
1.2. The following defined terms are hereby added, in their
appropriate alphabetical order, to Section 1.01 of the Existing Indenture:
(a) "New Indenture" means that indenture dated as of the date
thereof by and between the Company and the New Trustee with respect to the New
Notes.
(b) "New Notes" means the Company's Series C and Series D 11
3/4% Senior Secured Step-Up Notes due July 1, 2000.
(c) "New Trustee" means State Street Bank and Trust
Company as Trustee under the New Indenture.
1.3 Addition of a New Section 10.06.
From and after the Acceptance Date, the Existing Indenture is
hereby amended as follows:
(a) Sections 10.06 through 10.12 inclusive are renumbered
to become Sections 10.07 through 10.13 inclusive.
(b) A new Section 10.06 is added to read in its entirety
as follows:
Section 10.06. Sharing of Collateral
(a) Notwithstanding any other provision of this Indenture
or the Collateral Agreements, the Company is
expressly authorized to grant security interests in
the Collateral to the New Trustee or a collateral
agent acting on behalf of the New Trustee, for the
benefit of the holders of the New Notes.
(b) Notwithstanding any other provision of this Indenture
or the Collateral Agreements, the Trustee and the
Collateral Agent hereby agree to enter into an
intercreditor agreement (the "Intercreditor
Agreement") with the New Trustee and the New
Collateral Agent, pursuant to which the benefit of
Collateral will be shared by the Trustee, the
Collateral Agent, the Holders, the New Trustee, the
New Collateral Agent, and the holders of the New
Notes, such sharing to be ratable among the Holders
and the holders of the New Notes, based upon the
aggregate principal amount outstanding of Securities
and New Notes.
<PAGE> 438
1.4 Deletion of Cross-References and Modification of Certain
Provisions. From and after the Acceptance Date, the Existing Indenture is
hereby automatically amended as follows:
(a) From and after the Acceptance Date, Sections 4.03 and
8.01 are hereby automatically amended to delete the
references made to existing Section 4.04.
(b) From and after the Acceptance Date, Section 5.02 is
hereby automatically amended by deleting in its entirety
the phrase "in accordance with Section 5.01."
(c) From and after the Acceptance Date, Section 6.01 is
hereby automatically amended (i) by deleting in their
entirety existing subsections (3), (4), (5) and (6) and
by renumbering existing subsections (7) and (8) as
subsections (3) and (4) and (ii) by deleting in its
entirety the paragraph beginning with the phrase "A
Default under clauses (3)" and ending with "state that
the notice is a "Notice of Default." Section 7.07 is
hereby automatically amended by replacing references to
existing subsections "6.01(7)" and "6.01(8)" with the
renumbered subsections "6.01(3) and "6.01(4)."
(d) From and after the Acceptance Date, Section 6.03 is
hereby automatically amended by deleting in its entirety
the remainder of the first paragraph following the first
appearance of the term "Securities."
(e) From and after the Acceptance Date, Section 9.01 is
hereby automatically amended by deleting in its entirety
existing subsection (2) and renumbering existing
subsections (3), (4) and (5) as subsections (2), (3) and
(4), respectively.
(f) From and after the Acceptance Date, the definition of
"Transfer Restricted Security" contained in Section 1.01
is hereby automatically amended by inserting the letter
"(g)" after "Section 2.06."
1.5 Deletion of Definitions. From and after the Acceptance Date, the
Existing Indenture is hereby automatically amended by deleting in their entirety
the definitions of each of the following defined terms from Section 1.01 of the
Existing Indenture:
(a) "Acquired Debt"
<PAGE> 439
(b) "Permitted Liens"
1.6 Deletion of Other Definitions. From and after the Acceptance Date,
the Existing Indenture is hereby automatically amended by deleting in their
entirety the references to definitions of each of the following defined terms
from Section 1.02 of the Existing Indenture.
(a) "Affiliate Transaction"
(b) "Incur"
(c) "Minimum Equity"
(d) "Offer"
(e) "Offer Amount"
(f) "Offer Period"
(g) "Purchase Money Indebtedness"
(h) "Refinance"
(i) "Refinancing Indebtedness"
(j) "Restricted Payments"
1.7 Stop Transfer and Legend. From and after the Acceptance Date, the
Securities may not be transferred prior to the Resale Restriction Termination
Date (as defined below) unless (a) sold to the Company, (b) transferred pursuant
to a registration statement declared effective under the Securities Act of 1933,
as amended (the "Securities Act") or (c) transferred pursuant to another
available exemption from the registration requirements of the Securities Act.
The Company shall have the right to require the delivery of an opinion of
counsel, certification and other information satisfactory to it prior to any
transfer under clause (c) above. Further, the Company shall place a stop
transfer order with the Transfer Agent prohibiting any transfer of the
Securities unless the conditions of clauses (a), (b) or (c) of this subsection
have been met.
From and after the Acceptance Date, the Existing Indenture is hereby
automatically amended by deleting in its entirety existing Section 2.06(g) and
inserting the following in its place:
"(g) Legends. Notwithstanding any
other provision of this Indenture, all
Securities (and all Securities issued in
exchange therefor or substitution thereof
<PAGE> 440
after the Third Supplemental Indenture takes effect) are
Transfer Restricted Securities for the purposes of the
Indenture and shall bear a legend in substantially the
following form:
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS
ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND STATE SECURITIES LAWS. NEITHER THIS SECURITY NOR
ANY INTEREST OR PARTICIPATION HEREIN MAY BE OFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT), OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE
DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO
YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND
THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATED PERSON OF
THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR
OF SUCH SECURITY) ONLY (A) TO THE COMPANY, (B) PURSUANT TO A
REGISTRATION STATEMENT WHICH HAS BEEN DECLARED EFFECTIVE UNDER
THE SECURITIES ACT, OR (C) PURSUANT TO ANY AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE COMPANY'S RIGHT PRIOR TO ANY SUCH OFFER, SALE
OR TRANSFER PURSUANT TO CLAUSE (C), TO REQUIRE THE DELIVERY OF
AN OPINION OF COUNSEL, CERTIFICATIONS AND OTHER INFORMATION
SATISFACTORY TO IT, AND SUBJECT TO THE REQUIREMENT THAT IN
EACH OF THE FOREGOING CASES, A CERTIFICATE OF TRANSFER IN THE
FORM APPEARING ON THIS
<PAGE> 441
SECURITY IS COMPLETED AND DELIVERED BY THE
TRANSFEROR TO THE TRUSTEE. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF THE
HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
1.8 Deletion of Certain Provisions of the Securities.
From and after the Acceptance Date, the Securities are hereby automatically
amended by deleting the following text from Section 12 of the Securities
regarding Defaults and Remedies:
"failure by the Company for 30 days after notice to it to
comply with any of its other agreements in the Indenture, the
Securities, the Registration Rights Agreement or the Collateral
Agreements or, in the case of failure of the Company to maintain its
corporate existence or its consolidated net worth, or to comply with
the restrictions on restricted payments, incurrence of investedness,
asset sales, changes of control or on consolidation, merger or transfer
or sale of substantially all its assets, without such notice or passage
of time; certain defaults under and acceleration prior to maturity of
other indebtedness; certain final judgments which remain undischarged;"
1.9 Additional Amendments. If and to the extent that any provision of
the covenants set forth in the sections and subsections of the Existing
Indenture deleted by Section 1.1 of this Third Supplemental Indenture would
impair the Company's ability to effect the Exchange Offer and the Exit Consent
Solicitation, compliance with such provision is hereby waived by the Trustee.
Section 2. Counterparts. This Third Supplemental Indenture may
be executed in two or more counterpart copies of the entire document or of
signature pages to the document, each of which may be executed by one or more of
the parties hereto, but all of which, when taken together, shall not be
necessary in making proof of this Third Supplemental Indenture to produce or
account for more than one such complete counterpart copy.
Section 3. Governance, Etc. This Third Supplemental Indenture
shall be governed and construed in accordance with the applicable terms and
provisions of the Existing Indenture as amended hereby, including (without
limitation) Sections 11.01, 11.02, 11.08, 11.09, 11.10, 11.11, 11.12, 11.13,
11.14 and 11.15 thereof, which terms and provisions are incorporated herein by
reference, as if this Third Supplemental Indenture were the "Indenture" referred
to therein.
Section 4. Applicability to all Holders. This Amendment and
all terms and provisions contained herein shall be effective and binding
<PAGE> 442
upon and inure to the benefit of the Trustee, the Holders and the Company and
their respective successors and permitted assigns whether so expressed or not.
This Third Supplemental Indenture shall form a part of the Existing Indenture
for all purposes, and every Holder of Securities heretofore or hereafter
authenticated and delivered under the Indenture shall be bound hereby.
Section 5. No Trustee Liability, Etc. This Third Supplemental
Indenture is executed and accepted by the Trustee subject to all of the terms
and conditions of its acceptance of the trust under the Indenture, as fully as
if those terms and conditions were set forth herein. The Trustee assumes no
duties, responsibilities or liabilities by reason of this Third Supplemental
Indenture other than as set forth in the Indenture. The Trustee assumes no
responsibility for the correctness of the statements contained herein, which
shall be taken as statements of the Company.
Section 6. Indenture to Continue as Amended. The Existing
Indenture as modified and amended by this Third Supplemental Indenture, shall
remain and continue in full force and effect after the date hereof. Any and all
references, whether within the Existing Indenture or in any notice, certificate
or other instrument or document, shall be deemed to include a reference to this
Third Supplemental Indenture (whether or not made), unless the context shall
otherwise require.
Section 7. Entire Agreement. This Third Supplemental
Indenture, together with the Existing Indenture as amended hereby and the
Securities, contains the entire agreement of the parties, and supersedes all
other representations, warranties, agreements and understandings between the
parties, oral or otherwise, with respect to the matters contained herein and
therein.
Section 8. Instruments To Be Read Together. The Third
Supplemental Indenture is an indenture supplemental to the Existing Indenture,
and the Existing Indenture and this Third Supplemental Indenture shall
henceforth be read together.
<PAGE> 443
In Witness Whereof, the parties hereto have caused this Third
Supplemental Indenture to be duly executed and delivered as of the date first
written above by their respective officers thereunto duly authorized.
Wright Medical Technology, Inc.
By:________________________________
Name:______________________________
Title:_______________________________
ATTEST:
- ---------------------------
Secretary
State Street Bank and Trust Company,
as Successor Trustee
By:________________________________
Name:______________________________
Title:_______________________________
ATTEST:
- ----------------------------
<PAGE> 444
Exhibit 11.1
Earnings Per Share
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(in thousands, except loss per share)
(unaudited)
<CAPTION>
Three Months Ended Six Months Ended
----------------------------------- -----------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net loss $ (3,893) $ (1,509) $ (7,103) $ (2,998)
Dividends on preferred stock (3,749) (3,564) (7,484) (7,141)
Accretion of preferred stock discount (1,615) (1,615) (3,229) (3,229)
---------------- ---------------- ---------------- ----------------
Net loss applicable to common
and common equivalent shares $ (9,257) $ (6,688) $ (17,816) $ (13,368)
================ ================ ================ ================
Weighted average shares of
common stock outstanding (a) 9,198 9,016 9,167 8,987
================ ================ ================ =================
Loss per share of common stock $ (1.01) $ (0.74) $ (1.94) $ (1.49)
================ ================ ================ =================
<FN>
(a) Because of the net loss applicable to common stock for the three and six
months ended June 30, 1997 and June 30, 1996, the assumed exercise of
common stock equivalents has not been included in the computation of
weighted average shares outstanding because their effect would be
anti-dilutive.
</FN>
</TABLE>
<PAGE> 445
Exhibit 12.1
Ratio of Earnings to Fixed Charges
<TABLE>
WRIGHT MEDICAL TECHNOLOGY, INC. AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS
(in thousands, except ratios)
(unaudited)
<CAPTION>
Six Months Ended Year Ended Year Ended Year Ended
------------------------------
June 30, 1997 June 30, 1996 Dec. 31, 1996 Dec. 31, 1995 Dec. 31, 1994
------------- -------------- ------------- ------------- -------------
Earnings:
<S> <C> <C> <C> <C> <C>
Loss before income taxes $ (7,103) $ (2,973) $ (14,589) $ (4,873) $ (57,261)
Add back: Interest expense 5,622 5,249 10,718 10,899 9,311
Amortization of debt issuance cost 693 702 1,361 1,036 829
Portion of rent expense
representative of interest factor 246 238 459 451 349
------------- ------------- ------------- -------------- -------------
Earnings (loss) as adjusted $ (542) $ 3,216 $ (2,051) $ 7,513 $ (46,772)
============= ============== ============= ============== =============
Fixed charges:
Interest expense $ 5,622 $ 5,249 $ 10,718 $ 10,899 $ 9,311
Amortization of debt issuance cost 693 702 1,361 1,036 829
Portion of rent expense representative
of interest factor 246 238 459 451 349
------------- -------------- ------------- -------------- -------------
$ 6,561 $ 6,189 $ 12,538 $ 12,386 $ 10,489
============= ============== ============= ============== =============
Preferred dividends $ 7,484 $ 11,518 $ 14,251 $ 16,863 $ 3,997
Accretion of preferred stock 3,229 5,208 6,458 4,573 394
------------- -------------- ------------- -------------- -------------
$ 10,713 $ 16,726 $ 20,709 $ 21,436 $ 4,391
============= ============== ============= ============== =============
Ratio of earnings to fixed charges (a) (a) (a) (a) (a)
============= ============== ============= ============== =============
Ratio of earnings to fixed charges, preferred
dividends and accretion of preferred stock (b) (b) (b) (b) (b)
============= ============== ============= ============== =============
<FN>
(a) Earnings were inadequate to cover fixed charges by $7.1 million, $3.0
million, $14.6 million, $4.9 million and $57.3 million, respectively, for
the six months ended June 30, 1997 and June 30, 1996, for the years ended
December 31, 1996, December 31, 1995, and December 31, 1994.
(b) Earnings were inadequate to cover fixed charges, preferred dividends and
accretion of preferred stock by $17.8 million, $19.7 million, $35.3
million, $26.3 million and $61.7 million, respectively, for the six months
ended June 30, 1997 and June 30, 1996, for the years ended December 31,
1996, December 31, 1995 and December 31, 1994. Certain of the preferred
dividends are, at the option of the Company, payable in kind.
</FN>
</TABLE>
<PAGE> 446
EX-27.1
FDS
ARTICLE 5
LEGEND
This schedule contains summary financial information extracted from the
Consolidated Financial Statements and is qualified in its entirety by reference
to such financial statements.
/LEGEND
MULTIPLIER 1000
CURRENCY U.S. dollars
TABLE
S C
PERIOD-TYPE 6-MOS
FISCAL-YEAR-END DEC-31-1997
PERIOD-START APR-01-1997
PERIOD-END JUN-01-1997
EXCHANGE-RATE 1
CASH 1,234
SECURITIES 0
RECEIVABLES 23,557
ALLOWANCES 656
INVENTORY 57,347
CURRENT-ASSETS 86,343
PP&E 61,184
DEPRECIATION 31,004
TOTAL-ASSETS 163,686
CURRENT-LIABILITIES 37,291
BONDS 84,510
PREFERRED-MANDATORY 93,532
PREFERRED 9
COMMON 10
OTHER-SE 0
TOTAL-LIABILITY-AND-EQUITY 163,686
SALES 64,383
TOTAL-REVENUES 64,383
CGS 23,524
TOTAL-COSTS 23,524
OTHER-EXPENSES 41,610
LOSS-PROVISION 0
INTEREST-EXPENSE 6,227
INCOME-PRETAX (7,103)
INCOME-TAX 0
INCOME-CONTINUING (7,103)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET-INCOME (7,103)
EPS-PRIMARY (1.94)
EPS-DILUTED (1.94)
/TABLE
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Form S-4 registration statement of our report
dated March 14, 1997, included (or incorporated by reference) in Wright Medical
Technology, Inc.'s Form 10-K for the year ended December 31, 1996, and to all
references to our firm included in this registration statement.
/s/Arthur Andersen LLP
Arthur Andersen LLP
Memphis, Tennessee
August 29, 1997
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617)654-3253
(Name, address and telephone number of agent for service)
---------------------
WRIGHT MEDICAL TECHNOLOGY, INC.
(Exact name of obligor as specified in its charter)
DELAWARE 62-1532765
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5677 AIRLINE ROAD, ARLINGTON, TENNESSEE 38002
(Address of principal executive offices) (Zip Code)
11 3/4% Series D Secured Step-Up Notes Due 2000
(Title of indenture securities)
<PAGE> 449
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission
as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility
and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No.22-17940) and
is incorporated herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee to
commence business was necessary or issued is on file with the
Securities and Exchange Commission as Exhibit 2 to Amendment
No. 1 to the Statement of Eligibility and Qualification of
Trustee (Form T-1) filed with the Registration Statement of Morse
Shoe, Inc.(File No. 22-17940) and is incorporated herein by
reference thereto.
3. A copy of the authorization of the trustee to exercise corporate
trust powers, if such authorization is not contained in the
documents specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise corporate
trust powers is on file with the Securities and Exchange
Commission as Exhibit 3 to Amendment No.1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc.(File No. 22-17940)
and is incorporated herein by reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein by
reference thereto.
<PAGE> 450
5. A copy of each indenture referred to in Item 4. if the obligor is in
default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act
is annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or
examining authority is annexed hereto as Exhibit 7 and made a
part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the August 27, 1997.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Andrew M. Sinasky
NAME Andrew M. Sinasky
TITLE Assistant Vice President
<PAGE> 451
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by Wright Medical
Technology, Inc. of its 11 3/4% Series D Secured Step-Up Notes Due 2000, we
hereby consent that reports of examination by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Andrew M. Sinasky
NAME Andrew M. Sinasky
TITLE Assistant Vice President
Dated: August 27, 1997
<PAGE> 452
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business March 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin .............. 1,665,142
Interest-bearing balances ....................................... 8,193,292
Securities ........................................................ 10,238,113
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ............................. 5,853,144
Loans and lease financing receivables:
Loans and leases, net of unearned income............ ............ 4,936,454
Allowance for loan and lease losses ............................. 70,307
Allocated transfer risk reserve.................................. 0
Loans and leases, net of unearned income and allowances ......... 4,866,147
Assets held in trading accounts ................................... 957,478
Premises and fixed assets ......................................... 380,117
Other real estate owned ........................................... 884
Investments in unconsolidated subsidiaries ........................ 25,835
Customers' liability to this bank on acceptances outstanding ...... 45,548
Intangible assets ................................................. 158,080
Other assets....................................................... 1,066,957
-----------
Total assets ...................................................... 33,450,737
===========
LIABILITIES
Deposits:
In domestic offices ............................................. 8,270,845
Noninterest bearing............................................ 6,318,360
Interest-bearing .............................................. 1,952,485
In foreign offices and Edge subsidiary .......................... 12,760,086
Noninterest-bearing ........................................... 53,052
Interest-bearing .............................................. 12,707,034
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ............................. 8,216,641
Demand notes issued to the U.S. Treasury and Trading Liabilities .. 926,821
Other borrowed money .............................................. 671,164
Subordinated notes and debentures ................................. 0
Bank's liability on acceptances executed and outstanding .......... 46,137
Other liabilities ................................................. 745,529
Total liabilities ................................................. 31,637,223
-----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus....................... 0
Common stock ....................................................... 29,931
Surplus ............................................................ 360,717
Undivided profits and capital reserves/Net unrealized holding
gains (losses) .................................................... 1,426,881
Cumulative foreign currency translation adjustments ............... (4,015)
Total equity capital ............................................... 1,813,514
-----------
Total liabilities and equity capital ............................... 33,450,737
===========
</TABLE>
<PAGE> 453
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON _________, 1997 (THE "INITIAL EXPIRATION DATE")
UNLESS OTHERWISE EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION
(SUCH DATE, AS EXTENDED, the "EXPIRATION DATE")
- --------------------------------------------------------------------------------
LETTER OF TRANSMITTAL
FOR TENDER OF ALL OUTSTANDING
11 3/4% Series C Senior Secured Step-up Notes Due 2000
In Exchange For
11 3/4% Series D Senior Secured Step-up Notes Due 2000
OF
WRIGHT MEDICAL TECHNOLOGY, INC.
Pursuant to the Exchange Offer
----------------------------------------------------
The Exchange Agent for the Exchange Offer is:
To: State Street Bank and Trust Company
Exchange Agent
By Mail, Overnight Delivery or By Hand
Two International Place
Boston, MA 02110
Attention: Jacqueline Rivera
Corporate Trust Department
Telephone: (617) 664-5419
By Facsimile: (617) 664-5371
----------------------------------------------------
Delivery of this instrument to an address, or transmission via
facsimile, other than as set forth above, does not constitute a valid delivery.
The instructions contained herein should be read carefully before this Letter of
Transmittal is completed.
The undersigned acknowledges receipt and review of the Prospectus dated
_____, 1997, (the "Prospectus") containing the terms of the Exchange Offer of
Wright Medical Technology, Inc., a Delaware corporation (the "Company"), and
this Letter of Transmittal and instructions hereto (the "Letter"), in connection
with the Company's offer (the "Exchange Offer") to exchange $1,000 principal
amount of its 11 3/4% Series D Senior Secured Step-up Notes Due 2000 (the
"Registered Notes") for each $1,000 principal amount of its outstanding 11 3/4%
Series C Senior Secured Step-up Notes Due 2000 (the "Old Notes"). The terms of
the Registered Notes are identical in all material respects (including principal
amount, interest rate and maturity) to the terms of the Old Notes for which they
may be exchanged pursuant to the Exchange Offer, except that (i) the Registered
Notes will have been registered under the Securities Act of 1933, as amended
(the "Securities Act"), and, therefore, will not bear legends restricting the
transfer thereof and (ii) holders of the Registered Notes will not be entitled
to certain rights of holders of the Old Notes under a registration rights
agreement which will terminate upon consummation of the Exchange Offer.
Following the consummation of the Exchange Offer, holders of Old Notes and
Registered Notes will not have any further registration rights, and the Old
Notes will continue to be subject to certain restrictions on transfer.
Capitalized terms used but not defined herein have the meaning given
them in the Exchange Offer as set forth in the Prospectus.
<PAGE> 455
The undersigned has completed, executed and delivered this Letter to
indicate the action he or she desires to take with respect to the Exchange
Offer.
PLEASE READ THIS ENTIRE LETTER CAREFULLY BEFORE CHECKING ANY BOX BELOW.
THIS LETTER OF TRANSMITTAL IS TO BE COMPLETED BY ALL TENDERING
HOLDERS OF OLD NOTES REGARDLESS OF WHETHER SUCH NOTES
ARE BEING PHYSICALLY DELIVERED HEREWITH.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED
"DESCRIPTION OF OLD NOTES TENDERED" BELOW AND
SIGNING THIS LETTER WILL BE DEEMED TO HAVE
TENDERED THE OLD NOTES AS SET FORTH
IN SUCH BOX BELOW.
This tender of Old Notes for Registered Notes, if effective, will be
binding upon the Holder of the Old Notes who gives such tender, subject only to
a valid revocation of the tender by the Holder by delivery to the Trustee of a
written notice of revocation prior to the Effective Date, completed, signed,
dated and delivered to the Trustee in the manner described in the Prospectus.
Tenders may not be revoked after the Effective Date.
List below the Old Notes to which this Letter relates. If the space
provided below is inadequate, list the certificate numbers and principal amounts
on a separately executed schedule and affix the schedule to this Letter. The
minimum permitted tender is $1,000 principal amount of Old Notes; all tenders
must be in integral multiples of $1,000.
DESCRIPTION OF OLD NOTES TENDERED
- --------------------------------------------------------------------------------
Aggregate
Name(s) and Address(es) Principal
of Registered Holder(s) Certificate Amount Principal Amount
(Please fill in, if or Cede & Co. Represented Tendered* (must be
blank, exactly as name(s) Account By an integral multiple
appear(s) on Old Note(s) Number(s) Certificate(s) of $1,000)
- --------------------------------------------------------------------------------
Total:
- --------------------------------------------------------------------------------
* Unless otherwise indicated in the last column, and subject to the terms and
conditions of the Prospectus, you will be deemed to have tendered the entire
aggregate principal amount represented by the Old Notes indicated in the column
labeled "Aggregate Principal Amount Represented by Certificate(s)." See
Instruction 2.
- --------------------------------------------------------------------------------
This Letter must be used whether certificates for Old Notes are to be
forwarded herewith or whether guaranteed delivery procedures are to be used,
according to the procedures set forth in the Prospectus under the caption "The
Exchange Offer -- Guaranteed Delivery Procedures." Your bank or broker can
assist you in completing this form. The instructions included with this Letter
must be followed. Questions and requests for assistance or for additional copies
of the Prospectus, this Letter and the Notice of Guaranteed Delivery may be
directed to the Exchange Agent or the Company. See Instruction 10.
Holders of Old Notes who wish to tender and whose Old Notes are not
immediately available or who cannot deliver their Old Notes and all other
documents required hereby (other than this Letter) to the Exchange Agent on or
before the Expiration Date must tender Old Notes according to the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer -- Procedures for Tendering Old Notes" and "The Exchange Offer --
Guaranteed Delivery Procedures." See Instruction 1 below.
<PAGE> 456
o CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY AND COMPLETE
THE FOLLOWING:
Name of Registered Holder(s): ____________________________________________
Name of Eligible Institution that Guaranteed Delivery: __________________
o CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE
ADDITIONAL COPIES OF THE PROSPECTUS AND COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name: ___________________________________________________________________
Address: ________________________________________________________________
Number of Copies Requested: ____________________
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
<PAGE> 457
Ladies and Gentlemen:
Upon the terms of and subject to the conditions to the Exchange Offer,
the undersigned hereby tenders to the Company the principal amount of Old Notes
indicated above. Subject to, and effective upon, acceptance for exchange of the
Old Notes tendered herewith for Registered Notes, by executing this Letter the
undersigned hereby irrevocably sells, assigns and transfers to or upon the order
of the Company or its assignee all right, title and interest in and to all such
Old Notes tendered hereby, waives any and all rights with respect to the Old
Notes tendered hereby (including, without limitation, the undersigned's waiver
of any existing or past defaults and their consequences with respect to the Old
Notes) and releases and discharges any obligor or parent of any obligor of the
Old Notes from any and all claims the undersigned may have now, or may have in
the future, arising out of or related to the Old Notes, including, without
limitation, any claims that the undersigned is entitled to receive additional
principal or interest payments with respect to the Old Notes. The undersigned
hereby irrevocably constitutes and appoints the Exchange Agent the true and
lawful agent and attorney-in-fact of the undersigned with respect to such Old
Notes, with full power of substitution and resubstitution (such power of
attorney being deemed to be an irrevocable power coupled with an interest) to
(a) deliver certificates representing such Old Notes, or transfer ownership of
such Old Notes on the account books maintained by the Depository, together, in
each such case, with all accompanying evidences of transfer and authenticity, to
or upon the order of the Company, (b) present such Old Notes for transfer on the
relevant security register and (c) receive all benefits or otherwise exercise
all rights of beneficial ownership of such Old Notes, all in accordance with the
terms of the Exchange Offer.
The undersigned acknowledges that this Exchange Offer is being made in
reliance on an interpretation by the staff of the Securities and Exchange
Commission (the "SEC") that the Registered Notes issued pursuant to the Exchange
Offer in exchange for the Old Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other than broker-dealers, as set
forth below, and any such holder which is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act provided
that such Registered Notes are acquired in the ordinary course of such holders'
business and such holders have no arrangement or understanding with any person
to participate in the distribution of such Registered Notes.
The undersigned understands that the tender of Old Notes for Registered
Notes provided hereby shall remain in full force and effect until such tender is
revoked in accordance with the procedures set forth in the Exchange Offer and
this Letter. The undersigned understands that a revocation of such tender will
not be effective following 5:00 p.m., New York City time, on the Expiration
Date. See Instruction No.3: "Withdrawal of Tenders."
By tendering, the undersigned hereby warrants that as a Holder, he, she
or it has full power and authority to tender, sell, assign and transfer the Old
Notes tendered hereby and when the same are accepted for exchange by the Company
or its assignee, the Company or its assignee will acquire good, marketable and
unencumbered title thereto, free and clear of all security interests, liens,
restrictions, claims, charges, encumbrances, conditional sales agreements or
other
<PAGE> 458
obligations relating to the sale or transfer thereof, and will not be subject to
any adverse claim. The Holder further represents and warrants that he, she or it
owns the Old Notes being tendered hereby and is entitled to tender such Old
Notes.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent, the Depository or the Company, or its
assignee, to be necessary or desirable to complete the assignment, transfer and
purchase of the Old Notes tendered hereby pursuant to the Exchange Offer in
respect of such Old Notes. The undersigned has read and agrees to all of the
terms and conditions of the Exchange Offer. The tender of Old Notes by the
undersigned pursuant to this Letter will constitute a binding agreement between
the undersigned and the Company upon the terms and subject to the conditions of
the Exchange Offer.
Each Holder understands that the Registered Notes have been registered
under the Securities Act. The Holder further understands that any resale of the
Registered Notes absent compliance with the registration and Prospectus delivery
requirements of the Securities Act, depends in part upon, and the Registered
Notes are being issued in the Exchange Offer by the Company in reliance on, the
representations and warranties set forth below. Each Holder hereby represents,
warrants, and covenants to the Company, for himself, herself or itself, and for
any beneficial owner** As used herein, the term "beneficial owner" means the
person with investment power with respect to the Old Notes. of the Registered
Notes with respect to which such Holder is a registered holder, that:
(a) No Agreement to Participate in a Distribution. The Holder acknowledges
that neither the Holder of Old Notes nor any such other person is
participating in, intends to participate in or has an arrangement or
understanding with any person to participate in, the distribution of
such Registered Notes, and further, if the Holder is not a
broker-dealer or is a broker-dealer but will not receive Registered
Notes for its own account in exchange for Old Notes, neither the
Holder nor any such other person is engaged in or intends to
participate in a distribution of the Registered Notes; and
(b) Not an Affiliate. The Holder represents and warrants that neither the
Holder nor any such other person is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act; or
(c) Participant in a Distribution or Affiliate. In the alternative, if the
tendering Holder tenders Old Notes with the intention of
participating, or for the purpose of participating, in the
distribution of the Registered Notes or if the tendering Holder is an
"affiliate" of the Company, such person acknowledges that he, she or
it may not rely upon certain interpretations by the staff of the
Securities and Exchange Commission described in the Prospectus, and
that, in the absence of an exemption therefrom, he, she or it must
comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any secondary resale
transaction, and any such secondary resale
- -----------------
* As used herein, the term "beneficial owner" means the person with
investment power with respect to the Old Notes.
<PAGE> 459
transaction must be covered by an effective registration statement containing
the selling securityholder information required by Item 507 of Regulation S-K
under the Securities Act.
(d) Participating Broker-Dealers. If the tendering Holder is a broker-
dealer (whether or not it is also an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act) that will receive
Registered Notes for its own account in exchange for Old Notes, it (i)
represents that the Old Notes to be exchanged for the Registered Notes
were acquired by it as a result of market-making activities or other
trading activities, (ii) acknowledges that it will deliver a
prospectus meeting the requirements of the Securities Act in
connection with any resale of such Registered Notes, and (iii)
acknowledges that such a secondary resale transaction should be
covered by an effective registration statement containing the selling
security holder information required by Item 507 of Regulation S- K.
By acknowledging that it will deliver and by delivering a prospectus
meeting the requirements of the Securities Act in connection with any
resale of such Registered Notes, the undersigned is not deemed to
admit that it is an "underwriter" within the meaning of the Securities
Act.
(e) Ordinary Course of Business. The Holder acknowledges that the
Registered Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving
such Registered Notes, whether or not such person is such Holder.
(f) Reliance on Representations; Accuracy at Closing. The Holder
acknowledges that the Company and others will rely upon the truth and
accuracy of the foregoing acknowledgments, representations and
agreements and agrees that, if any of the acknowledgments,
representations or warranties deemed to have been made by it by its
tendering of the Old Notes pursuant to the Exchange Offer shall cease
to be accurate at any time prior to the consummation of the
transactions contemplated hereby, it shall promptly notify the
Company. If it is acquiring any Registered Notes as a fiduciary or
agent for one or more beneficial owners, it represents that it has
full power to make the foregoing acknowledgments, representations and
agreements on behalf of each such account.
(g) Authorization. The execution, delivery and performance of this Letter
of Transmittal has been duly authorized by all necessary corporate or
other action of each Holder. The acceptance of the terms of the
Exchange Offer constitute a valid and binding obligation of each
Holder, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency and similar laws affecting
creditors' rights generally and subject to general principles of
equity (regardless of whether enforcement is sought in a proceeding in
equity or at law).
The undersigned understands that, upon acceptance by the Company of the
Old Notes tendered under the Exchange Offer, the undersigned will be deemed to
have accepted the Registered Notes and will not receive any cash payment of
interest on such Old Notes accrued from and after the date of issuance of the
Registered Notes as set forth in the Prospectus.
<PAGE> 460
The undersigned understands that the Company may accept the
undersigned's tender at any time on or after the Expiration Date by delivering
oral or written notice of acceptance to the Exchange Agent. Tenders of Old Notes
may be withdrawn at any time prior to 5 p.m., New York City time, on the
Expiration Date.
The undersigned recognizes that, under certain circumstances and
subject to certain conditions to the Exchange Offer (which the Company may
waive) set forth in the Prospectus, the Company may not be required to accept
for exchange any of the Old Notes tendered or any Old Notes tendered after the
Expiration Date. The Old Notes not accepted for exchange will be returned to the
undersigned at the address set forth unless otherwise indicated under the
"Special Delivery Instructions" below.
All authority conferred or agreed by this Letter shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
under this Letter shall be binding upon his or her heirs, personal
representatives, successors and assigns. Tenders may be withdrawn only in
accordance with the procedures set forth in the Instructions contained in this
Letter and in the Prospectus.
The undersigned understands that the delivery and surrender of the Old
Notes is not effective, and the risk of loss of the Old Notes does not pass to
the Exchange Agent, until receipt by the Exchange Agent of this Letter, or a
facsimile hereof, duly completed and signed, together with all accompanying
evidences of authority in form satisfactory to the Company and any other
required documents. All questions as to validity, form and eligibility of any
surrender of Old Notes hereunder will be determined by the Company, in its sole
discretion, and such determination shall be final and binding on Holders.
Unless otherwise indicated under "Special Exchange Instructions" or
"Special Delivery Instructions" below, the Exchange Agent will deliver
Registered Notes (and, if applicable, a certificate for any principal amount of
Old Notes not exchanged) in the name of and to the undersigned at the address
set forth below his or her signature. The undersigned recognizes that the
Company has no obligation pursuant to the Special Exchange Instructions to
transfer any Old Notes from the name of the registered holder thereof if the
Company does not accept for exchange any of the principal amount of such Old
Notes.
<PAGE> 461
PLEASE SIGN HERE (TO BE COMPLETED BY ALL EXCHANGING HOLDERS OF OLD
NOTES REGARDLESS OF WHETHER OLD NOTES ARE BEING PHYSICALLY
DELIVERED HEREWITH)
IMPORTANT -- READ CAREFULLY
TENDERING HOLDER(S) SIGN HERE
- --------------------------------------------------------------------------------
This authorization of tender must be executed by the registered Holder(s), or
the DTC Participant(s), in exactly the same manner as the name(s) of such
Holder(s) appear(s) on the Notes or the position listing of Cede & Co. If Notes
to which this tender relates are held of record by two or more joint registered
Holders, all such Holders must sign this authorization form. If signature is by
a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation, or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing and must submit proper evidence
satisfactory to the Company of such person's authority so to act. Certain
signatures on this authorization form must be guaranteed by a firm that is a
member of the National Association of Securities Dealers, Inc., or a member of a
registered national securities exchange or by a commercial bank or trust company
having an office in the United States (See Instruction 1).
- --------------------------------------------------------------------------------
- -------------------------------------- -----------------------------------
- -------------------------------------- -----------------------------------
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:
Taxpayer Identification or Social Security Number
Certain Signature(s) Must Be
Guaranteed by an Eligible -----------------------------------
Institution: (See Instruction 1) (Authorized Signature)
-----------------------------------
(Name, Title):
(Please Print)
-----------------------------------
(Name of Firm)
Date:______________________________
<PAGE> 462
PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW. IF A PERSON HAS BEEN
INDICATED UNDER "SPECIAL EXCHANGE INSTRUCTIONS" BELOW, SUCH PERSON
MUST COMPLETE A SUBSTITUTE FORM W-9.
Must be signed by the registered holder(s) of Old Notes as their
name(s) appear(s) on certificate(s) for Old Notes or on a security position
listing, or by a person(s) authorized to become registered holder(s) by
endorsements and documents transmitted with this Letter. If signature is by
trustee, executor, administrator, guardian, attorney-in-fact, officer or other
person acting in a fiduciary or representative capacity, such person must set
forth his or her full title below. See Instruction 5 below.
Name(s):
___________________________________
(Please Print)
Capacity:__________________________
Address:
___________________________________
(Including Zip Code)
Certain Signature(s) Must Be
Guaranteed by an Eligible ___________________________________
Institution: (See Instruction 1) (Authorized Signature)
___________________________________
(Title)
___________________________________
(Name of Firm)
Date:______________________________
SPECIAL EXCHANGE INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instructions 1, 5 and 6) (See Instruction 6)
To be completed ONLY if certificates To be completed ONLY if certificates for
for Old Notes in a principal amount Old Notes in a principal amount not
not exchanged, or Registered Notes, exchanged, or Registered Notes, are to
are to be issued in the name of be sent to someone other than the person
someone other than the person or or persons whose signature(s) appears on
persons whose signature(s) appears the face of this Letter or to an address
on the face of this Letter or other than that shown in the box
issued to a record address different entitled "Description of Old Notes
from than that shown in the box Tendered" on the face of this Letter.
entitled "Description of Old Notes
Tendered" on the face of this Letter.
Name:_______________________________ Name:___________________________________
(Please Print) (Please Print)
____________________________________ ________________________________________
(Please Print) (Please Print)
Address:____________________________ Address:________________________________
____________________________________ ________________________________________
Zip Code Zip Code
____________________________________ ________________________________________
Employer Identification or Employer Identification or
Social Security No. Social Security No.
<PAGE> 463
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Exchange Offer
1. Guarantee of Signatures. Signatures on this Letter need not be
guaranteed if the Old Notes tendered hereby are tendered (a) by the registered
Holder(s) thereof, unless such Holder has completed the box entitled "Special
Delivery Instructions" above, or (b) for the account of a firm or other entity
identified in Rule 17Ad under the Exchange Act that is a member of a registered
national securities exchange, a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office in the
United States or any other Eligible Institution. In all other cases, all
signatures on this Letter must be guaranteed by an Eligible Institution. Persons
who are beneficial owners of Old Notes but are not registered Holders and who
seek to tender Old Notes should contact the registered Holder of such Old Notes
and instruct such registered Holder to tender on his behalf pursuant to the
Exchange Offer. See Instruction 6.
2. Requirements of Tender. This Letter is to be completed by Holders
either if certificates are to be forwarded herewith or if delivery of Old Notes
is to be made pursuant to the procedures for book-entry transfer set forth in
the Prospectus under the caption "The Exchange Offer -- Procedures for Tendering
Old Notes." For a registered Holder to properly tender Old Notes pursuant to the
Exchange Offer, a properly completed and duly executed Letter (or a facsimile
thereof), together with any signature guarantees and any other documents
required by these Instructions, must be received by the Exchange Agent at the
address set forth herein prior to 5:00 p.m., New York City time, on the
Expiration Date (to receive the Registered Notes), and either (i) certificates
representing such Old Notes must be received by the Depository at such address
or (ii) such Old Notes must be transferred pursuant to the procedures for
book-entry transfer described in the Exchange Offer under the caption, "The
Exchange Offer -- Procedures for Tendering Old Notes" and a book-entry
confirmation must be received by the Exchange Agent, in each case prior to 5:00
p.m., New York City time, on the Expiration Date (to receive the Registered
Notes). A Holder who desires to tender Old Notes and who cannot comply with
procedures set forth herein for tender on a timely basis or whose Old Notes are
not immediately available must comply with the guaranteed delivery procedures
described below.
In all cases, notwithstanding any other provision hereof, the exchange
of Registered Notes for Old Notes tendered and accepted for exchange pursuant to
the Exchange Offer will be made only after timely receipt by the Exchange Agent
of (i) certificates representing such Old Notes in proper form for transfer or a
book-entry confirmation with respect to such Old Notes and any other required
documentation, (ii) this Letter properly completed and duly executed, (iii) any
required signature guarantees and (iv) other documents required by this Letter.
Holders whose certificates representing Old Notes are not immediately
available or who cannot deliver their certificates and all other required
documents to the Exchange Agent or complete the procedures for book-entry
transfer prior to the Expiration Date, may tender their Old Notes by properly
completing and duly executing the Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedure set forth in the Prospectus under the caption "The
Exchange Offer -- Procedures for Tendering Old Notes." Pursuant to such
procedures, (a) the
<PAGE> 464
tender must be made by or through an Eligible Institution; (b) a Notice of
Guaranteed Delivery, substantially in the form provided by the Company herewith,
properly completed and duly executed, must be received by the Exchange Agent as
provided below prior to 5:00 p.m., New York City time, on the Expiration Date,
and (c) the certificates representing all tendered Old Notes, or a book-entry
confirmation with respect to all tendered Old Notes, together with this Letter,
properly completed and duly executed, and any required signature guarantees, and
all other documents required by the Letter, are received by the Exchange Agent
within three New York Stock Exchange trading days after the date of execution of
the Notice of Guaranteed Delivery.
The method of delivery of certificates representing Old Notes, this
Letter, any required signature guarantees and any other required documents,
including delivery through the Depository, is at the option and risk of the
tendering Holder and delivery will be deemed made only when actually received by
the Exchange Agent. If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended and the mailing should be
sufficiently in advance of the Expiration Date to ensure timely delivery.
All tendering registered Holders, by execution of this Letter, waive
any right to receive any notice of the acceptance of their Old Notes for
purchase.
Any financial institution in the Depository may make a book-entry
delivery of Old Notes by causing the Depository to transfer Old Notes to the
Exchange Agent's account. However, although delivery of Old Notes may be
effected through book-entry transfer at the Depository, a properly completed and
executed Letter of Transmittal, and any other documents required by this Letter
of Transmittal, must, in any case, be transmitted to, and received by, the
Exchange Agent, at its address set forth on the front cover, prior to the
Expiration date. Old Notes will not be deemed surrendered until the Letter of
Transmittal is received by the Exchange Agent. DELIVERY OF A LETTER OF
TRANSMITTAL TO THE DEPOSITORY WILL NOT CONSTITUTE VALID DELIVERY TO THE EXCHANGE
AGENT.
3. Withdrawal of Tenders. Old Notes tendered in the Exchange Offer may
be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date by the registered Holder thereof as of the Record Date. Old
Notes may not be withdrawn at any time after the Expiration Date. In addition,
tenders of Old Notes may be validly withdrawn if the Exchange Offer is
terminated without any Old Notes being purchased thereunder. In the event of a
termination of the Exchange Offer, the Old Notes tendered pursuant to the
Exchange Offer will be promptly returned to the tendering Holder.
Any registered Holder of Old Notes who has tendered Old Notes pursuant
to the Exchange Offer or who succeeds to the record ownership of Old Notes in
respect of which such tenders have previously been given may (i) withdraw such
Old Notes prior to 5:00 p.m., New York City time, on the Expiration Date. To be
effective, a registered Holder of Old Notes held in physical form must provide a
written or facsimile transmission notice of withdrawal of a tender which notice
must contain (i) the name of the registered Holder of the Old Notes to be
withdrawn, (ii) a description of the Old Notes to be withdrawn, (iii) the
certificate numbers shown on the particular certificates representing such Old
Notes, (iv) the aggregate principal
<PAGE> 465
amount represented by such Old Notes, (v) the signature of such registered
Holder of the Old Notes executed in the same manner as the original signature on
the Letter (including any signature guarantee (if such original signature was
guaranteed)); and (vi) if such Old Notes were tendered by book-entry transfer,
the registered Holder's book-entry confirmation. For a withdrawal to be
effective, a registered Holder of Old Notes held with the Depository must (i)
call such registered Holder's broker and instruct such broker to withdraw such
tender of Old Notes by debiting the Exchange Agent's account at the Depository
of all Old Notes to be withdrawn; and (ii) instruct such broker to provide a
written telegraphic or facsimile transmission notice of withdrawal to the
Exchange Agent prior to 5:00 p.m., New York City time, on the Expiration Date.
Such notice of withdrawal shall contain (i) the name of the person who tendered
the Old Notes; (ii) a description of the Old Notes to be withdrawn; and (iii)
the aggregate principal amount represented by such Old Notes. A purported notice
of withdrawal which lacks any of the required information will not be an
effective withdrawal of a tender previously made. If the Old Notes to be
withdrawn have been delivered or otherwise identified to the Exchange Agent, a
signed notice of withdrawal is effective immediately upon receipt by the
Exchange Agent of written or facsimile transmission of the notice of withdrawal
even if physical release is not yet effected.
The Company or its assignee will have the right, which may be waived,
to reject a defective tender of Old Notes as invalid and ineffective. If the
Company, or its assignee, waives its right to reject a defective tender of Old
Notes, the registered Holder will be entitled to receive Registered Notes if
such Old Notes were delivered prior to 5:00 p.m., New York City time, on the
Expiration Date. Any Old Notes that have been tendered pursuant to the Exchange
Offer but that are not purchased thereby will be returned to the registered
Holder thereof without cost to such registered Holder as soon as practicable
following the Expiration Date.
If the Company is delayed in its acceptance for exchange of any Old
Notes (whether before or after the Company's acceptance for payment of such Old
Notes), or the Company extends the Exchange Offer or is unable to accept for
payment or pay for Old Notes pursuant to the Exchange Offer for any reason then,
without prejudice to the Company's rights hereunder, tendered Old Notes may be
retained by the Exchange Agent on behalf of the Company and may not be withdrawn
except to the extent that tendering Holders of such Old Notes are entitled to
withdrawal rights as set forth herein.
A valid withdrawal of a tender of Old Notes tendered pursuant to the
Exchange Offer may not be rescinded and any Old Notes properly withdrawn will
not be deemed to be validly tendered for purposes of the Exchange Offer.
However, Old Notes withdrawn from the Exchange Offer may be re-tendered by
repeating one of the procedures described in Instruction 2 above at any time
prior to 5:00 p.m., New York City time, on the Expiration Date. Any registered
Holder who properly withdraws Old Notes tendered pursuant to the Exchange Offer
and does not properly re-tender such Notes pursuant to the Exchange Offer prior
to 5:00 p.m., New York City time, on the Expiration Date will not receive the
Registered Notes.
All questions as to the validity (including time of receipt) of notices
of withdrawal will be determined by the Company, in its sole discretion, whose
determination will be final and binding. None of the Company, the Exchange
Agent, the Trustee, or any other person is under
<PAGE> 466
any duty to give notification of any defects or irregularities in any notice of
withdrawal or incur any liability for failure to give any such notification.
4. Partial Tenders. If less than the entire principal amount of any Old
Notes evidenced by a submitted certificate is tendered, the tendering Holder
must fill in the principal amount tendered in the fourth column of the box
entitled "Description of Old Notes Tendered" above. The entire principal amount
of all Old Notes delivered to the Exchange Agent will be deemed to have been
tendered unless otherwise indicated. If the entire principal amount of all Old
Notes is not tendered, certificates for the principal amount of Old Notes not
tendered and for the Registered Notes will be sent to the Holder, unless
otherwise provided in the appropriate box on this Letter, promptly after the Old
Notes are accepted for exchange.
5. Signatures on This Letter; Bond Powers and Endorsements. If this
Letter is signed by the registered Holder(s) of the Old Notes tendered hereby,
the signature(s) must correspond exactly with the name(s) as written on the face
of the certificate(s) without alteration, enlargement or any change whatsoever.
If this Letter is signed by a DTC Participant, the signature must correspond
with the names indicated in the position listing of Cede & Co.
If any of the Old Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter. If any tendered Old
Notes are registered in different names on several certificates, it will be
necessary to complete, sign and submit as many separate Letters as there are
names in which certificates are held.
If this Letter or any certificates or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and proper evidence satisfactory to the
Company or its assignee of their authority so to act must be submitted, unless
waived by the Company or its assignee.
If this Letter is signed by the registered Holder(s) of the Old Notes
listed and tendered hereby, no endorsements of certificates or separate bond
powers are required unless certificates for Registered Notes offered in exchange
or for Old Notes not tendered or not accepted for purchase are to be issued to,
a person other than the registered Holder(s). Signatures on such certificates
must be guaranteed by an Eligible Institution (unless signed by an Eligible
Institution).
If this Letter is signed by a person other than the registered
Holder(s) of the Old Notes listed, the certificates representing such Old Notes
must be properly endorsed for transfer by the registered Holder or be
accompanied by a properly completed bond power from the registered Holder in
form satisfactory to the Company, if such Old Notes are being tendered into the
Exchange Offer, with signatures on the endorsement or bond power guaranteed by
an Eligible Institution.
6. Special Delivery Instructions. If certificates for the Registered
Notes are to be returned to a person other than the person(s) signing this
Letter or to an address other than that shown above, the appropriate boxes on
this Letter entitled "Special Delivery Instructions" should
<PAGE> 467
be completed. olders of Old Notes delivering Old Notes by book-entry transfer
may request that Old Notes not accepted for payment be credited to such account
maintained at the Depository as such registered Holder(s) may designate hereon.
If no such instructions are given, such Old Notes not accepted for payment will
be returned by crediting the account at the Book-Entry Transfer Facility. In the
case of issuance in a different name, the taxpayer identification or social
security number of the person named must also be indicated.
7. Waiver of Conditions to the Exchange Offer. The Company, in its sole
discretion, reserves the right to waive any and all conditions to the Exchange
Offer described in the Prospectus under "The Exchange Offer -- Conditions to the
Exchange Offer" in the case of any Old Notes tendered, in whole or in part from
time to time.
8. Mutilated, Lost, Stolen or Destroyed Notes. Any Holder of Old Notes
whose Old Notes have been mutilated, lost, stolen or destroyed should contact
the Trustee or the Exchange Agent at the addresses indicated above for further
instructions. CONFIDENTIAL DRAFT
9. Copies. Questions relating to the procedure for tendering and
requests for additional copies of the Prospectus, this Letter and Notice of
Guaranteed Delivery may be directed to the Exchange Agent, attention: Jacqueline
Rivera; or to the Dealer Manager, Jefferies & Company, Inc., attention: Leo
Chang, (212) 903-2722. Requests for assistance may also be delivered to the
tendering Holder's broker, dealer, commercial bank or trust company.
10. Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of tendered Old Notes
will be resolved by the Company, in its sole discretion, whose determination
will be final and binding. The Company reserves the absolute right to reject any
or all tenders that are not in proper form or the acceptance of which may, in
the opinion of counsel for the Company, be unlawful. Conditional, irregular or
contingent tenders will be considered defective. The Company also reserves the
absolute right to waive the conditions of the Exchange Offer as set forth in the
Exchange Offer under "The Exchange Offer -- Conditions to the Exchange Offer"
and any irregularities or conditions of tender as to particular Old Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter) will be, in its sole discretion,
final and binding. Unless waived, any irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine. The
Company and Exchange Agent shall not be under any duty to give notification of
defects in such tenders and shall not incur liabilities for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such irregularities have been cured or waived by the Company. Any Old Notes
received by the Exchange Agent that are not properly tendered and as to which
the irregularities have not been cured or waived by the Company will be returned
by the Exchange Agent to the tendering Holder, unless otherwise provided in the
Letter, as soon as practicable following the Expiration Date or termination of
the Exchange Offer.
11. Inadequate Space. If the space provided herein is inadequate, the
aggregate principal amount of the Old Notes being tendered and the security
numbers (if available) should be listed on a separate schedule.
<PAGE> 468
12. 31% Backup Withholding; Substitute Form W-9. Under U.S. federal
income tax law, a Holder whose tendered Old Notes are accepted for exchange is
required, unless an exemption applies, to provide the Exchange Agent with such
Holder's correct taxpayer identification number ("TIN") on Substitute Form W-9
of this Letter and certify, under penalties of perjury, that such number is
correct and he or she is not subject to backup withholding. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the Holder or other payee to a $50 penalty. In addition,
payments, if any, to such Holders or other payees with respect to the Old Notes
may be subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering Holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
Holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below Substitute Form W-9 in order to avoid backup
withholding. Notwithstanding that the box in Part 2 is checked and the
Certificate of Awaiting Taxpayer Identification Number is completed, the
Exchange Agent will withhold 31% of all payments made prior to the time a
properly certified TIN is provided to the Exchange Agent.
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Notes or of the last transferee appearing on the transfers attached to,
or endorsed on, the Old Notes. If the Old Notes are registered in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W- 9" for additional guidance on which number to report.
Certain Holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such Holders should nevertheless
complete the attached Substitute Form W-9 below and check the box in Part 3 of
Substitute Form W-9 for "exempt," to avoid possible erroneous backup
withholding. A foreign person may qualify as an exempt recipient by submitting a
properly completed IRS Form W-8, signed under penalties of perjury, attesting to
that Holder's exempt status. Please consult the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional guidance on which Holders are exempt from backup withholding.
Backup withholding is not an additional U.S. federal income tax. Rather,
the U.S. federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
<PAGE> 469
TO BE COMPLETED BY ALL EXCHANGING HOLDERS OF OLD NOTES
If a person has been indicated under "Special Exchange Instructions,"
such person must complete a substitute Form W-9 (See Instruction 13 and the
enclosed Guidelines for Certificates of Taxpayer Identification Number on
Substitute Form W-9.)
- --------------------------------------------------------------------------------
Part 1--PLEASE PROVIDE YOUR TIN TIN:_____________________
IN THE BOX AT RIGHT AND Social Security Number
CERTIFY BY SIGNING AND or
DATING BELOW Employer Identification
Number
Part 2--TIN Applied For o (SIGN THIS FORM AND THE
SUBSTITUTE CERTIFICATION OF AWAITING
TAXPAYER IDENTIFICATION
NUMBER BELOW)
Form W-9 Part 3--Exempt o (See enclosed Guidelines for additional
information and SIGN THIS FORM)
Department of
the Treasury
Internal Revenue
Service CERTIFICATION:
UNDER THE PENALTIES OF PERJURY,
I CERTIFY THAT:
Payor's Request
(1) the number shown on this form is my correct Taxpayer
for Taxpayer Identificatin Number (or I am waiting for a number to
Identification be issued to me),
Number ("TIN")
and Certification (2) I am not subject to backup withholding either because:
(a) I am exempt from backup withholding, or
(b) I have not been notified by the Internal Revenue
Service (the "IRS") that I am subject to backup
withholding as a result of a failure to report all
interest or dividends, or
(c) the IRS has notified me that I am no longer
subject to backup withholding, and
(3) any other information provided on this form is true
and correct.
SIGNATURE ____________________________ DATE _______________
- --------------------------------------------------------------------------------
You must cross out item (2) of the above certification if you have been notified
by the IRS that you are subject to backup withholding because of underreporting
of interest or dividends on your tax return and you have not been notified by
the IRS that you are no longer subject to backup withholding.
- --------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administrative Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, 31 percent
of all reportable payments made to me thereafter will be withheld until I
provide the number and that, if I do not provide my taxpayer identification
number within 60 days, such retained amounts shall be remitted to the Internal
Revenue Service as backup withholding and 31 percent and all reportable payments
made to me thereafter will be withheld and remitted to the Internal Revenue
Service until I provide a taxpayer identification number.
SIGNATURE _________________________________________ DATE _____________________
- ----------
IMPORTANT: This Letter or a facsimile hereof (together with Old Notes and
all other required documents) or a Notice of Guaranteed Delivery
must be received on or prior to the Expiration Date (as defined
in the Prospectus).
<PAGE> 470
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
A. TIN--The Taxpayer Identification Number for most individuals is your social
security number. Refer to the following chart to determine the appropriate
number:
- ----------------------------------- ----------------------------------------
For this type Give the SOCIAL For this type Give The EMPLOYER
of account SECURITY number of account: IDENTIFICAION
of (179) number of ____
- ----------------------------------- ----------------------------------------
1. Individual The individual 6. Sole The owner(3)
proprietorship
2. Two or more The actual owner 7. A valid trust, Legal entity (4)
individuals of the account or, estate, or
(joint if combined funds, pension trust
account) any one of the
individuals (1)
3. Custodian The minor (2) 8. Corporate The corporation
account of
a minor
(Uniform
Gift to
Minors Act)
4. a. The usual The grantor- 9. Association, The organization
revocable trustee (1) club, religious,
savings trust charitable,
(grantor is educational or
also trustee) other tax-exempt
organization
b. So-called The actual
trust account owner (1)
that is not a
legal or valid
trust under
state law
5. Sole
proprietorship The owner (3) 10. Partnership The partnership
11. A broker or The broker
registered or nominee
nominee
12. Account with The public entity
the Department
of Agriculture
in the name of
a public entity
(such as a
state or local
government,
school district
or prison) that
receives
agricultural
program payments
- ----------------------------------- ----------------------------------------
(1) List first and circle the name of the person whose number you furnish. If
only one person on a joint account has a social security number, that person's
number must be furnished.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Show the individual's name. You may also enter your business name or "doing
business as" name. You may use either your Social Security number or your
employer identification number (if you have one).
(4) List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the taxpayer identification number of the personal
representative or trustee unless the legal entity itself is not designated in
the account title.)
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE> 471
B. Exempt Payees --Payees specifically exempted from backup withholding on ALL
payments include the following:
A corporation.
A financial institution.
An organization exempt from tax under section 501(a), or an individual
retirement plan.
The United States or any agency or instrumentality thereof.
A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
An international organization or any agency or instrumentality thereof.
A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
A real estate investment trust.
A common trust fund operated by a bank under section 584(a).
An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
An entity registered at all times under the Investment Company Act of 1940.
A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
Payments to nonresident aliens subject to withholding under section 1441.
Payments to partnerships not engaged in a trade or business in the U.S. and
which have at least one nonresident partner.
Payments of patronage dividends where the amount received is not paid in
money.
Payments made by certain foreign organizations.
Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
Payments of interest on obligations issued by individuals. Note: You may be
subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
Payments described in section 6049(b)(5) to non-resident aliens.
Payments on tax-free covenant bonds under section 1451.
Payments made by certain foreign organizations.
Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding.
FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER,
WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO THE PAYER. IF THE
PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE
FORM.
Certain payments other than interest, dividend, and patronage
dividends, that are not subject to information reporting are also not subject to
backup withholding. For details, see the regulations under sections 6041,
6041(a), 6045 and 6050A.
C. Obtaining a Number -- If you do not have a taxpayer identification number
or you do not know your number, obtain Form SS- 5, application for a Social
Security Number, or Form SS-4, Application for Employer Identification
Number, at the local office of the Social Security Administration or the
Internal Revenue Service and apply for a number.
D. Privacy Act Notice -- Section 6109 requires most recipients of dividend,
interest or other payments to give taxpayer identification numbers to
payers who must report the payments to IRS. IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold
31% of taxable-interest, dividend, and certain other payments to a payee
who does not furnish a taxpayer identification number. Certain penalties
may also apply.
<PAGE> 472
E. Penalties.
(1) Penalty for failure to furnish taxpayer identification number. If you
fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure
is due to reasonable cause and not to willful neglect.
(2) Civil penalty for false information with respect to withholding. If you
make a false statement with no reasonable basis which results in no
imposition of backup withholding, you are subject to a penalty of $500.
(3) Criminal penalty for falsifying information. Falsifying certifications
or affirmations may subject you to criminal penalties including fines
and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
