-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MuEh1JkA5VrPtszUzALWxu0dnKaio8KD3RifEf3+pdlVRtqgn7EMDzT4dxbidFT5 L618sGVvIwuEjh5EzydoXw== 0000892569-98-001026.txt : 19980410 0000892569-98-001026.hdr.sgml : 19980410 ACCESSION NUMBER: 0000892569-98-001026 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19980131 FILED AS OF DATE: 19980409 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FURON CO CENTRAL INDEX KEY: 0000037755 STANDARD INDUSTRIAL CLASSIFICATION: GASKETS, PACKAGING AND SEALING DEVICES & RUBBER & PLASTIC HOSE [3050] IRS NUMBER: 951947155 STATE OF INCORPORATION: CA FISCAL YEAR END: 0201 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-08088 FILM NUMBER: 98590935 BUSINESS ADDRESS: STREET 1: 1199 SOUTH CHILLICOTHE RD CITY: AURORA STATE: OH ZIP: 44202 BUSINESS PHONE: 7148315350 FORMER COMPANY: FORMER CONFORMED NAME: FLUOROCARBON CO DATE OF NAME CHANGE: 19900322 10-K405 1 FORM 10-K - FOR THE FISCAL YEAR ENDED 1-31-98 1 ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JANUARY 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER: 0-8088 FURON COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) CALIFORNIA 95-1947155 (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 29982 IVY GLENN DRIVE, 92677 LAGUNA NIGUEL, CA ZIP CODE (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (714) 831-5350 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT ON THE NEW YORK STOCK EXCHANGE: COMMON STOCK, WITHOUT PAR VALUE COMMON STOCK PURCHASE RIGHTS SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: 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 [ ] 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 the 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 31, 1998, the aggregate market value of voting stock held by non-affiliates of the registrant was approximately $432.5 million and the number of outstanding shares of Common Stock of the registrant was 18,279,605. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's definitive proxy statement for the 1998 Annual Meeting of Shareholders (to be held on June 2, 1998) have been incorporated by reference into Part III of this report. ================================================================================ 2 PART I ITEM 1. BUSINESS OVERVIEW Furon Company ("Furon" or "the Company"), founded in 1955 and incorporated in California in 1957, is a leading designer, developer and manufacturer of highly engineered products made primarily from specially formulated high performance polymer materials. Furon's products are used in a wide range of applications primarily by original equipment manufacturers ("OEMs") in industrial markets and by end-users in healthcare markets. The Company focuses on niche markets and applications for which it can provide its customers application-specific product solutions based on the Company's polymer based materials technology, engineering expertise and production technology. In January 1997, as part of its strategy to leverage its materials and manufacturing technology expertise into other attractive market segments, the Company acquired Medex, Inc. ("Medex"), a producer of polymer based medical device products. Previously the Company operated and reported under a single segment. Subsequent to the acquisition of Medex, and the determination of management, the Company currently operates under an additional segment. The Company's products are segmented into two broad categories: industrial products and medical device products. INDUSTRIAL PRODUCTS The Company's industrial products (approximately 78% of net sales for the year ended January 31, 1998) consist of highly engineered polymer components used in a broad range of industrial applications. The Company's industrial products are sold primarily through the Company's sales force to OEM and industrial aftermarket equipment and maintenance providers in the industrial equipment, transportation, electronics and process industries markets. Some of Furon's largest customers for industrial products are The Boeing Company, Coca-Cola Company and Navistar International Corporation. A majority of Furon's industrial products are designed in collaboration with its OEM customers for specific applications to satisfy increasingly demanding performance standards and criteria, including strength, durability, conductivity, lubricity, temperature tolerance, chemical resistance and weight. As such, many of Furon's application-specific products are an integral part of the customers' equipment and systems, yet represent only a small portion of the customers' total product cost. Additionally, many of the Company's products are developed using proprietary polymer materials and production processes which serve as key competitive advantages for the Company. Over the past several years, the Company has placed increased emphasis on the development of new products. Furon's net sales of new industrial products introduced in the last five years as a percentage of net sales have increased from an estimated 15% in fiscal 1996 to 23.4% in fiscal 1998. The Company defines a "new product" as one that has been introduced into the market and either uses new material, is substantially different from an existing product based on performance levels or satisfies new markets or applications for current products that require different specifications or standards. The Company's industrial products include highly engineered seals and bearings; fluid handling components; tapes, films and coated fabrics; hose and tubing; wire and cable; and plastic formed components. For the year ended January 31, 1998, no single customer represented more than 4% of the Company's net sales of industrial products. MEDICAL DEVICE PRODUCTS The Company's medical device products (approximately 22% of net sales for the year ended January 31, 1998) consist of a broad range of polymer based critical care products and infusion systems for medical and surgical applications. These products are made from many of the same polymer materials as Furon's industrial products and require design and engineering expertise. The Company's medical device products are used in the diagnosis and treatment of patients in hospitals and alternate site healthcare facilities. More than 75% of the Company's net sales of medical device products are derived from single-patient use products. These products are sold to numerous end-users through a dedicated medical sales force of over 42 professionals 1 3 supplemented by the sales forces of authorized distributors such as Allegiance Corporation, General Medical Systems, Inc. and Owens & Minor. The Company's medical device products include syringe pumps, intravenous sets for fluid and drug delivery, transducer kits for pressure monitoring and various devices used in the catheterization laboratory. For the year ended January 31, 1998, no single customer represented more than 10% of the Company's net sales of medical device products. Medical devices include a broad range of products used in the diagnosis and treatment of patients receiving care in hospitals and alternate site healthcare facilities. There are several healthcare industry trends that have increased the overall demand for medical devices. These trends include the aging of the United States population, resulting in heightened healthcare and medical device product expenditures, an increased concern over the spread of infectious diseases, resulting in increased demand for single-patient use disposable medical products and a shift toward less invasive surgical procedures. COMPETITIVE STRENGTHS The Company believes it benefits from the following competitive strengths, which have enabled it to increase sales to both existing and new customers and to develop new products. DESIGN, DEVELOPMENT AND PRODUCTION EXPERTISE Furon's demonstrated expertise in three key areas -- materials technology, application engineering and production technology -- facilitates its development of high performance application-specific products for its customers. This expertise enables Furon to design, develop and manufacture polymer based industrial products which meet its customers' critical performance standards, including strength, durability, conductivity, lubricity, temperature tolerance, chemical resistance and weight. Furon's leadership and expertise is based on its highly experienced and skilled design and development staff of over 160 material scientists and engineers and its development of specialized equipment and processing for the design and production of polymer based materials and components. With respect to industrial markets, the Company develops polymer based materials and products to satisfy its customers' new application requirements and to provide its customers with superior alternatives to existing metallic and common polymer products. In the medical device products market, the Company applies its technical expertise to produce high quality products and to enhance its market position. STRONG RELATIONSHIPS WITH OEM CUSTOMERS The Company has established long-term relationships with many of its OEM customers as a result of providing reliable, high quality products and its collaborative efforts to design and develop application-specific products. By working closely with its OEM customers during the design and development stages of a product, Furon has been able to apply its materials technology and engineering expertise to manufacture application-specific products which meet its customers' performance specifications. A majority of the Company's industrial product sales are from products specially engineered in collaboration with its customers. This application-specific product relationship provides the Company with recurring product sales as many of Furon's products have been technically certified as the exclusive component or accessory by its OEM customers for their products. Additionally, the Company believes that its practice of working closely with its customers on the design and manufacture of their products has enabled Furon to achieve a competitive position from which it can identify and realize future application-specific product sales. DIVERSE MARKETS, CUSTOMER BASE AND PRODUCTS The Company provides a broad range of products to a multitude of customers across a wide range of industry sectors. The Company broadly categorizes the industry sectors it serves into five principal markets, including industrial equipment (24% of net sales for the year ended January 31, 1998), transportation (24%), healthcare (22%), electronics equipment (17%), and process industries (13%). Furon believes it is the only manufacturer of highly engineered polymer products serving such a broad market. For the year ended January 31, 1998, no single customer accounted for more than 2.5% of the Company's total net sales. International sales, predominantly European, accounted for approximately 25.5% of total net sales for the year 2 4 ended January 31, 1998. The diversity of markets, customers and products provide Furon with a strong base from which to increase sales to existing and new customers while minimizing its dependence on any particular market, customer or product. BUSINESS STRATEGY The Company's strategic objective is to further enhance its position as a leading designer, developer and manufacturer of highly engineered polymer products for the industrial and healthcare markets. The Company plans to achieve this objective through the continued implementation of the following core strategies: FOCUS ON HIGHLY ENGINEERED, APPLICATION-SPECIFIC INDUSTRIAL PRODUCTS The Company will continue to employ its design, development and production expertise to create value-added application-specific products for existing and new customers. EXPAND MEDICAL DEVICE BUSINESS The Company is focused on the medical device industry. The Company intends to pursue opportunities in the growing medical device market through acquisitions, joint ventures and strategic alliances and by leveraging its polymer applications expertise. Furon plans to build upon Medex's market presence and domestic and European sales and distribution channels. LEVERAGE CUSTOMER RELATIONSHIPS The Company will continue to focus on leveraging its polymer materials expertise and its strong relationships with key strategic customers to market and sell a broader portfolio of polymer based products. The Company's sales and marketing organization has expertise in a wide range of product areas and applications and, as a result, is skilled at identifying new product opportunities, maintaining key customer relationships and directing product and materials technical expertise. ENHANCE PRODUCTIVITY AND PURSUE COST SAVINGS Furon will continue to focus on improving the productivity of its manufacturing processes and enhancing the quality and performance features of its products, while controlling operating costs through ongoing cost containment programs. The Company strives to improve its productivity by reducing cycle times, increasing employee productivity and involvement and investing in new, more efficient manufacturing processes. Furon has an ongoing focus on improving the quality and performance features of its products through the efforts of its quality assurance and research and development personnel. INCREASE PENETRATION OF INTERNATIONAL MARKETS The Company intends to expand its international marketing and manufacturing presence (primarily in Europe) to better serve the expanding foreign operations of its existing multinational OEM customers. Furon also views international expansion as a means to obtain new customers in existing international markets and to enter new markets. The Company has increased its medical device sales channels internationally through its acquisition of Medex and, more recently, Scientific Device Manufacturers, Inc. ("SDM") and AS Medical GmbH ("AS"). The Company has increased its international net sales from approximately 21.5% of fiscal 1995 net sales to approximately 25.5% of net sales for the year ended January 31, 1998. SELECTIVELY PURSUE STRATEGIC ACQUISITIONS The Company intends to selectively pursue strategic acquisitions, joint ventures and alliances. Potential acquisitions will be evaluated based on their ability, among other things, to (i) complement existing businesses and further expand product lines, particularly in the healthcare market; (ii) enhance the Company's leadership position in materials and production technology and application engineering; (iii) enhance and broaden distribution channels; or (iv) increase the Company's international presence. 3 5 INDUSTRIAL BUSINESS Industry Overview Engineered polymers are used in a wide range of products across numerous industries, including: (i) industrial equipment, (ii) transportation, (iii) electronics, and (iv) process industries. Engineered polymers provide certain unique performance characteristics relative to competing materials (such as metals and common polymers) that are critical to end-users including strength, durability, conductivity, lubricity, temperature tolerance, chemical resistance and weight. Typical industrial applications include high performance seals used in commercial aircraft engines, non-metallic bearings used in industrial equipment and consumer appliances, fluid handling systems used in the semiconductor industry and films used in circuit boards. Engineered polymers are increasingly being used in new industrial applications to replace other polymer products and metal, as OEMs desire improved performance characteristics which lengthen product life, simplify product design and manufacture and lower product cost and weight. Additional industry growth is expected to be generated by an increased usage of engineered polymers in international markets. The Company believes that the international market for polymer products will grow as a result of two perceived trends: continued global expansion by U.S. based OEMs that use engineered polymer components in their products and increased demand for engineered polymer products by a greater number of international based OEMs. DESCRIPTION OF POLYMERS A polymer consists of chains of chemicals, called monomers, that combine or polymerize (normally with help from a catalyst) to form large molecular structures. Polymers are very versatile materials. They can be cast into molds to create intricate structures, extruded through a spinneret to make fibers, blended with liquids including water to make coatings, adhesives and thickeners and generally bonded to other materials or each other with adhesives. As a result, polymers have replaced and continue to replace natural products, such as metal, wood, paper, cotton and glass in a broad range of applications. Moreover, substitution is not driven primarily by cost, but by the increasing desirability of polymers based on their versatility and performance characteristics. Types of polymers utilized by the Company include: THERMOPLASTICS Thermoplastics are the most common synthetic polymers. They are relatively inexpensive, light and durable, but not particularly strong. Thermoplastics can be melted at relatively low temperatures and recrystallized, thus making them recyclable. They are used in structural applications where exposure to high stresses and heat are concerns. Common thermoplastics include polyethylene, polypropylene, polystyrene, polyvinyl chloride and most polyester. THERMOSETS Thermosets polymerize at relatively high temperatures, normally through mixing with an initiation compound. They cannot be remelted or recycled. During polymerization they are cross-linked, a process that increases their strength and durability relative to thermoplastics. They are generally stronger, more heat resistant and more difficult to process than thermoplastics. Common thermosets include epoxies, most polyurethanes, unsaturated polyester, melamine and phenolics. ENGINEERED POLYMERS Engineered polymers can be thermoplastics or thermosets, but are separately classified because they are uniquely designed to replace metal, ceramic, glass, stone or wood in high-performance applications. Some of the better known engineered polymers are polycarbonate, polytetrafluoroethylene ("PTFE"), polysulfone, polyphenyelene sulfide, nylons, polybutylene terephthalate, acrylonitrile-butadiene-styrene and liquid crystal polymers. 4 6 ELASTOMERS Elastomers are polymers that by virtue of their molecular structure are highly flexible, yet retain their shape and structure. Some common elastomers are polyisoprene (natural rubber), polybutadiene and polyisobutylene. SILICONES Silicones are a separate class of polymers that are silicon based, rather than carbon based. This composition makes them more stable than most polymers, as well as resistant to heat and oxygen. Thermoplastics, thermosets and engineered polymers are collectively referred to, in general, as plastics. Most of the products sold by the Company are made from plastics, primarily engineered polymers. MARKETS The Company focuses on developing high performance engineered polymer products for its customers and target markets. This focus requires Furon to use its design, development and production expertise to meet new product and application requirements. Furon's industrial business focuses on the following four key markets: (i) industrial equipment, (ii) transportation, (iii) electronics, and (iv) process industries. A brief description of the four primary markets served by Furon's industrial business, as well as the principal products supplied to each of those markets follows: INDUSTRIAL EQUIPMENT Manufacturers of diverse equipment such as hydraulic and pneumatic equipment, appliances and metal finishing equipment and food, beverage and refrigeration equipment are users of Furon's products in the industrial equipment industry. Product lines used by this customer group include: specialty thermoplastic hoses and tubing used in beverage dispersing equipment; PTFE coated fabric belting used in food processing applications to resist heat, abrasion and oil penetration; and precision polymer based components used in compressors, appliances and various other industrial equipment applications. TRANSPORTATION Producers and operators of medium and heavy duty trucks, off-road vehicles, construction and agricultural equipment, commercial and military aircraft and space vehicles are the primary users of the Company's products in the transportation industry. Furon offers these customers numerous product lines, including: medium and high pressure hoses designed to endure severe torsion, high abrasion and low temperatures; and engineered polymer bearings that provide advantages such as increased wear tolerance, chemical resistance and wide temperature tolerance and are used in applications such as gas turbine engines and aircraft hydraulic systems. ELECTRONICS Furon's products in the electronics industry are used in semiconductor manufacturing, scientific instrumentation and diagnostic equipment. Furon's reputation in this market is based on its proficiency in designing, developing and manufacturing fluid handling products such as pumps, valves, fittings and tubing that assure consistent flow and precise metering of ultrapure or highly corrosive fluids essential in the production of integrated circuits. Other product lines offered to this customer group include: large thermoformed components that serve as enclosures for equipment ranging from instrumentation and testing machinery to mainframe computers, silicone rubber specialty fabrics and high performance pressure sensitive tapes used in circuit boards. PROCESS INDUSTRIES Producers of pulp and paper, oil and gas companies, chemical producers and operators of electric power generators are the primary users of the Company's products in the process industries. These industries share 5 7 the common need for instrumentation and control systems in their transfer of fluids and gases. Product lines used by this customer group include: heated hoses used in equipment that monitors and controls airborne emissions, spring energized seals used to prevent fugitive emissions of harmful liquids and gases into the atmosphere, instrumentation and control cables that carry critical electronic communication signals from harsh process environments into control rooms, and high pressure hose bundles used on offshore drilling platforms to control equipment on the ocean floor. PRODUCTS Furon conducts its industrial operations through strategic business units ("SBUs"), which are supported by centrally coordinated marketing and manufacturing and are organized around the Company's major product families. The six primary product families are (i) seals and bearings; (ii) fluid handling components; (iii) tapes, films and coated fabrics; (iv) hose and tubing; (v) wire and cable; and (vi) plastic components. SEALS AND BEARINGS This product family consists of three distinct product groups -- seals, bearings and other fluoropolymer components. All are characterized by being either highly engineered or composed of proprietary polymer materials. Seals. The Company's Omniseal(R) seal is a spring actuated, pressure assisted sealing device consisting of a high performance polymer jacket (or cover) partially encapsulating a corrosion resistant metal spring energizer. Standard and special Omniseal seals are used in all types of fluid power and fluid handling devices. Omniseal seals have been applied to almost every type of gas or liquid handling component which normally would use O-Rings, V-Rings, U-Cups, packings or crush gaskets. Other seal product lines include Dynalip(R) PTFE radial lip seals, rotary shaft seals, anti-blowout seals, Advanced Pitch Spring(TM) seals, omnigaskets, bi-directional seals and hydraulic and pneumatic seals. Bearings. Bearings are subdivided into three distinct product markets: (i) rotary (which includes appliance, automotive, office equipment and truck applications); (ii) linear (which includes machine tools, printers and structural applications); and (iii) thrust bearings (which includes machine tools and equipment, automotive and aerospace applications). The Company offers product lines in each of these markets. The Company's Rulon(R) and Dixon(R) CJ bearings utilize custom proprietary compounds of fluoropolymers. They exhibit very little friction at low speeds and at high loads compared to most other materials. Rulon and Dixon CJ bearings are self-lubricating and are designed to meet the critical parameters of their intended application including bearing load, speed, environment, mating surface and duty cycle. The Company also produces the Meldin(R) family of polyamide plastics for structured and nonlubricated bearing applications in extreme temperature environments up to 900 degrees fahrenheit. Other components include sleeve bearings, liner bearings, Rulon FCJ bearings for oscillatory applications and Dixon CW/CWW thrust bearings. Components. The market for engineered polymer components includes insulators for power insulation and telecommunications; valve seals for industrial processing and refrigeration; and diaphragms, grommets, bushings and bonded products for aerospace, semiconductor, electronics, construction and food processing markets. Furon also supplies basic molded shapes to customers who convert the shape into a finished component. FLUID HANDLING COMPONENTS This product family primarily serves the fluid handling requirements of the semiconductor fabrication industry. The installed base of this product line has grown rapidly since the introduction of several new products in 1994. Furon's fluid handling products feature high purity fluoropolymer pumps, valves, fittings and tubing. These high performance components combine to create complete systems that protect sensitive media from contaminants and withstand highly corrosive materials. 6 8 Pumps. Chempure(TM) fluid handling pumps have an air operated double diaphragm design, require no lubrication, and are available in varying capacities and manifold types. Valves, Fittings and Tubings. ChemAlert(TM) and its related family of fluid handling components are used in the semiconductor industries and feature critical characteristics, including fiberoptic and remote leak detection, dual containment, cycle count and a variety of available fittings. Furon Flare Grip(R) PFA fittings and Grab Seal(TM) compression fittings are specially designed for reliability in critical applications including the handling of aggressive chemicals or the transfer of inert and ultrapure fluids and can withstand temperature cycling. Featuring a simple two piece design, these products are made from high purity fully fluorinated fluoropolymer materials. TAPES, FILMS AND COATED FABRICS This product family consists of a number of discrete product lines including: (i) pressure sensitive adhesive tape and fluoropolymer films; (ii) coated substrates such as release liners, imprintable face sheets, hardcoats and custom coated products; (iii) coated fabrics including fluoropolymer and silicone rubber coated fabrics; and (iv) non-coated silicone rubber sheet and related products. Tapes. In the industrial niche in which Furon participates, tape products are more specialized, allowing for competition on small batch product runs where material science and applications engineering yielding a custom tape solution are appropriate. The Company's Temp-R-Tape(R) polyester tapes provide electrical properties and high dielectric strength for use in the electrical market in the manufacture of coil, transformer and capacitor wrapping. The Temp-R-Tape polyimide family provides high conformability solvent resistance and a tough and flexible construction for electrically insulating capacitors and coils. Platers, hot air leveling, polyimide, wave solder protection and fume tapes are specially formulated and designed to withstand the harsh environments associated with printed circuit fabrication. Polycohr(TM) tapes made with OHMW polyolefin provide anti-sticking and abrasion resistance for use on guide rails, bearings, nosebars and chutes in the packaging and food processing industries. Strip-N-Stick(TM) tapes are composites of COHRlastic(R) silicone rubber with a variety of adhesives for high and low temperature product applications, gasketing, thermal insulation and vibration damping. Films and Coated Fabrics. The Company competes in this coated substrate market on the basis of its proprietary compounding technology, thin gauge film capabilities, ultraviolet and thermal capabilities and the availability of multiple chemistries. Fluorglas(R) fabrics are woven fiberglass coated primarily with PTFE fluorocarbon resins and are designed to operate in demanding temperature and chemical environments, making them ideally suited for a wide variety of industries including packaging, aerospace, electronics, petroleum processing and graphic arts. Fluorglas II PTFE/glass is a specialty fabric designed to provide an impermeable vapor barrier in harsh gaseous environments. Porous PTFE/glass is designed for airflow, outgassing and resin bleed-through. Conductive PTFE/glass is specially coated to offer conductivity, enabling this fabric to be grounded to eliminate static electricity during operation. COHRlastic is the trade name for Furon's family of high performance silicone rubber products. Flexible and resilient, it has a unique chemical structure which gives it a high temperature stability and general inertness unavailable in any other elastomer. As a result, COHRlastic silicone rubber works in applications where most other materials cannot be used. COHRlastic silicone rubber is odorless, tasteless and non-toxic. It contains no acid producing chemicals and therefore is non-corrosive and non-staining. Silicone rubber has excellent weatherability because it is unaffected by sunlight, ozone or extremely moist or dry conditions. It will not support the growth of fungus. The service life of COHRlastic silicone rubber in room temperature applications is virtually unlimited. Applications include press pads, belting and gasketing. 7 9 HOSE AND TUBING Furon participates in the thermoplastic hose and fluoropolymer tubing market. Furon's thermoplastic hose is sold into the markets defined by hydraulic hose (used in oil exploration, off-highway vehicles, airless spray applications and industrial equipment), beverage tubing, truck hose and specialty applications. Hose. The Company makes a wide variety of Synflex(R) hose and hose systems for highly specialized applications including: high pressure hose bundles and offshore bundles for seismic oil exploration and blowout prevention control, underground drilling and operating overhead booms; beverage hose, manufactured entirely of United States Food and Drug Administration ("FDA") approved materials and widely used throughout the beverage industry with one version made expressly for Coca-Cola USA; pure water hose, made from materials approved for food products by the FDA, for carrying distilled or potable water and other quality sensitive fluids; paint spray hose for low pressure air operated spray systems that are used by automobile manufacturers; airless/wireless paint spray hose that is specified by most major pump and delivery system manufacturers; weed spray hose for use in all weed spray control and horticultural spray applications; industrial/medical oxygen compatible hose; argon gas hose for welding; and nylon gas analyzer hose for measuring hydrocarbon emissions. Tubing. Synflex nylon air brake tubing and engineered air harness systems were pioneered by Furon to replace metal and wire braid rubber brake lines. Up to 75% lighter than metal tubing, it is made in non-reinforced single wall and multi-layer designs depending on size. It is also available in custom manufactured preassembled harnesses, incorporating any number of hoses and built to the specific requirements of individual OEMs. UltraTrace(TM) tubing is used for applications that require traceability, purity and chemical resistance and is manufactured from FDA approved fluoropolymers for use in the semiconductor, biotech, pharmaceutical, food and beverage and chemical process industries. WIRE AND CABLE This product family is used primarily in the process industries. The broad line of products includes communications cable, thermocouple extension wires and instrument/control cables under the Dekoron(R), SR Heating Cables and Unitherm(R) brand names. As is the case with many Furon products, the wire and cable product family can include custom design features and can provide protection against harsh environments. PLASTIC FORMED COMPONENTS This product family of thermoformed plastic and composite products is used primarily in the transportation marketplace with sales to commercial aircraft manufacturers. The products are also sold to electronics, instrumentation and medical device manufacturers. The primary manufacturing capabilities of the Company include vacuum, pressure and twin sheet forming, as well as machining, milling and table rolled composites. The primary applications of this product family include: (i) rigid foam ducts and panels; (ii) composite ducts, shrouds and covers; and (iii) self skinning, flexible foam shrouds, bezels and crash pads. 8 10 The following chart summarizes the industrial business' markets and products: MARKETS INDUSTRIAL EQUIPMENT TRANSPORTATION ELECTRONICS PROCESS INDUSTRIES Appliances Aerospace and defense Computers Chemical processing Beverage equipment Agriculture equipment Detection equipment (hydrocarbon) Food processing Automotive Diagnostic equipment Engineering and Graphic arts Commercial aircraft Electronic assembly consulting Hydraulic & pneumatic Construction equipment Environmental General construction equipment Diesel engines Instrumentation Process controls/systems Machine tools Gas turbines Office equipment Pulp and paper Packaging equipment Marine Process controls/valves Refineries Paint equipment Mass transportation Semiconductors Utilities Refrigeration Mobile equipment Testing equipment Sanitation equipment Truck PRODUCTS INDUSTRIAL EQUIPMENT TRANSPORTATION ELECTRONICS PROCESS INDUSTRIES Bearings Bearings Custom extrusions Bearings Bundles Hose Custom moldings Fluid handling Coated fabrics Plastic fabrications Fluid handling components Custom extrusions Seals components Fluoropolymer Custom moldings Silicone products Fluoropolymer components Fluoropolymer Tape components Hose components Truck tubing Plastic fabrications Roll covers Hose Seals Seals Plastic fabrications Silicone components SR heating cables Seals Tapes Trace products Tape Tubing Tubing Tubing Wire and cable Valve shields Wire and cable
SALES AND MARKETING Furon's overall sales and marketing goal is to have each customer include Company manufactured, highly engineered components as part of its product specifications. Furon has focused on expanding its portfolio of application-specific industrial products and integrating product development activities with the front-end engineering performed by or for its customers. The Company believes that as a result of these efforts, a majority of Furon's industrial product sales are currently specially engineered in collaboration with its customers with the remainder comprised of standardized components. The industrial business segment includes a number of cross-functional sales teams consisting of employees drawn from various disciplines throughout Furon, including sales, engineering and finance. These SBUs are used to form "partnering" relationships with Furon's strategic customers. The partnering approach involves analyzing every phase of the customers' processes and designing new or enhanced systems and component layouts, recommending the best combination of parts and/or selecting the best materials. By understanding the customers' business, Furon's sales force is positioned more effectively to develop polymer based solutions to replace customers' existing metallic and non-metallic products. In addition, the Company's management believes that the SBU structure allows Furon to: (i) market its existing offering of products on a more centralized, coordinated basis to its customers; (ii) form a closer, more integrated relationship with its customers in order to develop new, higher margin products; and (iii) implement product focused marketing strategies to promote sales growth of higher margin products. 9 11 Currently, approximately 80% of the industrial business' net sales are achieved through the Company's direct sales force. The remaining sales are made by independent manufacturers' representatives and distributors. CUSTOMERS Furon has developed an extensive base of well-known customers across a broad range of markets, as evidenced below: CUSTOMERS
INDUSTRIAL EQUIPMENT TRANSPORTATION ELECTRONICS PROCESS INDUSTRIES -------------------- -------------- ----------- ------------------ The Coca-Cola Company The Boeing Company Eastman Kodak Chevron Corporation FLEXcon Caterpillar Inc. Company Cooper Cameron Graco Inc. Cummins Engine FSI International, Corporation IMI Cornelius Inc. Company, Inc. Inc. Diamond Off Shore Madico, Inc. Freightliner Hewlett-Packard Drilling, Inc. Scroll Technologies Corporation Company Dresser Industries, Siemens Corporation General Electric Honeywell Inc. Inc. The Sherwin-Williams Company Intel Corporation Emerson Electric Co. Company Navistar International Motorola, Inc. Fluor Corporation Whirlpool Corporation Corporation Sony Corporation Kimberly-Clark Paccar Inc. Sumitomo Electric Corporation Renault USA Lightwave Reading & Bates Volvo Trucks of Waters Corporation Corporation North America, Inc. Xerox Corporation Shell Oil Company
Furon's industrial business is not dependent upon any single customer or group of customers, and no single customer accounted for more than 4% of the Company's industrial net sales volume during any of the last three fiscal years. During the year ended January 31, 1998, Furon sold its industrial products to over 6,600 customers, the top ten of which represented approximately 15% of net sales for that period. COMPETITION Furon has a large number of competitors in its industrial business, the majority of which compete in only a limited number of the Company's product groups. As a result, the Company believes that no single competitor presents a significant threat to Furon's success in the overall industrial market. Depending on the particular product, the principal competitive factors for the Company are materials capability; engineering, design and process technology; quality; reliability; and ability to meet delivery date and price criteria. Furon's competitors include: Parker Hannifin Corporation (seals, hoses and fluid handling components); the Aeroquip division of Trinova Corporation (hose and tubing); the Garlock division of Coltec Industries Inc. (bearings); Minnesota Mining and Manufacturing Company (tape and coated film); Raychem Corporation (wire and cable); and a number of smaller, regional competitors with more limited product offerings. The Company also competes with manufacturers of other polymer based and metal based products. The Company believes that trade secrets are important to its proprietary products. To protect its trade secrets, the Company requires all salaried employees to enter into confidentiality agreements. While the Company holds many patents and trademarks with varying degrees of significance to its operations, the Company's business is not dependent upon any particular one. MEDICAL DEVICE BUSINESS Industry Overview Medical devices include a broad range of products used in the diagnosis and treatment of patients receiving care in hospitals and alternate site healthcare facilities. There are several healthcare industry trends that, while creating a more challenging, competitive environment for medical device manufacturers, have increased the overall demand for medical devices. These trends include (i) the aging of the United States 10 12 population, resulting in increased medical device product expenditures; (ii) an increased concern over the spread of infectious diseases, resulting in increased demand for single-patient use disposable medical products; and (iii) a shift toward less invasive surgical procedures. Markets and Products The Company manufactures and sells critical care accessories and infusion systems for medical and surgical applications in the United States and in more than 50 other countries around the world. The worldwide hospital market in which the Company sells its products can be divided into three major areas: (i) critical care, including adult, pediatric and neonatal intensive care units; (ii) specialty units, including oncology, ob/gyn, coronary care and emergency room/trauma; and (iii) general medical/surgical. The alternate site healthcare market in which the Company sells its products encompasses all healthcare provided outside a hospital and is comprised primarily of (i) home healthcare, (ii) freestanding clinics, (iii) skilled nursing facilities, and (iv) long-term care facilities. Critical Care Accessories The Company's critical care accessories product line includes a wide range of precision products utilized in intravenous therapies such as fluid and drug administration; blood pressure transducers used by clinicians monitoring the cardiovascular system; specialty devices used in cardiac catheterization procedures; intrauterine monitoring products used during high risk labor and delivery situations; and surgical drapes. Many of these products can be used alone or as components assembled into kits. By offering standard and custom configurations, the Company's critical care accessories product line can address the specific needs of its varied customers. Catheters and Introducers. The Company manufactures a complete line of single and multi-lumen central venous catheters, percutaneous sheath introducer sets, IUP catheters, dialysis catheters, arterial cannulaes and related medical device products for use in cardiology and anesthetic intensive care. Fluid and Drug Delivery Products. Fluid and drug delivery products used in fluid and intravenous therapies include stopcocks, administration (intravenous) sets, adapters and connectors and needleless injection systems. Medex markets these products primarily to the neonatal and pediatric intensive care markets, as well as to the anesthesia market. Stopcocks are specialized valves used as a component in the administration of parenteral fluids or blood and provide a convenient means to administer drugs or liquid anesthetics in conjunction with such fluids. Stopcocks provide multiple flow paths for the selection and direction of fluids, drugs and anesthetics depending upon the particular procedural requirements and the preference of the user. The Company manufactures one-way, three-way and four-way stopcocks, which it markets under the name Guide-Flo(R). In addition to fluid and drug administration, the growth of invasive pressure monitoring and cardiac catheterization diagnostic procedures have resulted in a significant increase in demand for stopcocks of various configurations and performance characteristics. An administration set is the apparatus by which fluid is delivered from a container or a pump to the patient. These sets consist of an entry spike, drip chamber, a length of tubing with a flow control device and a catheter adapter. The entry spike is used to enter the fluid bottle or bag, and the drip chamber, which is made of a clear plastic, provides a reservoir of fluid. Fluid flows into the system one drop at a time, which can be seen and counted, permitting calculation of the volume of the fluid being administered. The Company markets the Microbore Extension Set, which is used in neonatal applications requiring small volumes of fluid to produce optimal fluid flow to patients. Disposable administration sets are manufactured in standard and customized configurations and may incorporate numerous additional components such as stopcocks, continuous flush devices or injection sites for intravenous drug administration. Adapters and connectors provide multiple flow paths for the selection and direction of fluids, drugs and anesthetics. 11 13 The Company's needleless access products are designed to permit access to the Company's disposable administration sets without the use of needles, thus reducing the potential for accidental needlesticks. The Company's Nu-Site(TM) system is a component which is compatible with standard luer or luer-locking syringes and disposable administration sets, thereby allowing users to integrate it into existing care practices. The Nu-Site is made from a latex-free polymer and therefore reduces the risk of exposure of patients and healthcare workers to latex which can cause severe allergic or anaphylactic shock reactions. Nu-Site was developed in response to increasing pressure by regulatory agencies, such as the Occupational Safety and Health Administration and the FDA, for more stringent control of needles in hospitals. The Company purchases various components from other manufacturers and packages them with the Company's medical device products to produce kits for specific hospital procedures. Kits are attractive to hospitals because they typically lower costs, increase hospital throughput, and save labor by eliminating the need to purchase parts individually and assemble them on site. Patient Monitoring Products. Patient monitoring products include blood pressure transducers which sense intravascular pressure and convert it to an electrical signal that is transmitted to a patient monitor. The monitor then processes and graphically displays this data allowing clinicians to monitor the cardiovascular system. The Company's patient monitoring products also include intrauterine pressure monitoring products used during high risk labor and delivery situations. The Company manufactures both reusable and disposable pressure transducers. Introduced in fiscal 1998, the LogiCal(TM) reusable pressure transducer is sold at a price competitive with comparable disposable pressure transducers. The SimulCath(R) disposable pressure monitoring device accommodates the implementation of amnioinfusion, a procedure designed to increase the efficiency of labor as well as provide direct support to a fetus exhibiting signs of distress. In this procedure, sterile saline is infused into the uterus to directly relieve fetal distress by providing fluid support of the umbilical cord and to increase the effect of labor contractions until delivery is accomplished. The Company manufactures and markets two infusor cuffs, Clear-Cuff(R) and C-Fusor(R). The Clear-Cuff pressure infusor complements the Company's C-Fusor reusable pressure infusor. Clear-Cuff offers the flexibility of being disposable or reusable as dictated by clinical considerations. C-Fusor is made of a clear polymer, which permits immediate assessment of the fluid level in the bag from any angle. This material's stain resistance and durability extends the useful life of the product. The closure system used in the C-Fusor infusor cuff provides secure closure and simplifies fluid bag setup and replacement. Catheterization Products. Medex's catheterization products include specialty devices used in cardiac catheterization procedures such as angiography and coronary angioplasty. Angiography is a diagnostic procedure used to evaluate the condition of major blood vessels within a patient's vascular system. Coronary angioplasty is a therapeutic procedure that involves the utilization of a balloon catheter to expand the inner diameter of a patient's coronary arteries to improve blood flow. Medex manufactures various connectors, manifolds, control syringes, balloon catheter inflator devices, high pressure injection tubing and high pressure rotators used in these procedures. Infusion Systems The Company's infusion systems product line includes a variety of microprocessor controlled single and multi-channel infusion pumps and disposable infusion administration sets. Intravenous infusion therapy generally involves the delivery of one or more fluids, primarily pharmaceuticals or nutritionals, to a patient through an infusion line inserted into the circulatory system. Over the past twenty years, as both the reliance on intravenous drug therapy and the potency of the drugs administered have increased, the need for extremely precise administration and monitoring of intravenous fluids has risen significantly. As treatment regimens have become more complex and as the critically ill constitute an increasing percentage of hospital patients, the average hospital patient now requires a greater number of intravenous lines and more potent therapeutics. Infusion systems are differentiated on a number of characteristics including size, weight, number of delivery channels, programmability, mechanism of infusion, cost and service. One of the key differences 12 14 among infusion systems is the level of control that such systems afford to both medical staffs and patients. Infusion systems are generally designed for either critical care or general care use, with the latter group being used both in hospitals and at alternate site healthcare facilities. Infusion Pumps. The Company produces various models of syringe pumps which are capable of accepting all conventional hypodermic syringes ranging from 1 through 60 ccs in volume. This capability makes the syringe pump very useful for the intravenous and regional infusion of anesthetic agents in the operating room, adult ICU and pediatric ICU, as well as in neonatal intensive care units where low volume drug infusions are required for premature infants. Additionally, a syringe offers the lowest cost intravenous fluid container available to the hospital pharmacist. The added labor costs of the pharmacist prefilling a syringe with the exact amount of drug required by the patient, labeling the syringe, and delivering it to the patient's bedside for loading into the syringe pump is offset by the overall cost savings of syringe pump use. Syringe pumps are currently the standard of care in Europe. The Company also manufactures and sells large volume infusion pumps used for administrating large fluid volumes ranging from 0.1 ml per hour to 999.9 ml per hour. Unlike syringe pumps, large volume infusion pumps utilize a broad range of dedicated disposable infusion sets for different protocols. The Company's KIDS(TM) pump was designed specifically for the neonatal and pediatric markets and can be used for the administration of large, as well as small, fluid volumes. Most neonatal pediatric fluid and drug administration protocols can be achieved by using either a Medex large volume pump or a Medex syringe pump. Infusion Administration Sets. All infusion pumps require the use of disposable administration sets. A set consists of a plastic interface and tubing and may have a variety of features such as volume control, pumping segments or cassette pumping systems for more accurate delivery, clamps for flow regulation and multiple ports for injecting medication and delivery of more than one solution. Components such as burettes and filters may also be added for critical drugs or special infusion. The Company produces a full line of single use fluid administration sets to satisfy the needs of this market segment. The following chart summarizes the Company's medical device products and the end-users it serves:
END-USERS -------------------------------------------------------------------------------------------------- NEONATAL AND INTENSIVE PEDIATRIC & LABOR CATH ANESTHESIA, INTENSIVE CRITICAL AND LAB/ EMERGENCY OPERATING ONCOLOGY ALTERNATE PRODUCTS CARE CARE DELIVERY RADIOLOGY ROOM ROOM WARD SITE -------- ------------ ----------- -------- --------- --------- ----------- -------- --------- Catheters & introducers........... X X X X X X X Fluid and drug delivery.............. X X X X X X X X Patient monitoring...... X X X X X X Cath lab accessories.... X X Infusion systems........ X X X X X X X X
SALES AND MARKETING Furon sells its medical device products, both directly and indirectly, to a diverse group of customers in the healthcare industry. The Company's domestic sales and marketing efforts are accomplished primarily by a network of direct sales representatives employed by the Company and are supplemented in select geographic areas by independent sales agents. These representatives work with independent hospital supply dealers to whom the Company sells many of its medical device products. In addition, these representatives work with the dealers' sales force at the hospital level to promote sales of the Company's medical device products. The Company also sells directly to hospitals, home healthcare companies and other alternate site healthcare facilities, as well as other medical device manufacturers on an OEM basis. The Company has relationships with many of the large hospital group purchasing organizations ("GPOs"). International sales in the United Kingdom, continental Europe and the Middle East are conducted mainly by direct sales representatives of the 13 15 Company. Sales to other international markets are conducted through independent dealers located in the various countries. COMPETITION The medical device markets are highly competitive. The principal points of competition are price, service, scope of product line, technological innovation and product quality. Many of the Company's competitors in the medical device market have greater financial and other resources than Furon and may have greater access to distribution channels. Although the infusion pump market is extremely competitive and fragmented, the Company believes that it competes favorably among those manufacturers who supply the children's hospital, neonatal and pediatric marketplaces. The Company's future prospects in the medical device business will be dependent upon the successful development and introduction of new and improved products that are responsive to market needs and which require a high level of technological expertise and market timeliness. The Company's competitors include Abbott Laboratories, Baxter International Inc. and B. Braun Melsungen AG in all product areas, Alaris Medical, Inc. in infusion products, Arrow International, Inc. in catheters and Merit Medical Systems, Inc. in catheterization lab accessories. FDA COMPLIANCE/PRODUCT REGULATION The research, development, testing, production and marketing of the Company's medical device products are subject to extensive governmental regulation in the United States at the federal, state and local levels, and in certain other countries. Noncompliance with applicable requirements may result in recall or seizure of products, total or partial suspension of production, refusal of the government to allow clinical testing or commercial distribution of products, civil penalties, injunctions and criminal prosecution. The FDA regulates the development, production, distribution and promotion of medical devices in the United States. Virtually all of the products being developed, manufactured and sold by the Company (and products likely to be developed, manufactured or sold in the foreseeable future) are subject to regulation as medical devices by the FDA. Class I devices are subject to general controls, including registration, device listing, recordkeeping requirements, labeling requirements, Good Manufacturing Practices, prohibitions on adulteration and misbranding, and reporting of certain adverse events. In addition to general controls, Class II devices are subject to pre-market notification and may be subject to special controls that could include performance standards, postmarket surveillance, patient registries and other actions as the FDA deems necessary to provide reasonable assurance of safety and effectiveness. Class III devices must meet the most stringent regulatory requirements and must be approved by the FDA before they can be marketed. Such premarket approval can involve extensive preclinical and clinical testing to prove safety and effectiveness of the devices. Virtually all of the Company's products are Class I or Class II devices. Certain countries will require the Company to obtain clearances for its products prior to marketing the products in those countries. In addition, certain countries impose product specifications, standards or other requirements which differ from or are in addition to those mandated in the United States. The European Union and certain other countries are in the process of implementing a system for regulating medical products which may result in lengthening the time required to obtain permission to market new products. These changes could have a material adverse effect on the Company's ability to market its devices in such countries and could hinder or delay the successful implementation of the Company's planned international expansion. THE FOLLOWING APPLIES TO THE COMPANY'S INDUSTRIAL AND MEDICAL DEVICE BUSINESSES. RAW MATERIALS Engineered polymers, such as nylon and PTFE, and silicone polymers represent the predominant raw materials used by the Company in the manufacture of its industrial products. Other raw materials used by Furon include copper wiring, coatings and adhesives. The primary raw materials used in the production of medical device products include thermoplastic resins, plastic tubing, paper, plastic and Tyvek(R) packaging materials and electronic componentry. The majority of the Company's raw materials are produced by multiple 14 16 suppliers or have substitute materials readily available. Furon purchases resins from E.I. du Pont de Nemours and Company, Elf Atochem North America, Inc. ("Elf Atochem"), General Electric Corporation, Monsanto Corporation and several other major plastics producers. Elf Atochem is the Company's sole source for Rilsan. Rilsan is used primarily in the production of heavy duty air brake tubing. Alternate sources of material which can be substituted for Rilsan are available in the event a shortage of Rilsan develops. Due to increased worldwide demand, some users of polycarbonate resins periodically have experienced shortages in supply and delays in delivery of such resins. Polycarbonate is used in the manufacture of certain plastic components used in medical device products. To date, the Company has been minimally impacted by such shortages and delays. While the Company believes that an adequate supply will be available in the near term, the cost of such material will likely continue to increase. The resins used by the Company are typically in pellet or powder form and are usually purchased on a spot market basis or under short-term pricing contracts. Contracts with resin manufacturers are negotiated on a company-wide basis to take advantage of volume discounts, although prices for polymer resins have widely varied in recent years. Furon estimates that material costs, including resins, films, silicones, and other related products represented approximately 37% of the Company's fiscal 1998 net sales. Furon seeks to pass raw materials price increases through to its customers, although a lag period often exists. ENVIRONMENTAL MATTERS Compliance with environmental laws and regulations designed to regulate the discharge of materials into the environment or otherwise protect the environment requires continuing management effort and expenditures by the Company. The Company does not believe that the operating costs incurred in the ordinary course of business to satisfy air and other permit requirements, properly dispose of hazardous wastes and otherwise comply with these laws and regulations form or are reasonably likely to form a material component of its operating costs or have or are reasonably likely to have a material adverse effect on its competitive or consolidated financial positions. As of January 31, 1998, the Company's reserves for environmental matters totaled approximately $1.7 million. The Company or one or more of its subsidiaries is currently involved in environmental investigation or remediation directly or as an EPA-named potentially responsible party or private cost recovery/contribution action defendant at various sites, including certain "superfund" waste disposal sites. While neither the timing nor the amount of the ultimate costs associated with these matters can be determined with certainty, based on information currently available to the Company, including investigations to determine the nature of the potential liability, the estimated amount of investigation and remedial costs expected to be incurred and other factors, the Company presently believes that its environmental reserves should be sufficient to cover the Company's aggregate liability for these matters and, while no assurance can be given, it does not expect them to have a material adverse effect on its consolidated financial position or results of operations. The actual costs to be incurred by the Company at each site will depend on a number of factors, including one or more of the following: the final delineation of contamination, the final determination of the remedial action required, negotiations with governmental agencies with respect to cleanup levels, changes in regulatory requirements, innovations in investigatory and remedial technology, effectiveness of remedial technologies employed, and the ultimate ability to pay of any other responsible parties. EMPLOYEES As of January 31, 1998, the Company had approximately 3,315 employees. Approximately 71% of these employees work in the industrial business and the remaining 29% work primarily in the medical device business. Approximately 237 employees are involved in sales and marketing, 160 in research and development, 2,480 in manufacturing and 438 in administration. Fifty-nine of the Company's employees are covered under a collective bargaining agreement. The Company considers its relationship with its employees to be good. 15 17 RESEARCH AND DEVELOPMENT For information concerning the amounts spent by the Company during the last three fiscal years on research and development, see Note 1 of the "Notes to Consolidated Financial Statements." BACKLOG OF ORDERS Furon's backlog of unfilled orders at January 31, 1998 was approximately $71 million. This is a 7.6% increase over the February 1, 1997 backlog amount of approximately $66 million. It is estimated that substantially all of Furon's backlog of orders at January 31, 1998 will be filled during the next 12 months, with approximately $5.0 million of the backlog scheduled to be filled in the subsequent 12 month period. The lead time between receipt of orders and shipment of products, other than products to commercial aircraft, is typically a matter of weeks. Although many of Furon's orders contain cancellation clauses, Furon has seldom experienced significant cancellations of orders. ITEM 2. DESCRIPTION OF PROPERTY The Company occupies 27 facilities located in 12 states, Belgium, Germany and the United Kingdom. Operations within a facility typically focus on a particular polymer based manufacturing process, or the design and manufacture of a specific medical device. Nine of the Company's facilities are owned and 18 are leased. The Company has received ISO 9000 certification for certain of its facilities regarding the quality of its manufacturing systems, a requirement for doing business in European countries, and the Company is in the process of applying for ISO 9000 certification for the balance of its manufacturing facilities. The Company has been granted approval to affix the CE mark, pursuant to the EC Medical Device Directives, on certain of its products. Failure to gain approval to affix the CE mark to a product does not necessarily preclude a company from selling products internationally, however, additional restrictions on marketing in any individual country in the EC may be imposed.
EXPIRATION OF SQUARE MAXIMUM PROPERTY FOOTAGE LEASE TERM -------- ------- ------------- INDUSTRIAL SEALS AND BEARINGS: Bristol, RI................................................. 106,000 8/31/37 Los Alamitos, CA............................................ 63,000 12/14/03 Mundelein, IL............................................... 60,000 8/31/00 FLUID HANDLING COMPONENTS: Anaheim, CA................................................. 91,000 7/31/10 TAPES, FILMS AND COATED FABRICS: New Haven, CT............................................... 110,000 8/31/37 Hoosick Falls, NY........................................... 109,000 Owned Worcester, MA............................................... 76,000 Owned HOSE AND TUBING: Mantua, OH.................................................. 151,000 8/31/37 Mickleton, NJ............................................... 86,000 8/31/37 Kent, OH.................................................... 50,000 1/06/01 WIRE AND CABLE: Aurora, OH.................................................. 148,000 8/31/37 Mt. Pleasant, TX............................................ 67,000 Owned Cape Coral, FL.............................................. 30,000 5/31/06 PLASTIC FORMED COMPONENTS: Seattle, WA................................................. 116,000 2/28/02
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EXPIRATION OF SQUARE MAXIMUM PROPERTY FOOTAGE LEASE TERM -------- ------- ------------- MATERIALS COMPOUNDING: Aurora, OH.................................................. 30,000 8/31/37 EUROPE: Gembloux, Belgium........................................... 49,000 Owned Rugby, England.............................................. 37,000 12/07/04 Kontich, Belgium............................................ 30,000 11/30/99 Corby, England.............................................. 16,000 10/20/17 MEDICAL DEVICE DOMESTIC: Hilliard, OH................................................ 150,000 Owned Dublin, OH.................................................. 130,000 Owned Duluth, GA.................................................. 52,000 Owned EUROPE: Rossendale, England......................................... 93,000 Owned Fraureuth, Germany.......................................... 29,000 4/01/08 Ratingen, Germany........................................... 26,000 12/01/98 Cumbernaud, Scotland........................................ 17,000 5/01/17 CORPORATE Laguna Niguel, CA........................................... 22,000 Owned
ITEM 3. LEGAL PROCEEDINGS The Company is involved in various legal proceedings. The Company vigorously defends all lawsuits brought against it, unless a reasonable settlement appears appropriate. While the outcome of pending proceedings cannot be predicted with certainty, the Company believes that the ultimate resolution of the actions currently pending is not reasonably likely to have a material adverse effect on its consolidated financial condition or results of operations. Medex has been named as a defendant in McBrayer, et al, v. Laidlaw Environmental Services (WT), Inc., et al., which was commenced in the United States District Court for the Southern District of Ohio (Eastern Division) in October 1996 and in the Franklin County, Ohio Common Pleas Court in January 1997. The federal action was dismissed in July 1997. The plaintiffs are two former students of a local elementary school and their parents. In addition to Laidlaw, which operates an industrial waste treatment facility near the school, the named defendants include two neighboring manufacturers, Beaver Adhesives, Inc, and OSF America, Inc., and the City of Hilliard, Ohio and the Board of Education of the Hilliard City School District. The plaintiffs seek unspecified damages (having recently sought in the federal action compensatory damages of $15.0 million and punitive damages of $100.0 million) from the defendants for the alleged release of hazardous substances, pollutants and contaminants (ethylene oxide and freon gas in the case of Medex) into the elementary school's environment, which allegedly resulted in personal injuries to the two former students. Discovery has not yet been completed. Based upon the Company's preliminary investigation, the Company believes that Medex has substantial defenses to the claims. Also see Item 1 -- Business -- Environmental Matters. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of the year ended January 31, 1998. 17 19 OFFICERS OF FURON Furon's executive and other officers are as follows:
NAME AGE POSITION/BUSINESS EXPERIENCE ---- --- ---------------------------- EXECUTIVE OFFICERS J. Michael Hagan....... 58 Chairman of the Board and Chief Executive Officer Mr. Hagan has been employed by the Company since 1967 and was promoted to Division Manager in 1969, elected Vice President in 1975, and served as a director and President from 1980 to June 1991 when he was appointed Chairman of the Board and Chief Executive Officer. He is also a director of Freedom Communications, Inc., Ameron, Inc. and RemedyTemp, Inc. Terrence A. Noonan..... 60 President, Chief Operating Officer and Director Mr. Noonan has been the President of Furon since June 1991 and was elected as a director in August 1991. From 1989 to June 1991, he served as an Executive Vice President in charge of various operations. He joined Furon in 1987 as a Vice President, having previously served since 1982 as an Operations General Manager of Eaton Corporation, a diversified manufacturing company. Mr. Noonan also is a director of Haskel International, Inc. Monty A. Houdeshell.... 49 Vice President, Chief Financial Officer and Treasurer Mr. Houdeshell joined the Company in 1988 as Vice President, Chief Financial Officer and Treasurer and also served as Secretary from 1988 to February 1991. From 1985 to 1988, Mr. Houdeshell served as Vice President, Chief Financial Officer and Treasurer of Oak Industries, Inc., a manufacturer of electronic components and controls. Dominick A. Arena...... 55 Vice President -- Healthcare and President of Medex, Inc. Mr. Arena joined the Company in January 1997 to manage its healthcare business, having served as the Company's healthcare consultant since February 1996. He was elected President of Medex following the acquisition of that subsidiary in January 1997 and an executive officer of the Company in March 1997. Previously, Mr. Arena was the President of three medical device manufacturers, AnaMed International from 1993 to 1996, Hudson Respiratory Care, Inc. from 1989 to 1993 and Respiratory Care, Inc. (a subsidiary of The Kendall Company) from 1986 to 1989, when it was acquired by Hudson. Joseph R. Grewe........ 49 Vice President -- Operations Mr. Grewe joined the Company in March 1996 to manage its manufacturing operations and was elected an executive officer of the Company in March 1997. He came to the Company from MascoTech, Inc., where he had been the President of MascoTech Sintered Components, a manufacturer of automotive industrial components and assemblies, since 1988. Previously, he held a wide range of manufacturing positions since 1968 with General Motors Corporation, Rockwell International and a start-up company in which he was a principal.
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NAME AGE POSITION/BUSINESS EXPERIENCE ---- --- ---------------------------- OTHER OFFICERS David L. Mascarin...... 43 Controller Mr. Mascarin joined the Company in August 1996 as Controller. Prior to joining the Company, Mr. Mascarin served for more than five years as a Site Controller for the Power Train Operations of Ford Motor Company, with which he had been employed for 18 years. Donald D. Bradley...... 42 General Counsel and Secretary Mr. Bradley joined the Company in June 1990 as Senior Attorney and Assistant Secretary and was named Corporate Secretary in February 1991 and General Counsel in February 1992. Previously, he was a Special Counsel with O'Melveny & Myers LLP, an international law firm with which he had been associated since 1982.
All officers of the Company are elected annually by and serve at the pleasure of the Board of Directors. There are no family relationships among any of Furon's officers. 19 21 RISK FACTORS THIS ANNUAL REPORT ON FORM 10-K ("10-K") CONTAINS "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT, INCLUDING, WITHOUT LIMITATION, STATEMENTS THAT INCLUDE THE WORDS "BELIEVES," "EXPECTS," "ANTICIPATES" OR SIMILAR EXPRESSIONS AND STATEMENTS RELATING TO ANTICIPATED COST SAVINGS, THE COMPANY'S STRATEGIC PLANS, CAPITAL EXPENDITURES, INDUSTRY TRENDS AND PROSPECTS AND THE COMPANY'S FINANCIAL POSITION. SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS THAT MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO DIFFER MATERIALLY FROM THOSE EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT ITS PLANS, INTENTIONS AND EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH PLANS, INTENTIONS OR EXPECTATIONS WILL BE ACHIEVED. CAUTIONARY STATEMENTS ARE SET FORTH BELOW AND ELSEWHERE IN THIS 10-K INCLUDING, WITHOUT LIMITATION, UNDER THE CAPTIONS "ITEM 7 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "ITEM 1 -- BUSINESS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS AND RISK FACTORS CONTAINED THROUGHOUT THIS 10-K. SUBSTANTIAL LEVERAGE AND DEBT SERVICE The Company is highly leveraged. On January 31, 1998, the Company's total debt outstanding was approximately $149.6 million. See "Item 8 -- Consolidated Financial Data." The Company also had borrowing availability under the Credit Facility (as defined) of approximately $108.0 million. Based upon current levels of operations and anticipated growth in revenues and cost savings, management believes that the Company's cash flow from operations, amounts available under the Credit Facility and available cash will be adequate to meet its anticipated future requirements for working capital, capital expenditures and scheduled payments of principal and interest on its indebtedness. There can be no assurance, however, that the Company's business will generate cash flow at or above anticipated levels or that the Company will be able to borrow funds under the Credit Facility in an amount sufficient to enable the Company to service its indebtedness or make anticipated capital expenditures. If the Company is unable to generate sufficient cash flow from operations or to borrow sufficient funds in the future, it may be required to sell assets, reduce capital expenditures, refinance all or a portion of its existing indebtedness or obtain additional financing. There can be no assurance that any such refinancing would be available on commercially reasonable terms, or at all, or that any additional financing could be obtained, particularly in view of the Company's high level of indebtedness and the restrictions on the Company's ability to incur additional indebtedness under the Credit Facility and the Indenture (the "Indenture") relating to the Company's issuance (the "Offering") of $125.0 million in aggregate principal amount of its 8.125% Senior Subordinated Notes due 2008 (the "Notes"). The degree to which the Company is leveraged could have important consequences, including but not limited to: (i) increasing the Company's vulnerability to general adverse economic and industry conditions; (ii) limiting the Company's ability to obtain additional financing to fund future working capital, capital expenditures and other general corporate requirements; (iii) requiring the dedication of a substantial portion of the Company's cash flow from operations to the payment of principal of, and interest on, its indebtedness, thereby reducing the availability of such cash flow to fund working capital, capital expenditures or other general corporate requirements; (iv) limiting the Company's flexibility in planning for, or reacting to, changes in its business and the industry in which it competes; and (v) placing the Company at a competitive disadvantage relative to less leveraged or better capitalized competitors. In addition, the Indenture and the Credit Facility contain financial and other restrictive covenants that limit, among other things, the ability of the Company to borrow additional funds. Failure by the Company to comply with such covenants could result in events of default under the Indenture and the Credit Facility which, if not cured or waived, could permit the indebtedness thereunder to be accelerated which would have a material adverse effect on the Company's business, financial condition and results of operations. 20 22 SENSITIVITY TO GENERAL ECONOMIC AND INDUSTRY CONDITIONS The Company's industrial products business, and the industrial equipment, transportation, electronics and process industries markets it serves, are cyclical in nature and are affected by the general trends of the economy. During economic downturns, these markets tend to experience declines, which in turn diminish demand for the Company's products and can lead to decreases in prices for such products. As a result of this cyclicality, the Company has experienced, and in the future could experience, reduced net sales and profit margins. There can be no assurance that a prolonged economic downturn would not have a material adverse effect on the Company. COMPETITION The Company has a number of competitors, some of which are larger and have greater financial resources than the Company. There can be no assurance that the Company will have sufficient resources to continue to make the investments necessary to maintain its current competitive position, or that other competitors with greater financial resources will not attempt to enter the market. The failure to remain competitive could have a material adverse effect on the Company's business, financial condition and results of operations. RAW MATERIALS Furon estimates that material costs represented approximately 37% of the Company's fiscal 1998 net sales. Furon purchases its raw materials, primarily polymer resins, from numerous suppliers. The largest amount of resins used by the Company are polytetrafluouroethylene ("PTFE") and related resins, a nylon sold under the trade name Rilsan(R) and certain silicone polymers. The Company purchases its requirements for PTFE and related resins and silicone polymers from the major suppliers of these resins. Elf Atochem North America, Inc. is the Company's sole source for Rilsan. Rilsan is used primarily in the production of heavy duty air brake tubing. Sources of material which can be substituted for Rilsan are available in the event a shortage of Rilsan develops. Although the Company seeks to reduce dependence on those sole and limited source suppliers, the partial or complete loss of certain of these sources could have at least a temporary adverse effect on the Company's results of operations and damage customer relationships. Prices for polymer resins have varied widely in recent years. The increase in the price or the unavailability of one or more of these resins could have a material adverse effect on the Company's business, financial condition or results of operations. CONCENTRATION OF BUYING POWER Many existing and potential customers for the Company's medical device products have combined into GPOs which are quite large and which often enter into exclusive purchase commitments with as few as one or two providers of medical device products for a period of several years. If the Company is not one of the selected providers, it may be precluded from making sales to members of a GPO for several years. Even if the Company is one of the selected providers, the Company may be required to commit to pricing which has an adverse effect on its net sales and profit margins. TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS The markets for some of the Company's products are characterized by frequent refinement and enhancement of existing products, new product introductions and by declining average selling prices over product life cycles. The Company's future prospects are highly dependent upon the timely completion and introduction of new products at competitive performance and price levels. The Company also must respond to current competitors which may choose to increase their presence in the Company's markets, and to new competitors which may choose to enter those markets. In addition, while the Company is not aware of any new fundamental technologies for highly engineered polymer products that are likely to be a significant factor in the near future, no assurance can be given that the Company's competitors will not introduce new technological improvements that could place the Company at a competitive disadvantage. The failure by the Company to make timely introduction of new products or respond to competitive threats could have a material adverse effect on its business, financial condition or results of operations. 21 23 ACQUISITIONS AND INTEGRATION OF OPERATIONS The Company's business strategy, particularly for the medical device business, contemplates continued expansion, including growth through acquisitions, joint ventures or strategic alliances. There can be no assurance that the Company will be able to consummate future acquisitions, joint ventures or strategic alliances, if any, on terms that are favorable to the Company. The Company's ability to grow in this manner is dependent upon, and may be limited by the availability of suitable acquisition candidates or partners and capital resources available to the Company. Moreover, the Company may incur significant expenses in connection with the consummation of these transactions. Additionally, the integration of the operations of the Company and any past, present or future acquired businesses or companies, and the coordination of their respective sales and marketing staffs and the implementation of appropriate operational, financial and management systems and controls may require significant financial resources and substantial attention from management. Any inability of the Company to integrate any past, present or future acquired business or companies successfully in a timely and efficient manner could have a material adverse effect on the Company's business, financial condition or results of operations. INTERNATIONAL SALES AND OPERATIONS International sales accounted for 25.5% of the Company's net sales in fiscal year 1998, and the Company expects that international sales may increase as a percentage of net sales in the future. As a result of its international sales and foreign operations, including manufacturing facilities in Germany, Belgium and the United Kingdom, the Company generates certain revenues and incurs certain operating expenses in foreign currencies and is therefore subject to changes in currency exchange rates in relation to the U.S. dollar. There can be no assurance that measures taken by the Company to mitigate its exchange rate risk, including manufacturing and procuring its products in the same country or region in which products are sold and periodically engaging in hedging transactions such as forward exchange contracts, will eliminate or substantially reduce such risk. International manufacturing and sales are subject to inherent risks, including changes in local economic or political conditions, the imposition of currency exchange restrictions, unexpected changes in regulatory environments, potentially adverse tax consequences and the exchange rate risk discussed above. There can be no assurance that these factors will not have a material adverse impact on the Company's production capabilities or otherwise adversely affect the Company's business, financial condition or results of operations. GOVERNMENT REGULATION Government regulation is a significant factor in the research, development, testing, production and marketing of the Company's medical device products. Noncompliance with applicable requirements may result in the recall or seizure of products, total or partial suspension of production, refusal of the government to allow commercial distribution of products, refusal of the government to allow new products to be marketed, civil penalties, injunctions and criminal prosecution. There can be no assurance that the Company's existing products will be found to comply with such regulations or that new products will be granted marketing clearance in a timely manner or at all. The FDA, pursuant to the Federal Food, Drug, and Cosmetic Act, regulates the introduction of medical devices, as well as manufacturing procedures, labeling, adverse event reporting and recordkeeping with respect to such products. The process of obtaining market clearances from the FDA for new products can be time consuming and expensive and there can be no assurance that such clearances will be granted or that FDA review will not involve delays adversely affecting the marketing and sale of products. Current regulations depend heavily on administrative interpretation and there can be no assurance that interpretations made by the FDA or other regulatory bodies will not adversely affect the Company. The FDA and state agencies routinely inspect the Company to determine whether the Company is in compliance with various regulations relating to manufacturing practices, testing, quality control and product labeling. Such audits/inspections can result in the agencies requiring the Company to take certain corrective actions for non-complying conditions observed during the audits/inspections. A determination that the Company is in violation of such regulations could lead 22 24 to the imposition of civil sanctions, including fines, recall orders or product seizures, injunctions and criminal sanctions. Certain countries will require the Company to obtain clearances for its products prior to marketing the products in those countries. In addition, certain countries impose product specifications, standards or other requirements which differ from or are in addition to those mandated in the United States. The European Union and certain other countries are in the process of implementing a system for regulating medical products which may result in lengthening the time required to obtain permission to market new products. These changes could have a material adverse effect on the Company's ability to market its devices in such countries and could hinder or delay the successful implementation of the Company's planned international expansion. PRODUCT LIABILITY The Company faces an inherent business risk of exposure to product liability claims in the event that the use of its products is alleged to have resulted in injury or other adverse effects. The Company currently maintains product liability insurance coverage but there can be no assurance that the Company will be able to obtain such insurance on acceptable terms in the future, if at all, or that any such insurance will provide adequate coverage against claims. The Company's financial condition and its ability to market and sell its products could be adversely affected by a successful product liability claim. A successful product liability claim against the Company for which there is not adequate insurance coverage could have a material adverse impact on its business, financial condition or results of operations. ENVIRONMENTAL LIABILITIES AND REGULATIONS Compliance with environmental laws and regulations designed to regulate the discharge of materials into the environment or otherwise protect the environment requires continuing management effort and expenditures by the Company. The Company does not believe that the operating costs incurred in the ordinary course of business to satisfy air and other permit requirements, properly dispose of hazardous wastes and otherwise comply with these laws and regulations form or are reasonably likely to form a material component of its operating costs or have or are reasonably likely to have a material adverse effect on its competitive and consolidated financial positions. There can be no assurance that the cost of the Company's compliance with environmental laws or its environmental liabilities will not have a material adverse effect on the Company's business, financial condition or results of operations. See "Item 1 -- Business -- Environmental Matters." LEGAL PROCEEDINGS The Company is involved in various legal proceedings. While the Company believes that the ultimate resolution of its pending legal proceedings is not reasonably likely to have a material adverse effect on its business, financial condition or results of operations, no assurance to that effect can be given. See "Item 3 -- Legal Proceedings." DEPENDENCE ON KEY PERSONNEL The Company's success depends to a significant degree upon the continued contributions of senior management, certain of whom would be difficult to replace. There can be no assurance that the services of such personnel will continue to be available to the Company. The Company is also dependent upon the continued services of its engineering, research and development, sales and marketing and manufacturing and service personnel and on its ability to attract, train and retain highly skilled personnel in each of these areas. The failure of the Company to hire and retain such key management and other personnel could have a material adverse effect on the Company's business, financial condition or results of operations. 23 25 YEAR 2000 COMPLIANCE While year 2000 considerations are not expected to materially impact Furon's internal operations, they may have an effect on some of Furon's customers and suppliers, and thus indirectly affect Furon. It is not possible to quantify the aggregate cost to Furon with respect to customers and suppliers with year 2000 problems, although the Company does not anticipate it will have a material adverse impact on its business, financial condition or results of operations. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS On November 20, 1997, the Company's Board of Directors approved a two-for-one stock split. One share of the Company's Common Stock for each full share of Common Stock outstanding was distributed on December 16, 1997 to holders of record as of December 2, 1997. All share and per share data in this report have been restated to reflect this stock split. The Company's Common Stock is traded on the New York Stock Exchange ("NYSE") under the trading symbol "FCY". As of March 31, 1998, the Company had approximately 1,000 holders of record of its Common Stock. The following table sets forth for the periods indicated (i) the high and low closing sale prices per share of the Company's Common Stock as reported by the NYSE and (ii) the amount per share of cash dividends paid by the Company with respect to its Common Stock.
YEARS ENDED -------------------------------------------------------- JANUARY 31, 1998 FEBRUARY 1, 1997 ------------------------- ------------------------- QUARTER HIGH LOW DIVIDEND HIGH LOW DIVIDEND ------- ---- --- -------- ---- --- -------- First.................. $12 1/4 $10 $0.03 $11 3/16 $ 9 3/8 $0.03 Second................. 15 13/16 11 1/4 0.03 13 7/16 10 1/4 0.03 Third.................. 21 11/16 15 1/16 0.03 12 3/4 10 1/4 0.03 Fourth................. 21 5/16 17 1/4 0.03 12 5/16 9 11/16 0.03
Future dividends will be considered by the Board of Directors taking into account the Company's profit levels and capital requirements as well as financial and other conditions existing at the time. 24 26 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data for the five years in the period ended January 31, 1998 should be read in conjunction with, and is qualified by, the more detailed information and consolidated financial statements included in Item 8 (Part II), "Consolidated Financial Statements and Supplementary Data."
YEARS ENDED ------------------------------------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3, JANUARY 28, JANUARY 29, 1998 1997(A) 1996 1995 1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ----------- ----------- ----------- ----------- ----------- Net sales................................. $485,631 $390,105 $344,886 $312,060 $285,194 Cost of sales............................. 329,325 281,581 249,102 217,827 204,727 -------- -------- -------- -------- -------- Gross profit.............................. 156,306 108,524 95,784 94,233 80,467 Selling, general and administrative expenses................................ 115,555 84,325 78,337 77,368 66,458 Write-off of acquired in-process research and development......................... 53,700 -- -- -- Nonrecurring charges and facilities rationalization......................... (660) 4,329 -- -- -- Other (income) expense.................... (1,114) (4,265) (3,282) (2,092) (1,436) Interest expense, net..................... 10,788 2,669 2,315 1,360 2,477 -------- -------- -------- -------- -------- Income (loss) before income taxes......... 31,737 (32,234) 18,414 17,597 12,968 Provision for income taxes................ 9,997 7,517 5,245 6,159 4,798 -------- -------- -------- -------- -------- Net income (loss)......................... $ 21,740 $(39,751) $ 13,169 $ 11,438 $ 8,170 ======== ======== ======== ======== ======== Basic income (loss) per share............. $ 1.22 $ (2.24) $ 0.75 $ 0.67 $ 0.48 ======== ======== ======== ======== ======== Diluted income (loss) per share........... $ 1.16 $ (2.24) $ 0.73 $ 0.64 $ 0.46 ======== ======== ======== ======== ======== Cash dividends per share.................. $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.12 At year end: Total assets............................ $346,349 $343,351 $211,484 $179,873 $175,224 Total long-term obligations............. 172,540 198,916 59,250 32,791 38,795 Total stockholders' equity.............. 81,139 61,344 102,882 91,599 80,815
- --------------- (a) Includes the acquisition of Medex effective January 2, 1997. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS The following discussion and analysis is based upon and should be read in conjunction with the historical consolidated financial statements of the Company and related notes thereto. General The Company's products are sold primarily to OEMs in industrial markets and end-users in healthcare markets. Historically, the Company focused primarily on the manufacture and sale of polymer based products used in a wide range of industrial applications. In January 1997, as part of its strategy to leverage its materials and manufacturing technology expertise into other attractive market segments, the Company acquired Medex, a leading manufacturer of polymer based medical device products sold to end-users in the domestic and European healthcare markets, such as hospitals and alternate site healthcare facilities. The aggregate purchase price for Medex was $165.0 million in cash. In connection with the acquisition, the Company recorded approximately $58.0 million in nonrecurring charges, consisting of a $53.7 million non-cash charge relating to the write-off of in-process research and development at Medex and approximately $4.3 million for severance and facilities rationalization expenses related to the Company's plans to close facilities and consolidate certain operations. 25 27 The Company's fiscal year ends on the Saturday closest to January 31. Fiscal 1998 and fiscal 1997 consisted of 52 weeks and fiscal 1996 consisted of 53 weeks. RESULTS OF OPERATIONS Fiscal 1998 Compared with Fiscal 1997 Net Sales. Net sales of $485.6 million in fiscal 1998 increased $95.5 million, or 24%, from $390.1 million in fiscal 1997. This increase was primarily due to the inclusion of Medex's operating results for the entire fiscal 1998 period, compared to Medex's inclusion for approximately a month of the fiscal 1997 period. In fiscal 1998 net sales to the commercial aircraft, aerospace, truck, food & beverage and general industrial markets were particularly strong relative to the prior fiscal year, while net sales to the chemical processing and electronics industries declined relative to the prior fiscal year. European net sales increased 58%. This is inclusive of unfavorable foreign exchange fluctuations of approximately 11%. Gross Profit. Gross profit of $156.3 million in fiscal 1998 increased $47.8 million, or 44.0%, from $108.5 million in fiscal 1997. The gross profit margin increased to 32.2% in fiscal 1998 from 27.8% in fiscal 1997. The increase primarily resulted from the Medex acquisition since the Company's medical device products generally yield higher gross profit margins than its industrial products. Medex realized a 44.4% gross profit margin on net sales during fiscal year 1998. Exclusive of Medex, the Company's gross profit margin on industrial net sales in the fiscal year 1998 period increased by 1.5 percentage points to 29.0% from 27.5% in the fiscal year 1997 period. Selling, General and Administrative Expenses. Selling, general, and administrative ("SG&A") expenses of $115.6 million in fiscal 1998 increased $31.3 million, or 37.1%, from $84.3 million in fiscal 1997. SG&A expenses as a percentage of net sales increased to 23.8% in fiscal 1998 from 21.6% in fiscal 1997. The increase in SG&A expenses in fiscal 1998 principally represent expenses related to the acquisition of Medex. Medex's SG&A expenses as a percentage of its net sales were 31.7% for the fiscal year 1998 period. Research and development expenses of $14.2 million in fiscal 1998 increased $1.7 million, or 13.6%, from $12.5 million in fiscal 1997 primarily because of the Medex acquisition. Research and development expenses for Medex in the fiscal year 1998 period were $2.2 million. Other Income. Other income of $1.1 million in fiscal 1998 decreased $3.2 million from $4.3 million in fiscal 1997. The decrease primarily resulted from a reduction in foreign exchange transaction gains and reduced licensee fees and investment income. Nonrecurring Charges and Facilities Rationalization. In fiscal year 1998, the Company recorded a $6.0 million gain realized in selling the net assets of its Felsted operations (cables and controls product) offset by the recording of an asset impairment loss and facilities rationalization of approximately $5.3 million. During fiscal year 1997, Furon incurred approximately $58.0 million on nonrecurring charges to income, consisting of a $53.7 million non-cash charge relating to in-process research and development at Medex, as well as approximately $4.3 million in severance and facilities rationalization expenses related to the Company's plans to close facilities and consolidate certain operations related to Medex. Interest Expense, Net. Interest expense, net of $10.8 million in fiscal 1998 increased $8.1 million from $2.7 million in fiscal 1997, primarily as a result of the debt incurred in connection with the Medex acquisition. Income Before Income Taxes. Income before income taxes of $31.7 million in fiscal 1998 increased $63.9 million from ($32.2) million in fiscal 1997. This increase in income before income taxes is the result of higher net sales volumes and improved margins and income from Medex. Provision for Income Taxes. Provision for income taxes of $10.0 million in fiscal 1998 increased $2.5 million from $7.5 million in fiscal 1997. This increase is the result of higher net sales volumes and improved margins and income from Medex. 26 28 The Company's effective tax rate in fiscal 1998 was 31.5%, compared with 23.3% in fiscal 1997. For fiscal 1997, the effective tax rate before the one time charge for in-process research and development was 35.0%. The lower effective tax rate for fiscal 1998 was primarily due to increases in research and experimental credits and foreign tax credits. FISCAL 1997 COMPARED WITH FISCAL 1996 Net Sales. Net sales of $390.1 million in fiscal 1997 increased $45.2 million, or 13% from $344.9 million in fiscal 1996. The net sales increase in fiscal 1997 principally represents contributions from companies that were acquired during the year, which accounted for an approximately 12.0% net sales increase over fiscal 1996. Included in such acquisitions was Medex, acquired on January 2, 1997, which contributed net sales of $9.4 million during the year. The Company's existing businesses realized a slight net sales increase in fiscal 1997, partially offset by a number of strategic divestitures during the course of fiscal 1997. Domestically, fiscal 1997 net sales increases were achieved in several of the markets the Company serves, including semiconductors, commercial aircraft, mobile equipment and appliances. In the truck market, the Company was able to maintain approximately the same net sales level as it did in the prior year in a difficult market environment. Furon's net sales to the general industrial and electronic assembly markets declined from fiscal 1996. Excluding Medex, European net sales improved 18% in fiscal 1997. Before the impact of a stronger U.S. dollar, the improvement in European net sales in fiscal 1997 was 26%. The gain principally reflected a full fiscal year's contribution from an acquisition in April 1996. Excluding acquisitions, European net sales were down 7%, or 1% before the impact of unfavorable foreign currency exchange rates. Gross Profit. Gross profit of $108.5 million in fiscal 1997 increased $12.7 million, or 13.3%, from $95.8 million in fiscal 1996. The gross profit margin in fiscal 1997 was 27.8%, which was the same gross margin as in fiscal 1996. Excluding the impact of acquisitions and divestitures in fiscal 1996 and fiscal 1997, the gross profit margin declined to 28.2% in fiscal 1997 from 28.5% in fiscal 1996. Higher raw material costs were experienced in fiscal 1997 as compared to fiscal 1996, partially offset by cost reductions in manufacturing labor and overhead, productivity gains and price increases. Selling, General and Administrative Expenses. SG&A expenses of $84.3 million in fiscal 1997 increased $6.0 million, or 7.7%, from $78.3 million in fiscal 1996. SG&A expenses as a percentage of net sales declined to 21.6% in fiscal 1997 from 22.7% in fiscal 1996. The increase in SG&A expenses in fiscal 1997 principally represents higher research and development costs, the impact of acquisitions made by the Company and, to a lesser extent, higher selling expenses which were partially offset by lower general and administrative expenses associated with changes made to the Company's operating structure. Research and development expenses of $12.5 million in fiscal 1997 increased $4.0 million, or 47.1% from $8.5 million in fiscal 1996, as the Company continued to focus on new product development in fiscal 1997. Cost reductions were achieved in several categories, including professional fees in connection with various consulting projects, travel and relocation. Other Income. Other income of $4.3 million in fiscal 1997 increased $1.0 million from $3.3 million in fiscal 1996. The increase primarily resulted from foreign currency exchange rate gains. Interest Expense, Net. Interest expense, net of $2.7 million in fiscal 1997 increased $0.4 million from $2.3 million in fiscal 1996. Primarily as a result of the Medex acquisition, amounts owing under the Company's bank credit facility increased by approximately $131.0 million over the prior year. Loss Before Income Taxes. The Company had a $32.2 million loss before income taxes in fiscal 1997, compared to income before income taxes of $18.4 million in fiscal 1996. Excluding the impact of the nonrecurring charges, income before income taxes would have been $25.8 million in fiscal 1997, an increase of $7.4 million, or 40.2%, from $18.4 million in fiscal 1996. Provisions for Income Taxes. Provisions for income taxes of $7.5 million in fiscal 1997 increased $2.3 million from $5.2 million in fiscal 1996. The Company's effective tax rate in fiscal 1997 was 23.3% on the loss before income taxes for the year as compared to 28.5% on the income before taxes in fiscal 1996. For fiscal 1997, the effective tax rate before the one time non-deductible charge for in-process research and development was 35%. The lower effective tax rate in fiscal 1996 resulted from the realization of certain reserves and tax credits. 27 29 SEGMENT RESULTS A discussion of the operations of the business segments follows. The Company operates in two business segments: Industrial Products, including highly engineered seals and bearings, fluid handling components, tapes, films and coated fabrics, hose and tubing, wire and cable, and plastic formed components; and Medical Device Products, including critical care products, and infusion systems for medical and surgical applications. For additional financial information about industry segments and performance in various geographic areas, see Note 11 of the "Notes to Consolidated Financial Statements." INDUSTRIAL PRODUCTS
JANUARY 31, FEBRUARY 1, FEBRUARY 3, 1998 1997 1996 (IN MILLIONS) ----------- ----------- ----------- Sales............................................. $377.6 $373.4 $336.9 Operating profit.................................. 27.2 19.6 16.2 Operating profit before nonrecurring and facilities rationalizations..................... 27.2 22.6 16.2
Net Sales. Industrial net sales for fiscal 1998 increased $4.2 million, or 1% from fiscal 1997, as a result of a 6% increase in domestic net sales offset by a 7% decline in reported European net sales and the effect of the sale of several businesses in fiscal 1997. Domestically, net sales increases were particularly strong in several of the markets the Company serves including, commercial aircraft, aerospace, truck, food & beverage and general industrial markets. Net sales to the chemical processing and semiconductor markets were down from last year. Improved demand in Europe across most product lines, was not enough to overcome the adverse effect of foreign currency exchange rates, resulting in decreased dollar net sales of 7% (a 4% increase after removing the effect of foreign currency exchange rate changes) over the prior fiscal. When removing the effect of acquisitions and divestitures, fiscal 1998 Industrial Product net sales were 5% higher than in fiscal 1997. In fiscal 1997, Industrial Product net sales were 11% higher than in fiscal 1996. Excluding the effect of acquisitions and divestitures net sales increased 1%. Gross Profit. The gross profit for fiscal 1998 was 29.1%, an increase from 27.4% in fiscal 1997. This was the result of lower material usage in addition to reduced fixed overhead spending over the prior fiscal. The gross profit percentage decreased to 27.4% for fiscal 1997 from 27.6% in fiscal 1996. This was the net result of higher raw material costs as a percentage of net sales, offset by cost reductions in manufacturing labor and overhead, productivity gains and price increases. Selling, General and Administrative Expenses. SG&A expenses increased $2.7 million in fiscal 1998 from the prior fiscal, as a result of higher product development and general and administrative expenses. Increased general and administrative expense was primarily the result of several categories, including higher performance based incentive compensation, legal and professional fees in connection with various projects, partially offset by reduced commissions and travel costs. Investments in research and development were up, as the Company continued to increase its focus on new product development. SG&A expenses as a percentage of net sales increased to 21.9% in fiscal 1998, compared with 21.4% for fiscal 1997 and decreased from fiscal 1996 of 22.8%. After removing the effect of acquisitions and divestitures, SG&A expenses were 21.7%, 21.8% and 23.7% for fiscals 1998, 1997 and 1996, respectively. Operating Profit, before Nonrecurring Charges and Facilities Rationalization. Operating profit, before nonrecurring charges and facilities rationalization, increased 20.4% to $27.2 million in fiscal 1998 from $22.6 million a year earlier. Operating profit, before nonrecurring charges and facilities rationalization, as a percent of net sales increased to 7.2% in fiscal 1998 from 6.0% in fiscal 1997. The improvement in profitability reflects higher net sales volumes and margins that were more than sufficient to offset increased operating and other expenses. Operating profit, before nonrecurring charges and facilities rationalization, also increased 40% to $22.6 million in fiscal 1997 from $16.2 million in fiscal 1996. Operating profit, before nonrecurring charges and facilities rationalization, as a percent of net sales increased to 6.0% in fiscal 1997 from 4.8% in fiscal 1996. 28 30 MEDICAL DEVICE PRODUCTS
JANUARY 31, FEBRUARY 1, FEBRUARY 3, 1998 1997 1996 (IN MILLIONS) ----------- ----------- ----------- Sales..................................................... 108.0 $16.7 $8.0 Operating profit (loss)................................... 14.2 (53.5) 1.2 Operating profit before nonrecurring and facilities rationalizations........................................ 13.6 1.6 1.2
In January 1997, as part of its strategy to leverage its materials and manufacturing technology expertise into other attractive market segments, the Company acquired Medex, a leading manufacturer of polymer based medical device products sold to end-users in the domestic and European healthcare markets, such as hospitals and alternate site healthcare facilities. Prior to the acquisition of Medex, the Company's medical device products business was substantially smaller and focused on medical OEMs as opposed to end users. Consequently, fiscal 1998 includes twelve months of Medex, fiscal 1997 includes just one month of Medex and fiscal 1996 excludes Medex completely. As a result, comparisons for year to year are somewhat distorted. Net Sales. Net sales for fiscal 1998 increased over five fold, substantially all due to the Medex acquisition in January, 1997, over the same period of the prior year. Also included in the current year is the effect of two small companies acquired during the third quarter of fiscal 1998, SDM and AS Medical, which are now operating as part of the Medical Device Product segment. Unfavorable foreign exchange rates, particularly in Germany, also had a negative impact on net sales. In fiscal 1997, Medical Device Product net sales doubled over fiscal 1996 and again was substantially all due to the Medex acquisition completed on January 2, 1997. Gross Profit. The gross profit margin for fiscal 1998 was 43.0%, an increase from 36.3% in fiscal 1997. This was the result of significantly higher margins earned by Medex and the full fiscal 1998 year effect of the Medex acquisition over the prior year. The gross profit percentage increased to 36.3% for fiscal 1997 from 33.5% in fiscal 1996. Selling, General and Administrative Expenses. SG&A expenses as a percentage of net sales increased to 30.5% in fiscal 1998, compared with 26.5% for fiscal 1997 and 18.0% for fiscal 1996. The increase in fiscal 1998 operating expenses as a percentage of net sales from the prior year is primarily the result of the Medex addition. SG&A expenses at Medex as a percentage of net sales were 31.7% in fiscal 1998, compared with 34.9% in fiscal 1997. In connection with the Medex acquisition, a comprehensive review of expenses was performed in January 1997. This resulted in significant cost reductions which were reflected in the results of fiscal 1998. Operating Profit, before Nonrecurring Charges and Facilities Rationalization. Operating profit, before nonrecurring charges and facilities rationalization, increased over seven fold to $13.6 million in fiscal 1998 from $1.6 million a year earlier. Operating profit, before nonrecurring charges and facilities rationalization, as a percent of net sales increased to 12.6% in fiscal 1998 from 9.6% in fiscal 1997. The improvement in profitability reflects a full year of the Medex acquisition. Operating profit, before nonrecurring charges and facilities rationalization, also increased to $1.6 million in fiscal 1997 from $1.2 million in fiscal 1996. Operating profit, before nonrecurring charges and facilities rationalization, as a percent of net sales decreased to 9.6% in fiscal 1997 from 15% in fiscal 1996. LIQUIDITY AND CAPITAL RESOURCES In connection with its acquisition of Medex, the Company entered into a $250.0 million credit facility. The Company borrowed approximately $160.0 million under this facility to fund the acquisition. At the end of fiscal 1998, there was $142.0 million outstanding under the facility. During fiscal 1998, the Company reduced outstanding borrowings under the credit facility by $27.0 million. For fiscal 1998, the weighted average interest rate on the loans under the credit facility was 6.5%. Subsequent to fiscal 1998, the Company completed the Offering of its Notes (see Note 5 to the consolidated financial statements). The net proceeds from the Offering were approximately $121.7 million. 29 31 In conjunction with the Offering subsequent to year end, the Company amended the credit facility to, among other things, reduce the maximum principal amount available from $250.0 million to $200.0 million (the "Credit Facility"). The Company used the net proceeds of the Offering to repay a portion of existing indebtedness under the Credit Facility. At January 31, 1998, borrowings under the Credit Facility, after giving effect to the Offering and application of the net proceeds therefrom, totaled approximately $20.3 million and additional amounts available for borrowing under the Credit Facility totaled $179.7 million. Amounts borrowed under the Credit Facility mature November 12, 2001. The Notes mature March 1, 2008. Cash provided by operating activities. Cash provided by operating activities in fiscal 1998 increased $6.3 million from $44.0 million in fiscal 1997. This increase is primarily due to both increased net income as a result of the acquisition of Medex and increased profitability from the sale of industrial products. Cash used in investing activities. Cash used in investing activities in fiscal 1998 included the acquisition of SDM, AS, and Premier Python Products Ltd. for approximately $17.9 million. During fiscal 1998, the Company also invested $13.4 million in renovation of existing facilities, leasehold improvements and the replacement of existing equipment. Capital expenditures in fiscal 1998 decreased to $13.4 million from $18.9 million in fiscal 1997. The Company believes that it generates sufficient cash flow from its operations to finance near and long-term internal growth, capital expenditures and principal and interest payments on its loans payable to banks and the Notes. The Company continually evaluates its employment of capital resources, including asset management and other sources of financing. CONTINGENCIES For information regarding environmental matters and other contingencies, see the sections entitled "Business -- Governmental Regulation" and "Legal Proceedings" in Part I. While the year 2000 considerations are not expected to materially impact Furon's internal operations, they may have an effect on some of our customers and suppliers, and thus indirectly affect Furon. It is not possible to quantify the aggregate cost to Furon with respect to customers and suppliers with year 2000 problems, although the Company does not anticipate it will have a material adverse impact on the Company's business, financial condition or results of operations. 30 32 ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT AUDITORS Board of Directors and Stockholders Furon Company We have audited the accompanying consolidated balance sheets of Furon Company as of January 31, 1998 and February 1, 1997, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended January 31, 1998. Our audits also included the financial statement schedule listed in the index at Item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Furon Company at January 31, 1998 and February 1, 1997, and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP Orange County, California March 16, 1998 31 33 FURON COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED ------------------------------------------ JANUARY 31, FEBRUARY 1, FEBRUARY 3, 1998 1997 1996 ----------- ------------ ----------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Net sales................................................ $485,631 $390,105 $344,886 Cost of sales............................................ 329,325 281,581 249,102 -------- -------- -------- Gross profit............................................. 156,306 108,524 95,784 Selling, general and administrative expenses............. 115,555 84,325 78,337 Write-off of acquired in-process research and development............................................ -- 53,700 -- Nonrecurring charges and facilities rationalization...... (660) 4,329 -- Other (income) expense................................... (1,114) (4,265) (3,282) Interest expense, net.................................... 10,788 2,669 2,315 -------- -------- -------- Income (loss) before income taxes........................ 31,737 (32,234) 18,414 Provision for income taxes............................... 9,997 7,517 5,245 Net income (loss)........................................ $ 21,740 $(39,751) $ 13,169 ======== ======== ======== Basic income (loss) per share............................ $ 1.22 $ (2.24) $ 0.75 ======== ======== ======== Diluted income (loss) per share.......................... $ 1.16 $ (2.24) $ 0.73 ======== ======== ========
See accompanying notes. 32 34 FURON COMPANY CONSOLIDATED BALANCE SHEETS ASSETS
JANUARY 31, FEBRUARY 1, 1998 1997 ----------- ----------- (IN THOUSANDS, EXCEPT SHARE DATA) Current assets: Cash and cash equivalents................................. $ -- $ -- Accounts receivable, less allowance for doubtful accounts of $1,741 in 1998 and $2,093 in 1997................... 75,661 71,323 Inventories............................................... 54,704 58,611 Deferred income taxes..................................... 11,052 10,411 Prepaid expenses and other assets......................... 4,959 5,389 -------- -------- Total current assets.............................. 146,376 145,734 Property, plant and equipment, at cost: Land...................................................... 6,976 7,096 Buildings and leasehold improvements...................... 31,493 30,712 Machinery and equipment................................... 158,999 152,998 -------- -------- 197,468 190,806 Less accumulated depreciation and amortization............ (87,832) (76,214) -------- -------- Net property, plant and equipment........................... 109,636 114,592 Intangible assets, at cost, less accumulated amortization of $35,354 in 1998 and $29,971 in 1997....................... 83,129 74,640 Other assets................................................ 7,208 8,385 -------- -------- Total assets...................................... $346,349 $343,351 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Cash, less checks outstanding............................. $ 1,025 $ 1,665 Accounts payable.......................................... 25,384 24,319 Salaries, wages and related benefits payable.............. 18,203 14,141 Income taxes payable...................................... 4,228 1,880 Current portion of long-term debt......................... 966 1,001 Facility rationalization and severance.................... 10,091 10,369 Other current liabilities................................. 14,035 13,535 -------- -------- Total current liabilities......................... 73,932 66,910 Long-term debt.............................................. 148,657 176,983 Other long-term liabilities................................. 23,883 21,933 Deferred income taxes....................................... 18,738 16,181 Commitments and contingencies Stockholders' equity: Preferred stock without par value, 2,000,000 shares authorized, none issued or outstanding................. -- -- Common stock without par value, 30,000,000 shares authorized, 18,227,898 and 18,006,280 shares issued and outstanding in 1998 and 1997, respectively............. 40,864 38,787 Foreign currency translation adjustment................... (2,536) (977) Unearned ESOP shares...................................... (3,229) (3,224) Unearned compensation..................................... (232) (238) Additional pension liability.............................. (1,700) (1,413) Retained earnings......................................... 47,972 28,409 -------- -------- Total stockholders' equity........................ 81,139 61,344 -------- -------- Total liabilities and stockholders' equity........ $346,349 $343,351 ======== ========
See accompanying notes. 33 35 FURON COMPANY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED JANUARY 31, 1998, FEBRUARY 1, 1997 AND FEBRUARY 3, 1996 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
FOREIGN COMMON STOCK CURRENCY UNEARNED ADDITIONAL TOTAL -------------------- TRANSLATION ESOP UNEARNED PENSION RETAINED STOCKHOLDERS' SHARES AMOUNT ADJUSTMENT SHARES COMPENSATION LIABILITY EARNINGS EQUITY ---------- ------- ----------- -------- ------------ ---------- -------- ------------- BALANCE AT JANUARY 28, 1995..................... 17,600,328 $36,280 $ 419 $(3,112) $(885) $ (379) $ 59,276 $ 91,599 ---------- ------- ------- ------- ----- ------- -------- -------- Cash dividends............. -- -- -- -- -- -- (2,131) (2,131) Exercise of stock options.................. 180,624 1,133 -- -- -- -- -- 1,133 Retired shares............. (23,704) (251) -- -- -- -- -- (251) Grant of restricted shares................... 21,220 215 -- -- (215) -- -- -- Cancellations of restricted shares................... (26,840) (212) -- -- 112 -- -- (100) Stock issued under Employee Stock Purchase Plan...... 62,182 410 -- -- -- -- -- 410 Amortization of unearned compensation............. -- -- -- -- 432 -- -- 432 Foreign currency translation adjustment... -- -- (16) -- -- -- -- (16) Loan to ESOP, net.......... -- -- -- (93) -- -- -- (93) Minimum pension liability adjustment............... -- -- -- -- -- (1,270) -- (1,270) Net income................. -- -- -- -- -- -- 13,169 13,169 ---------- ------- ------- ------- ----- ------- -------- -------- BALANCE AT FEBRUARY 3, 1996..................... 17,813,810 37,575 403 (3,205) (556) (1,649) 70,314 102,882 ---------- ------- ------- ------- ----- ------- -------- -------- Cash dividends............. -- -- -- -- -- -- (2,154) (2,154) Exercise of stock options.................. 218,608 1,690 -- -- -- -- -- 1,690 Retired shares............. (77,500) (836) -- -- -- -- -- (836) Grant of restricted shares................... 8,556 102 -- -- (102) -- -- -- Cancellations of restricted shares................... (25,670) (206) -- -- 67 -- -- (139) Stock issued under Employee Stock Purchase Plan...... 68,476 462 -- -- -- -- -- 462 Amortization of unearned compensation............. -- -- -- -- 353 -- -- 353 Foreign currency translation adjustment... -- -- (1,380) -- -- -- -- (1,380) Loan to ESOP, net.......... -- -- -- (19) -- -- -- (19) Minimum pension liability adjustment............... -- -- -- -- -- 236 -- 236 Net loss................... -- -- -- -- -- -- (39,751) (39,751) ---------- ------- ------- ------- ----- ------- -------- -------- BALANCE AT FEBRUARY 1, 1997..................... 18,006,280 38,787 (977) (3,224) (238) (1,413) 28,409 61,344 ---------- ------- ------- ------- ----- ------- -------- -------- Cash dividends............. -- -- -- -- -- -- (2,177) (2,177) Exercise of stock options.................. 132,708 1,177 -- -- -- -- -- 1,177 Retired shares............. (33,104) (410) -- -- -- -- -- (410) Grant of restricted shares................... 19,632 282 -- -- (282) -- -- -- Cancellations of restricted shares................... (10,690) (93) -- -- 22 -- -- (71) Stock issued under Employee Stock Purchase Plan...... 113,072 1,121 -- -- -- -- -- 1,121 Amortization of unearned compensation............. -- -- -- -- 266 -- -- 266 Foreign currency translation adjustment... -- -- (1,559) -- -- -- -- (1,559) Loan to ESOP, net.......... -- -- -- (5) -- -- -- (5) Minimum pension liability adjustment............... -- -- -- -- -- (287) -- (287) Net income................. -- -- -- -- -- -- 21,740 21,740 ---------- ------- ------- ------- ----- ------- -------- -------- BALANCE AT JANUARY 31, 1998..................... 18,227,898 $40,864 $(2,536) $(3,229) $(232) $(1,700) $ 47,972 $ 81,139 ---------- ------- ------- ------- ----- ------- -------- --------
See accompanying notes. 34 36 FURON COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED ----------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3, 1998 1997 1996 ----------- ----------- ----------- (IN THOUSANDS) OPERATING ACTIVITIES Net income (loss)...................................... $ 21,740 $ (39,751) $ 13,169 Adjustments to reconcile net income to cash provided by operating activities: Depreciation........................................ 16,641 13,615 11,292 Amortization........................................ 5,679 3,544 3,783 Provision for losses on accounts receivable......... 265 364 724 Increase (decrease) in deferred income taxes........ 278 (1,417) 2,239 Write-off of acquired in-process research and development....................................... -- 53,700 -- Nonrecurring charges and facilities rationalization................................... (660) 4,329 -- (Gain) loss on sale of assets and divestitures...... 149 46 (2,385) Working capital changes, net of acquisitions and disposals: Accounts receivable................................. (4,262) 2,288 2,467 Inventories......................................... 4,688 5,294 (2,059) Accounts payable and accrued liabilities............ 3,060 (2,977) (3,663) Income taxes payable................................ 4,452 4,276 (1,790) Other current assets and liabilities, net........... (2,501) 474 (43) -------- --------- -------- 5,437 9,355 (5,088) Changes in other long-term operating assets and liabilities......................................... 796 238 1,783 -------- --------- -------- Net cash provided by operating activities...... 50,325 44,023 25,517 INVESTING ACTIVITIES Acquisition of businesses, net of cash acquired........ (17,850) (157,752) (43,497) Purchases of property, plant and equipment............. (13,401) (18,936) (13,570) Proceeds from sale of businesses....................... 11,920 4,204 8,517 Proceeds from sale of equipment........................ 472 1,563 334 Proceeds from notes receivable......................... -- 286 844 Increase in notes receivable........................... (155) (444) (242) -------- --------- -------- Net cash used in investing activities.......... (19,014) (171,079) (47,614) FINANCING ACTIVITIES Proceeds from long-term debt........................... 19,158 182,000 46,756 Principal payments on long-term debt................... (47,648) (51,430) (29,506) Deferred debt costs.................................... -- (1,326) -- Proceeds from issuance of common stock................. 807 715 782 Principal payments received from ESOP.................. 529 458 384 Dividends paid on common stock......................... (2,177) (2,154) (2,131) Loan to ESOP........................................... (621) (566) (579) -------- --------- -------- Net cash provided by (used in) financing activities................................... (29,952) 127,697 15,706 EFFECT OF EXCHANGE RATE CHANGES ON CASH.................. (1,359) (641) (84) -------- --------- -------- DECREASE IN CASH AND CASH EQUIVALENTS.................... -- -- (6,475) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........... -- -- 6,475 -------- --------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR................. $ -- $ -- $ -- ======== ========= ========
See accompanying notes. 35 37 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JANUARY 31, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements include the accounts of Furon Company and its subsidiaries, all of which are wholly owned. All significant intercompany transactions have been eliminated. Certain reclassifications have been made to prior year amounts in order to be consistent with the current year presentation. Fiscal Year The Company's fiscal year ends on the Saturday closest to January 31. The fiscal year refers to the year in which the period ends (e.g. fiscal year 1998 ended January 31, 1998). Fiscal year 1998 consists of 52 weeks and fiscal years 1997 and 1996 consisted of 52 weeks and 53 weeks, respectively. 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. Consolidated Statements of Cash Flows Excess cash is invested in income-producing investments including commercial paper, money market accounts, overnight repurchase agreements and short-term certificates of deposit with original maturities of less than three months. These investments are stated at cost which approximates market. Included in interest expense, net in the consolidated statements of operations is interest and dividend income of $0.7 million, $0.7 million and $0.6 million, in fiscal years 1998, 1997 and 1996, respectively. Interest paid in fiscal years 1998, 1997 and 1996 was $10.6 million, $3.2 million, and $2.9 million, respectively. Income taxes paid in fiscal years 1998, 1997 and 1996 were $5.1 million, $3.5 million and $4.1 million, respectively. Inventories Inventories, stated at the lower of cost (first-in, first-out) or market, are summarized as follows:
JANUARY 31, FEBRUARY 1, 1998 1997 ----------- ----------- (IN THOUSANDS) Raw materials and purchased parts..................... $24,781 $22,841 Work-in-process....................................... 11,538 14,121 Finished goods........................................ 18,385 21,649 ------- ------- $54,704 $58,611 ======= =======
36 38 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Property, Plant and Equipment Depreciation is provided on the straight-line method over the following estimated useful lives: Buildings................................. 25-45 years Machinery and equipment................... 3-18 years Leasehold improvements.................... Term of the lease (including options)
Concentrations of Credit Risk Concentrations of credit risk with respect to trade receivables are limited due to the large number of customers comprising the Company's customer base, and their dispersion across many different geographical regions. At January 31, 1998, the Company had no significant concentrations of credit risk. Research and Development Costs Research and development costs are expensed as incurred. Total research and development expense, including application engineering, for fiscal year 1998, 1997 and 1996 was $14.2 million, $12.5 million and $8.5 million, respectively, and is included in the selling, general and administrative expenses caption in the Consolidated Statements of Operations. Continuous research and development is necessary for the Company to maintain its competitive position. Intangible Assets Intangible assets acquired in business combinations, net of accumulated amortization, are summarized as follows:
JANUARY 31, FEBRUARY 1, 1998 1997 ----------- ----------- (IN THOUSANDS) Goodwill.............................................. $54,476 $42,016 Other intangible assets............................... 28,653 32,624 ------- ------- $83,129 $74,640 ======= =======
Goodwill is amortized over 25 years using the straight-line method. Other intangible assets are amortized over periods ranging from 7 to 25 years. Translation of Foreign Currencies Foreign subsidiary financial statements are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52, "Foreign Currency Translations." The resulting cumulative foreign currency translation adjustment is reported separately in stockholders' equity. Transaction gains and losses included in results of operations were not significant in fiscal year 1998, 1997 and 1996. The functional currency of the Company's foreign operations is the respective local currency. Long-Lived Assets In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of", management evaluates the recoverability of the long-lived assets on an ongoing basis taking into consideration such factors as recent operating results, projected cash flows and plans for future operations. During fiscal year ended January 31, 1998, the Company recorded an impairment loss of $5.0 million on certain operating assets within the Industrial Products segment. The impairment charge 37 39 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) represented the difference between the carrying value and the estimated fair value based on the sales price for comparable assets and is presented in the nonrecurring charges and facilities rationalization caption in the Consolidated Statements of Operations. Considerable management judgment is necessary in estimating fair value. Accordingly, actual results could vary from such estimates. Stock-Based Compensation The Company accounts for stock-based employee compensation in accordance with the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations as permitted by SFAS No. 123, "Accounting for Stock-Based Compensation". Revenue Recognition The Company recognizes revenues and costs upon the shipment of goods to customers. Earnings Per Share In February 1997, the Financial Accounting Standards Board issued SFAS No. 128, "Earnings per Share." This Statement replaced the calculation of primary and fully diluted earnings per share with basic and diluted earnings per share. Unlike primary earnings per share, basic earnings per share excludes any dilutive effects of options and convertible securities. Diluted earnings per share is very similar to previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where appropriate, restated to conform to SFAS No. 128 requirements. Recent Accounting Pronouncements In June 1997, the Financial Accounting Standards Board issued SFAS No. 130, "Reporting Comprehensive Income". This statement establishes standards for reporting the components of comprehensive income and requires that all items that are required to be recognized under accounting standards as components of comprehensive income be included in a financial statement that is displayed with the same prominence as other financial statements. Comprehensive income includes net income as well as certain items that are reported directly within a separate component of stockholders' equity and bypass net income, such as cumulative foreign currency translation and minimum pension liability adjustments. The provisions of this statement are effective beginning with fiscal year 1999 interim reporting. These disclosure requirements will have no impact on the Company's financial position or results of operations. During fiscal year 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 superseded SFAS No. 14, "Financial Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. SFAS No. 131 also establishes standards for related disclosures about products and services, geographic areas, and major customers. The adoption of SFAS No. 131 did not affect results of operations or financial position, but did affect the disclosure of segment information. All prior year segment information has been restated to conform with SFAS No. 131. See Note 11. 38 40 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1998 2. ACQUISITIONS AND DISPOSITIONS Acquisitions During fiscal year ended January 31, 1998 the Company acquired three businesses at a cost of approximately $17.9 million. The acquisitions were accounted for using the purchase method and resulted in $16.6 million of goodwill, which is being amortized using the straight line method over 25 years. The results of operations of these businesses were not material in relation to the Company's consolidated results of operations. On January 2, 1997, the Company completed a tender offer for the outstanding shares of Medex, Inc., ("Medex"). The aggregate purchase price of $159.4 million, plus $5.6 million of costs directly attributable to the completion of the acquisition, was allocated to the assets and liabilities acquired, including $6.1 million related to facilities rationalization and severance, using the purchase method of accounting. Of the total purchase price, $53.7 million represented the value of in-process research and development which was expensed at the time of acquisition. The remainder of the purchase price in excess of the estimated fair value of net assets acquired is being amortized using the straight-line method over 25 years. Medex is engaged in the business of manufacturing polymer-based critical care products and infusion systems for medical and surgical applications. Medex's results of operations have been included in the consolidated financial statements since January 2, 1997. Dispositions During fiscal year ended January 31, 1998 the Company sold the net assets of its Felsted operations for approximately $11.7 million. The sale of the business resulted in a gain of $6.0 million, which was presented in the nonrecurring charges and facilities rationalization caption in the Consolidated Statement of Operations. The Company's consolidated results of operations include the results of the Felsted business through January 29, 1998, the date of sale. During fiscal year ended February 1, 1997 the Company sold three businesses for $4.2 million in cash. No gain or loss resulted from these sales. 3. NONRECURRING CHARGES AND FACILITIES RATIONALIZATION In connection with the acquisitions and divestitures made during fiscal years ended January 31, 1998 and February 1, 1997, the Company has developed plans to close and consolidate certain businesses. Operating income for fiscal year 1998 includes total nonrecurring income of approximately $0.7 million. Nonrecurring income includes a $6.0 million gain related to the sale of a business within the Industrial Products segment (see Note 2) and facilities rationalization charges of $5.3 million within the Industrial Products and Medical Device Products segments. Facilities rationalization charges include asset impairment losses of $5.0 million (see Note 1) and other net charges of $0.3 million. Operating income for fiscal year 1997 includes total nonrecurring charges of $4.3 million within the Industrial Products and Medical Device Products Segments. The charges include $1.5 million for severance and $2.8 million for facilities rationalization. 39 41 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1998 4. INCOME TAXES The provision (benefit) for income taxes for the three years ended January 31, 1998 consists of the following:
CURRENT DEFERRED TOTAL ------- -------- ------ (IN THOUSANDS) 1998 Federal......................................... $5,273 $ 3,581 $8,854 Foreign......................................... 2,046 (1,543) 503 State and local................................. 360 280 640 ------ ------- ------ $7,679 $ 2,318 $9,997 ====== ======= ====== 1997 Federal......................................... $7,535 $(1,730) $5,805 Foreign......................................... 969 -- 969 State and local................................. 529 214 743 ------ ------- ------ $9,033 $(1,516) $7,517 ====== ======= ====== 1996 Federal......................................... $ 954 $ 2,300 $3,254 Foreign......................................... 1,197 -- 1,197 State and local................................. 855 (61) 794 ------ ------- ------ $3,006 $ 2,239 $5,245 ====== ======= ======
The provision (benefit) for income taxes differs from the amount computed by applying the statutory income tax rate for the following reasons:
JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996 ---------------- ---------------- ---------------- AMOUNT % AMOUNT % AMOUNT % -------- ----- -------- ----- -------- ----- (IN THOUSANDS) Statutory federal provision......... $11,108 35.0 $(11,282) (35.0) $ 6,445 35.0 Acquired in-process research and development....................... -- -- 18,795 58.3 -- -- State and local taxes, net of federal tax benefits.............. 662 2.1 667 2.1 801 4.4 Effect of foreign taxes............. (582) (1.8) 103 0.3 (164) (0.9) Research and experimental credit.... (559) (1.8) (230) (0.7) (195) (1.1) Export sales corporation benefit.... (593) (1.9) (456) (1.4) (376) (2.0) Goodwill............................ 440 1.4 -- -- -- -- Realization of reserves due to completed audit cycles and closure of earlier fiscal years........... -- -- -- -- (1,200) (6.5) Other............................... (479) (1.5) (80) (0.3) (66) (0.4) ------- ---- -------- ----- ------- ---- $ 9,997 31.5 $ 7,517 23.3 $ 5,245 28.5 ======= ==== ======== ===== ======= ====
40 42 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1998 4. INCOME TAXES (CONTINUED) Significant components of the Company's deferred tax liabilities and assets are as follows:
JANUARY 31, FEBRUARY 1, 1998 1997 ----------- ----------- (IN THOUSANDS) DEFERRED TAX LIABILITIES: Tax over book depreciation................................ $ (8,776) $ (7,172) Intangible assets......................................... (7,102) (7,656) -------- -------- Total liabilities................................. (15,878) (14,828) -------- -------- DEFERRED TAX ASSETS: Inventories............................................... 3,510 3,897 Net operating losses...................................... 2,238 860 Nonrecurring charges and facilities rationalization....... 1,311 2,281 Accruals recognized in different periods for tax than financial reporting.................................... 2,651 3,759 -------- -------- Total assets...................................... 9,710 10,797 Valuation allowance for deferred tax assets............... (1,518) (1,739) -------- -------- Net deferred tax assets........................... 8,192 9,058 -------- -------- Total deferred taxes.............................. $ (7,686) $ (5,770) ======== ========
Applicable U.S. income and foreign withholding taxes have not been provided on undistributed earnings of certain foreign subsidiaries and affiliates aggregating $7.0 million at January 31, 1998. Management's intention is to reinvest such undistributed earnings outside the United States for an indefinite period except for distributions upon which incremental U.S. income taxes would not be material. Any withholding taxes ultimately paid, which could approximate $0.4 million, may be recoverable as foreign tax credits in the United States. U.S. Federal tax return examinations have been completed through January 31, 1994. A subsidiary of the Company has federal net operating loss carryforwards available against its taxable income of approximately $2.0 million that expire from fiscal 2000 through fiscal 2004. The Company also has foreign tax net operating loss carryforwards of approximately $4.5 million which may be carried forward indefinitely for use against future taxable income. 5. LONG-TERM DEBT Long-term debt is summarized as follows:
JANUARY 31, FEBRUARY 1, 1998 1997 ----------- ------------ (IN THOUSANDS) Loans under bank credit agreements.......................... $142,000 $169,000 Industrial Revenue Bonds.................................... 6,175 6,775 Other....................................................... 1,448 2,209 -------- -------- Total long -- term debt..................................... 149,623 177,984 Less current portion........................................ 966 1,001 -------- -------- Due after one year.......................................... $148,657 $176,983 ======== ========
Under a Credit Agreement, dated as of November 12, 1996 (the "Credit Agreement") and amended March 27, 1997, by and among Furon, the lenders party thereto (the "Lenders") and The Bank of New York 41 43 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1998 5. LONG-TERM DEBT (CONTINUED) ("BNY"), as Swing Line Lender and as Administrative Agent, Furon may borrow up to an aggregate principal amount not to exceed $250.0 million (the "Facility"). Amounts borrowed under the Credit Agreement will mature November 12, 2001 and may be prepaid by Furon at any time in whole, or from time to time in part. Borrowings under the Credit Agreement will bear interest, at Furon's option, at a rate per annum equal to either: (i) the greater of (a) BNY's prime commercial lending rate as publicly announced to be in effect from time to time and (b) 1/2% plus the federal funds rate (as published by Federal Reserve Bank of New York); or (ii) LIBOR (adjusted for reserves) plus an applicable margin subject to performance grid pricing for interest periods of one, two, three or six months or (iii) with respect to swing line loans a rate negotiated between BNY and Furon. Any amounts not paid when due bear interest at the rate otherwise applicable plus two percent. The Credit Agreement provides for the payment of a commitment fee of a certain rate per annum subject to performance grid pricing on the average daily unused amount of the Facility. At January 31, 1998, the unused portion of the credit facility was $108.0 million. Borrowing rates during the year ranged from 6.1% to 8.5% (6.4% at January 31, 1998). At January 31, 1998, the outstanding principal balance of the Industrial Revenue Bonds consisted of two separate bond issues. The first outstanding issue is at $2.4 million with varying annual principal payments due June 1998 through June 2002 and annual interest at an average rate of 6.3%. The issue is secured by a $2.6 million bank letter of credit. Any borrowings made under the letter of credit bear interest at the bank's prime rate plus two percent and are secured by land and buildings with an approximate market value of $3.3 million. The letter of credit agreement automatically renews every month through the maturity of the bond, subject to a 13-month notification from the issuer of their intention not to renew the letter. The second outstanding issue is at $3.8 million with annual principal payments of $0.2 million due July 1998 through July 2016 and bears interest at a weekly competitive adjustable rate. The issue is secured by a $3.8 million bank letter of credit which is secured by land and buildings with an approximate market value of $2.5 million and expires in July 2001. Any borrowings under the letter of credit bear interest at a weekly adjustable rate. Subsequent to year end, on March 4, 1998, the Company issued $125.0 million of 8.125% Senior Subordinated Notes due March 1, 2008 (the "Offering"). The Credit Agreement was amended and the Facility was reduced to provide for borrowings up to a maximum principal amount of $200.0 million on February 3, 1998 in connection with the Offering. The Company used the net proceeds of the Offering to repay a portion of existing indebtedness under the Company's amended Credit Agreement. 6. COMMITMENTS AND CONTINGENCIES At January 31, 1998, the Company is obligated under non-cancelable leases of real property and equipment used in its operations for minimum annual rentals plus insurance and taxes. Amounts payable under these obligations are as follows:
FISCAL YEARS ENDED IN THOUSANDS ------------------ ------------ 1999............................. $ 8,859 2000............................. 6,904 2001............................. 5,272 2002............................. 4,277 2003............................. 3,405 Thereafter....................... 25,998
42 44 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1998 6. COMMITMENTS AND CONTINGENCIES (CONTINUED) Certain leases contain escalation provisions for periodic adjustments based on certain indices. Rental expense for operating leases for the three years in the period ended January 31, 1998 was $10.1 million, $8.7 million and $8.6 million, respectively. At January 31, 1998, the Company is obligated under irrevocable letters of credit totaling $8.5 million, including those related to the Industrial Revenue Bonds as described in Note 5. At January 31, 1998, the Company had approximately $0.8 million of foreign currency hedge contracts outstanding consisting of over-the-counter forward contracts. The contracts reflect the selective hedging of the Belgium Franc with varying maturities up to six months. Net unrealized gains/losses from hedging activities were not material as of January 31, 1998. The Company is currently involved in various litigation. Management of the Company is of the opinion that the ultimate resolution of such litigation should not have a material adverse effect on the Company's consolidated financial position or results of operations. The manufacture and sale of healthcare products like the MEDEX critical care accessories and infusion systems are subject to regulation by the U.S. Food and Drug Administration ("FDA") and certain foreign agencies. These regulations range from prescribing "good manufacturing practices" to generally requiring FDA clearance of new healthcare products before they can be marketed. Medex has historically been able to seek this clearance for its products through the FDA's "510(k)" pre-market notification program which, as compared to the FDA's pre-market approval process, requires less time and the submission of limited clinical and supporting information. The Company expects any new Medex products to continue to qualify for the 510(k) pre-market notification program. The FDA routinely conducts inspections to confirm compliance with its regulations and failure to comply with them can, among other things, result in product recalls and bans, operating restrictions, and civil and criminal penalties. The Company believes that Medex is currently in compliance with these governmental regulations. Compliance with environmental laws and regulations designed to regulate the discharge of materials into the environment or otherwise protect the environment requires continuing management effort and expenditures by the Company. The Company does not believe that the operating costs incurred in the ordinary course of business to satisfy air and other permit requirements, properly dispose of hazardous wastes and otherwise comply with these laws and regulations form or will form a material component of its operating costs or have or will have a material adverse effect on its competitive or consolidated financial positions. As of January 31, 1998, the Company's reserves for environmental matters totaled approximately $1.7 million. The Company or one or more of its subsidiaries is currently involved in environmental investigation or remediation directly or as an EPA-named potentially responsible party or private cost recovery/contribution action defendant at various sites, including the following "superfund" waste disposal sites: Solvents Recovery Service of New England in Southington, Connecticut; Gallup's Quarry in Plainfield, Connecticut; Davis Liquid Waste and Picillo in Coventry, Rhode Island; Malvern in Malvern, Pennsylvania; and Granville in Granville, Ohio. While neither the timing nor the amount of the ultimate costs associated with these matters can be determined with certainty, based on information currently available to the Company, including investigations to determine the nature of the potential liability, the estimated amount of investigation and remedial costs expected to be incurred and other factors, the Company presently believes that its environmental reserves should be sufficient to cover the Company's aggregate liability for these matters and, accordingly, does not expect them to have a material adverse effect on its consolidated financial position or results of operations. The actual costs to be incurred by the Company at each site will depend on a number of factors, including one or more of the following: the final delineation of contamination; the final determination of the remedial action required; negotiations with governmental agencies with respect to 43 45 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1998 6. COMMITMENTS AND CONTINGENCIES (CONTINUED) cleanup levels; changes in regulatory requirements; innovations in investigatory and remedial technology; effectiveness of remedial technologies employed; and the ultimate ability to pay of any other responsible parties. 7. EARNINGS PER SHARE On November 20, 1997, the Company's Board of Directors approved a two-for-one stock split. One share of the Company's common stock for each full share of common stock outstanding to holders of record on December 2, 1997 was distributed on December 16, 1997. Accordingly, all numbers of Common Shares, and all per share data have been restated to reflect this stock split. The calculation of earnings per share is presented below:
YEARS ENDED -------------------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3, 1998 1997 1996 -------------- -------------- -------------- (IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) Net income (loss)................................... $ 21,740 $ (39,751) $ 13,169 =========== =========== =========== Weighted average shares outstanding for basic income per share......................................... 17,863,570 17,771,538 17,457,394 ----------- ----------- ----------- Effect of dilutive securities: Employee stock options and awards................... 885,640 -- 623,130 ----------- ----------- ----------- Weighted average shares outstanding for diluted income per share......................................... 18,749,210 17,771,538 18,080,524 =========== =========== =========== Basic income (loss) per share....................... $ 1.22 $ (2.24) $ 0.75 =========== =========== =========== Diluted income (loss) per share..................... $ 1.16 $ (2.24) $ 0.73 =========== =========== ===========
8. STOCK COMPENSATION PLANS At January 31, 1998, the Company has three stock-based compensation plans (two stock incentive plans and an Employee Stock Purchase Plan), which are described below. The Company has elected to follow APB Opinion No. 25, "Accounting for Stock Issued to Employees" and related Interpretations in accounting for its plans. Accordingly, no compensation expense has been recognized for its stock option awards and its stock purchase plan because the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant. Had compensation expense for the Company's stock option awards under its stock incentive plans and its stock purchase plan been determined based on the fair value at the grant dates for awards under those plans consistent with the method of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income (loss) and diluted income (loss) per share would have been reduced to the pro forma amounts indicated below:
1998 1997 1996 ------- -------- ------- Net income (loss) As reported $21,740 $(39,751) $13,169 Pro forma 20,904 (40,236) 13,005 Diluted income (loss) per share As reported $ 1.16 $ (2.24) $ 0.73 Pro forma 1.12 (2.27) 0.72
The stock-based compensation reflected in the above pro forma information may not be indicative of such compensation in future periods as it only reflects options granted in fiscal 1998, 1997, and 1996. 44 46 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1998 8. STOCK COMPENSATION PLANS (CONTINUED) Stock Incentive Plans The Company has a 1995 Stock Incentive Plan and a 1982 Stock Incentive Plan. Under both plans, the Compensation Committee, appointed by the Board of Directors, is authorized to grant awards to any officer or key employee of the Company. Awards granted can take the form of non-qualified stock options, stock appreciation rights, restricted stock awards ("RSAs"), and performance share awards. The 1995 Stock Incentive Plan does not provide for depreciation rights and tax-offset bonuses which are components of the 1982 Stock Incentive Plan. The 1995 Stock Incentive Plan provides for the annual grant of awards in a maximum number of shares of common stock of 1.8% of the Company's issued and outstanding shares as of the last day of the preceding fiscal year, commencing with the fiscal year beginning February 4, 1996. Options are granted at a price equal to 100% of the fair market value at the date of grant and become exercisable not earlier than six months after the award date and vest at a rate of 25% per year. The options shall remain exercisable until the expiration date but not later than ten years after the award date. At January 31, 1998, 335,738 RSAs have been granted (of which 93,052 have been canceled) under the Stock Incentive Plans. The issuance of these RSAs resulted in $1.9 million (net of cancellations) of unearned compensation which is being amortized over the five year period in which the awards vest. The fair value of each stock option grant is estimated at the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in fiscal years 1998, 1997, and 1996, respectively: dividend yield of 1.1%, 1.2% and 1.2%; expected volatility of 26%, 38% and 37%; risk-free interest rates of 6.6%, 6.3%, and 7.1%; and expected lives of 6 years for all option grants. A summary of the status of the Company's non-qualified stock option plans as of January 31, 1998 and February 1, 1997, and changes during the years ending on those dates is presented below:
1998 1997 1996 --------------------------- --------------------------- --------------------------- WEIGHTED- WEIGHTED- WEIGHTED- AVERAGE AVERAGE AVERAGE SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE ---------- -------------- ---------- -------------- ---------- -------------- Outstanding at beginning of year.... 1,537,424 $ 7.70 1,501,032 $7.08 1,458,656 $6.40 Granted................ 328,500 10.75 273,000 9.88 236,000 9.69 Exercised.............. (132,708) 6.54 (218,608) 5.95 (180,624) 4.81 Forfeited.............. (41,750) 9.89 (18,000) 9.74 (13,000) 9.69 ---------- ---------- ---------- Outstanding at end of year................. 1,691,466 8.33 1,537,424 7.70 1,501,032 7.08 ========== ========== ========== Options exercisable at year-end............. 1,064,466 1,012,548 1,063,032 ========== ========== ========== Weighted-average fair value of options granted during the year................. $ 3.76 $ 4.14 $ 4.16 ========== ========== ==========
45 47 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1998 8. STOCK COMPENSATION PLANS (CONTINUED) The following table summarizes information about stock options outstanding at January 31, 1998:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE - ------------------------------------------------------------------ ------------------------------ WEIGHTED AVERAGE RANGE OF NUMBER REMAINING WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE - --------------- ----------- ---------------- ---------------- ----------- ---------------- $5.58 - $ 6.75 673,416 2.2 years $6.17 673,416 $6.17 8.13 - 11.38 1,018,050 7.6 years 9.77 391,050 9.08 5.58 - 11.38 1,691,466 5.5 years 8.33 1,064,466 7.24
Employee Stock Purchase Plan Effective November 1, 1994 the Company adopted an Employee Stock Purchase Plan to provide substantially all employees who have completed one year of service an opportunity to purchase shares of its common stock through payroll deductions, up to 10% of eligible compensation. Annually, on October 31, participant account balances are used to purchase shares of stock at the lesser of 85 percent of the fair market value of shares on November 1 (grant date) or October 31 (exercise date). The aggregate number of shares purchased by an employee may not exceed 10,000 shares annually (subject to limitations imposed by the Internal Revenue Code). The Employee Stock Purchase Plan expires on October 31, 2004. A total of 400,000 shares are available for purchase under the plan. There were 113,072, 68,476 and 62,182 shares issued under the plan during fiscal years 1998, 1997 and 1996, respectively. Compensation expense is recognized for the fair value of the employee's purchase rights, estimated using the Black-Scholes model, with the following assumptions for fiscal years 1998, 1997 and 1996, respectively: dividend yield of 0.6%, 1.1% and 1.5%; expected life of 1 year for all years; expected volatility of 32%, 33% and 31%; and risk-free interest rates of 5.6%, 5.4% and 5.3%. The weighted-average fair value of those purchase rights granted in fiscal years 1998, 1997 and 1996 was $2.81, $2.88 and $2.11, respectively. SHAREHOLDERS' RIGHTS PLAN On March 21, 1989, the Board of Directors authorized the distribution of one right for each outstanding share of common stock under the Shareholders' Rights Plan. The rights which were distributed on May 23, 1989, become exercisable ten business days after (i) a person has acquired or obtained the right to acquire 20% or more of the Company's general voting power without approval by the Board of Directors, or (ii) a tender or exchange offer which would make a person the beneficial owner of 30% or more of the Company's general voting power, whichever is earlier. When exercisable, each right entitles the shareholder to purchase one-fourth of a share of common stock at a price of $6.88, subject to adjustment. In the event the Company engages in certain business combinations or a 20% shareholder engages in certain transactions with the Company, each holder of a right (other than those of the acquiring person) shall have the right to receive, upon the exercise thereof and payment of four times the then current exercise price, that number of shares of common stock of the surviving Company's common stock which at the time of such transaction would have a market value of two times such price paid. 9. EMPLOYEE BENEFIT PLANS The Company and its subsidiaries sponsor various qualified plans which cover substantially all of its domestic employees including a profit-sharing/retirement plan, an employee stock ownership plan, and an employee stock purchase plan as described in Note 8. The Company also sponsors a nonqualified defined benefit plan covering certain employees. 46 48 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1998 9. EMPLOYEE BENEFIT PLANS (CONTINUED) Profit-Sharing/Retirement Plan The Company has a Profit Sharing/Retirement Plan which provides for an employee salary deferral contribution and Company contributions. Employees are permitted to contribute a percentage of their compensation as defined by the Plan Documents. Contributions made by the Company are based on the Company's performance and are at the discretion of the Board of Directors. Total Company contributions for fiscal 1998, 1997 and 1996 were $2.8 million, $2.2 million and $1.9 million, respectively, and combined Company and employee contributions were $8.2 million, $6.3 million and $5.4 million, respectively. At January 31, 1998, the Company has committed to fund at least $5.0 million of combined Company and employee contributions to the Profit Sharing/Retirement Plan. Employee Stock Ownership Plan The Company sponsors an Employee Stock Ownership Plan ("ESOP") covering substantially all of its employees (subject to certain limitations). The Company annually contributes amounts sufficient to cover principal and interest on loans made to the ESOP as determined by the Board of Directors. Prior to December 31, 1992, the Company loaned the ESOP $3.7 million ($1.2 million outstanding at January 31, 1998) to purchase 622,000 shares of stock, at interest rates ranging from 7.83% to 9.12%. The loans are payable in ten annual installments of principal and interest. The plan subsequently entered into loan agreements with the Company according to the table below. The proceeds of the loans were used to purchase shares of stock from a former officer and director of the Company. These loans are payable in ten annual installments of principal and interest beginning in fiscal 1996. Shares are released and allocated to participant accounts annually as loan repayments are made.
INTEREST ORIGINAL OUTSTANDING AT LOAN DATE RATE LOAN AMOUNT JANUARY 31, 1998 SHARES PURCHASED --------- -------- ----------- ---------------- ---------------- June 9, 1994........................... 7.52% $ 217,500 $ 169,815 30,000 August 26, 1994........................ 7.67 268,125 213,567 30,000 November 23, 1994...................... 7.45 322,500 264,115 30,000 June 14, 1995.......................... 7.31 231,250 199,646 20,000 September 5, 1995...................... 6.91 206,250 182,005 20,000 December 14, 1995...................... 6.36 141,563 128,352 15,000 March 26, 1996......................... 6.07 322,500 300,275 30,000 June 11, 1996.......................... 7.04 243,750 228,168 20,000 June 3, 1997........................... 6.80 266,250 266,250 20,000 August 29, 1997........................ 6.39 355,000 355,000 20,000 ---------- ---------- ------- $2,574,688 $2,307,193 235,000 ========== ========== =======
In fiscal 1995, the Company adopted the provisions of AICPA Statement of Position No. 93-6 ("SOP") which requires that compensation expense be measured based on the fair value of the shares over the period the shares are earned. In addition, the SOP requires that dividends paid on unallocated shares held by the ESOP are reported as a reduction of accrued interest or as compensation expense rather than a charge to retained earnings, and shares not yet committed to be released are not considered outstanding in the calculation of earnings per share. As allowed by the SOP, the Company has elected not to apply the SOP's provisions to shares acquired prior to fiscal 1994. As such, compensation expense related to such shares is measured based on the historical cost of the shares, dividends have been deducted as a charge to retained 47 49 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1998 9. EMPLOYEE BENEFIT PLANS (CONTINUED) earnings and the unallocated shares are considered outstanding in the calculation of earnings per share. The adoption of the SOP did not have a material impact on the consolidated financial statements. Of the leveraged shares acquired prior to fiscal 1994, 303,282 and 182,462 are allocated and unallocated, respectively, at January 31, 1998. Of the leveraged shares acquired beginning in fiscal 1994, there were 27,350 allocated shares, 51,257 committed-to-be-released shares, and 156,393 unallocated shares at January 31, 1998. The fair value of unallocated shares was $3.0 million at January 31, 1998. Total compensation cost recognized by the Company during fiscal 1998, 1997 and 1996, which consists of the annual contribution and plan administrative costs, net of dividend income on unallocated and forfeited shares, totaled $0.9 million, $0.8 million and $0.7 million, respectively. Supplemental Executive Retirement Plan In fiscal 1987, the Company adopted an unfunded executive defined benefit retirement plan for certain key officers of the Company, which provides for benefits which supplement those provided by the Company's other retirement plans. Benefits payable under the plan are based upon compensation levels and length of service of the participants. In accordance with SFAS No. 87, "Employers' Accounting for Pensions," the Company has recorded an additional liability of approximately $2.5 million and $2.0 million in fiscal 1998 and 1997, respectively, which represents the excess of the accumulated benefit obligation over previously recognized accrued pension costs. In 1998 and 1997, the excess of additional pension liability over the unrecognized net transition obligation has been recorded as a component of stockholders' equity. Actuarial present value of benefit obligations are as follows:
JANUARY 31, FEBRUARY 1, 1998 1997 ----------- ----------- (IN THOUSANDS) Vested benefit obligation............................. $ 9,365 $ 8,364 ======= ======= Accumulated benefit obligation........................ $ 9,435 $ 8,527 ======= ======= Unfunded projected benefit obligation................. $ 9,902 $ 8,781 Unrecognized net loss................................. (2,167) (1,667) Unrecognized prior service cost....................... (237) -- Unrecognized net transition obligation................ (524) (608) ------- ------- 6,974 6,506 Additional minimum liability.......................... 2,461 2,021 ------- ------- Accrued pension cost.................................. $ 9,435 $ 8,527 ======= ======= Assumptions: Discount rate....................................... 7.25% 7.75% Salary increase rate................................ 5.00% 5.00%
48 50 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1998 9. EMPLOYEE BENEFIT PLANS (CONTINUED) Net periodic pension costs for fiscal 1998, 1997 and 1996 are as follows:
YEARS ENDED ----------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3, 1998 1997 1996 ----------- ----------- ----------- (IN THOUSANDS) Service cost.............................. $ 38 $ 41 $ 37 Interest cost............................. 669 638 618 Net amortization and deferral............. 170 192 211 ---- ---- ---- $877 $871 $866 ==== ==== ====
10. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
DILUTED INCOME (LOSS) NET INCOME INCOME (LOSS) NET SALES GROSS PROFIT BEFORE TAXES (LOSS) PER SHARE(A) --------- ------------ ------------- ---------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) YEAR ENDED JANUARY 31, 1998 1st Quarter.................. $119,649 $38,319 $ 7,541 $ 4,977 $0.27 2nd Quarter.................. 118,696 38,482 7,351 5,224 0.28 3rd Quarter.................. 123,209 38,905 7,978 5,465 0.29 4th Quarter.................. 124,077 40,600 8,867(b) 6,074 0.32 YEAR ENDED FEBRUARY 1, 1997 1st Quarter.................. $ 94,763 $26,497 $ 6,906 $ 4,558 $0.25 2nd Quarter.................. 96,216 26,046 5,901 3,895 0.22 3rd Quarter.................. 96,227 25,668 6,144 4,055 0.22 4th Quarter.................. 102,899 30,313 (51,185)(c) (52,259) (2.93)
- --------------- (a) Diluted income (loss) per share is computed independently for each of the quarters based on the weighted average number of shares outstanding for each period, and the sum of the quarters may not necessarily be equal to the full year diluted income (loss) per share amount. (b) The fourth quarter of fiscal year ended January 31, 1998 includes a $6.0 million gain related to the sale of a business and facilities rationalization charges of $5.3 million as described in Note 3. (c) The fourth quarter of fiscal year ended February 1, 1997 includes the write-off of acquired in-process research and development of $53.7 million and nonrecurring charges of $4.3 million as described in Notes 2 and 3. 11. SEGMENT INFORMATION The factors impacting the Company's basis for reportable segments include separate management teams, infrastructures, and discrete financial information about each. Additionally, the long-term financial performance of the Medical Device Products segment is affected by an environment governed by regulatory standards. The Company operates in two business segments: Industrial Products, including highly engineered seals and bearings, fluid handling, components, tapes, films and coated fabrics, hose and tubing, wire and cable, and plastic formed components; and Medical Device Products, including critical care products and infusion systems for medical and surgical applications. 49 51 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1998 11. SEGMENT INFORMATION (CONTINUED) Sales, operating profit (loss), interest expense, identifiable assets, capital expenditures, depreciation and amortization are set forth in the following table:
INDUSTRIAL MEDICAL DEVICE PRODUCTS PRODUCTS ADJUSTMENTS CONSOLIDATED ---------- --------------- ----------- ------------ (IN THOUSANDS) JANUARY 31, 1998: Sales to unaffiliated customers......... $377,622 $108,009 $485,631 Operating profit........................ 27,215 14,196 41,411 Interest expense, net................... -- -- $10,788 10,788 Identifiable assets..................... 212,941 133,408 346,349 Capital expenditures.................... 9,438 3,963 13,401 Depreciation and amortization........... 16,136 6,184 22,320 FEBRUARY 1, 1997: Sales to unaffiliated customers......... $373,419 $ 16,686 $390,105 Operating profit (loss)................. 19,649 (53,479) (33,830) Interest expense, net................... -- -- $ 2,669 2,669 Identifiable assets..................... 212,979 130,372 343,351 Capital expenditures.................... 18,718 218 18,936 Depreciation and amortization........... 16,605 554 17,159 FEBRUARY 3, 1996: Sales to unaffiliated customers......... $336,883 $ 8,003 $344,886 Operating profit........................ 16,204 1,243 17,447 Interest expense, net................... -- -- $ 2,315 Identifiable assets..................... 210,796 688 211,484 Capital expenditures.................... 13,564 6 13,570 Depreciation and amortization........... 14,952 123 15,075
50 52 FURON COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) JANUARY 31, 1998 11. SEGMENT INFORMATION (CONTINUED) The following table provides information as to the significant geographic areas in which the Company has operations.
YEARS ENDED ----------------------------------------- JANUARY 31, FEBRUARY 1, FEBRUARY 3, 1998 1997 1996 ----------- ----------- ----------- (IN THOUSANDS) Net sales to outside customers: United States................................... $413,743 $344,727 $309,683 Europe.......................................... 71,888 45,378 35,203 -------- -------- -------- $485,631 $390,105 $344,886 ======== ======== ======== Income (loss) before income taxes: United States................................... $ 29,529 $(33,690) $ 15,333 Europe.......................................... 2,208 1,456 3,081 -------- -------- -------- $ 31,737 $(32,234) $ 18,414 ======== ======== ======== Identifiable assets: United States................................... $290,518 $294,745 $190,463 Europe.......................................... 55,831 48,606 21,021 -------- -------- -------- $346,349 $343,351 $211,484 ======== ======== ======== Export sales...................................... $ 51,999 $ 42,529 $ 35,967 ======== ======== ========
12. SUBSEQUENT EVENT (UNAUDITED) On March 24, 1998, the Company entered into an Employee Benefits Trust (the "Trust") with Wachovia Bank, N.A., Trustee. On March 26, 1998, the Company contributed $1.3 million to the Trust to purchase shares of the Company's common stock on the open market. Thereafter, the Company may contribute additional cash for the purchase of shares of the Company's common stock to the Trust at its sole discretion. The proceeds from the sale or direct use of the common shares over the life of the Trust will be used to fund Company obligations for various benefit plans. 51 53 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information in response to this Item is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 2, 1998. Information concerning the Company's executive officers is included in Part I. ITEM 11. EXECUTIVE COMPENSATION Information in response to this Item is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 2, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information in response to this Item is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 2, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information in response to this Item is incorporated herein by reference from the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on June 2, 1998. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
PAGE ---- (a) 1. Index to Financial Statements Report of Independent Auditors.............................. 31 Consolidated Statements of Operations Years ended January 32 31, 1998, February 1, 1997 and February 3, 1996........... Consolidated Balance Sheets January 31, 1998 and February 1, 33 1997...................................................... Consolidated Statements of Stockholders' Equity Years ended 34 January 31, 1998, February 1, 1997, and February 3, 1996...................................................... Consolidated Statements of Cash Flows Years ended January 35 31, 1998, February 1, 1997 and February 3, 1996........... Notes to Consolidated Financial Statements January 31, 36 1998...................................................... 2. Index to Financial Statement Schedules Schedule II -- Valuation and Qualifying Accounts............ 53 All other schedules have been omitted since the required information is not present or not present in amounts sufficient to require the submission of the schedules, or because the information required is included in the consolidated financial statements or the notes thereto. 3. Exhibits: The exhibits listed in the accompanying Index to Exhibits are filed as part of this annual report. (b) Reports on Form 8-K: None.
52 54 FURON COMPANY SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED JANUARY 31, 1998, FEBRUARY 1, 1997 AND FEBRUARY 3, 1996
ADDITIONS DEDUCTIONS/ CHARGED TO ACCOUNTS BALANCE AT COSTS WRITTEN BEGINNING AND OFF NET OF BALANCE AT OF YEAR EXPENSES RECOVERIES OTHER END OF YEAR ---------- ------------ ----------- -------- ----------- Allowance for doubtful receivables: 1998............................. $2,093,311 $264,523 $(631,554) $ 14,764(a) $1,741,044 ========== ======== ========= ======== ========== 1997............................. $1,366,935 $364,164 $(453,421) $815,633(a) $2,093,311 ========== ======== ========= ======== ========== 1996............................. $ 695,750 $724,147 $(256,851) $203,889(a) $1,366,935 ========== ======== ========= ======== ==========
- --------------- (a) Relates to opening balances of acquisitions and dispositions. 53 55 FURON COMPANY INDEX TO EXHIBITS
SEQUENTIAL REGULATION S-K PAGE ITEM NUMBER NUMBER - -------------- ---------- 3 Restated Articles of Incorporation (Incorporated by reference to Exhibit 3 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088)..................................................... 3A Certificate of Amendment of Restated Articles of Incorporation effective December 2, 1997.................... 3.1 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994 and Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q filed on September 13, 1994, Commission File No. 0-8088)................................. 4.1 Rights Agreement as amended (Incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form 8-A filed March 22, 1989, and Exhibit 4.1 to the Registrant's Annual Report of Form 10-K filed on April 28, 1992, Commission File No. 0-8088)........................... 4.2 Indenture dated as of March 4, 1998 by and between Furon Company and The Bank of New York, as Trustee................ 10.1* 1982 Stock Incentive Plan, as amended (Incorporated by reference to Exhibits 10.1 and 10.1A to the Registrant's Quarterly Reports on Form 10-Q filed on September 13, 1994 and September 2, 1997, respectively, Commission File No. 0-8088)..................................................... 10.2* Employee Relocation Assistance Plan as amended (Incorporated by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K filed on March 21, 1990, Commission File No. 0-8088)................................................. 10.3* Supplemental Executive Retirement Plan as presently in effect (Incorporated by reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K filed on March 28, 1991, Exhibit 10.4 to the Registrant's Annual Report on Form 10-K filed on March 29, 1993, and Exhibits 10.4A and 10.3A to the Registrant's Quarterly Reports on Form 10-Q filed on September 13, 1994 and September 2, 1997, respectively, Commission File No. 0-8088)................................. 10.4 Agreement and Plan of Merger, dated November 12, 1996, by and among the Registrant, FCY, Inc. and Medex, Inc. (Incorporated by reference to Exhibit 99.10 to the Registrant's Schedule 14D-1 filed on November 15, 1996, Commission File No. 0-8088)................................. 10.5* Form of Indemnity Agreement with each of the directors and officers of the Registrant (Incorporated by reference to Exhibit C to the Registrant's definitive Proxy Statement filed May 2, 1988, Commission File No. 0-8088).............. 10.6* Form of Change-in-Control Agreement between the Registrant and each of its executive officers (Incorporated by reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q filed on May 30, 1997, Commission File No. 0-8088).................................................
- --------------- * A management contract or compensatory plan or arrangement. 54 56
SEQUENTIAL REGULATION S-K PAGE ITEM NUMBER NUMBER - -------------- ---------- 10.7* Deferred Compensation Plan as amended (Incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K filed on March 29, 1993 and Exhibit 10.7A to the Registrant's Quarterly Report on Form 10-Q filed on September 2, 1997, Commission File No. 0-8088).............. 10.8* Economic Value Added (EVA) Incentive Compensation Plan, as amended (Incorporated by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994 and Exhibit 10.8A to the Registrant's Quarterly Report on Form 10-Q filed on September 2, 1997, Commission File No. 0-8088)..................................................... 10.9* 1995 Stock Incentive Plan as amended (Incorporated by reference to Exhibit A to the Registrant's definitive Proxy Statement filed May 1, 1995, Exhibit 10.12A to the Registrant's Annual Report on Form 10-K filed March 28, 1997 and Exhibit 10.12B to the Registrant's Quarterly Report on Form 10-Q filed September 2, 1997, Commission File No. 0-8088)..................................................... 10.10* Promissory note and subordination agreement for Terrence A. Noonan relocation (Incorporated by reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088)............... 10.11 1993 Non-Employee Directors' Stock Compensation Plan as amended (Incorporated by reference to Exhibits 10.12, 10.12A and 10.11A to the Registrant's Quarterly Reports on Form 10-Q filed on June 2, 1994, August 24, 1995 and September 2, 1997, respectively, Commission File No. 0-8088)............. 10.12 First Amended and Restated Credit Agreement, dated as of March 27, 1997, by and among the Registrant, the Lenders party thereto, and co-agents, documentation agent, swing line lender and administrative agent, and arranging agent named therein (Incorporated by reference to Exhibit 10.13 to the Registrant's Quarterly Report on Form 10-Q filed May 30, 1997, Commission File No. 0-8088)........................... 10.13 Amendment No. 1, dated as of February 3, 1998, to Exhibit 10.12....................................................... 10.14 Purchase Agreement, dated as of February 26, 1998, by and among Furon Company and Lehman Brothers Inc., Bear, Stearns & Co. Inc. and BNY Capital Markets, Inc..................... 10.15 Registration Rights Agreement, dated as of March 4, 1998, by and among Furon Company and Lehman Brothers Inc., Bear Stearns & Co. Inc. and BNY Capital Markets, Inc............. 21 Subsidiaries of the Registrant.............................. 23 Consent of Independent Auditors............................. 27 Financial Data Schedule.....................................
- --------------- * A management contract or compensatory plan or arrangement. 55 57 SIGNATURES AND POWER OF ATTORNEY 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 on March 24, 1998 by the undersigned, thereunto duly authorized. FURON COMPANY By: /s/ MONTY A. HOUDESHELL ------------------------------------ Monty A. Houdeshell Vice President, Chief Financial Officer and Treasurer /s/ DAVID L. MASCARIN ------------------------------------ David L. Mascarin Controller 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. Each person whose signature appears below hereby authorizes and appoints J. Michael Hagan, Terrence A. Noonan, and Monty A. Houdeshell as attorneys-in-fact and agents, each acting alone, to execute and file with the applicable regulatory authorities any amendment to this report on his behalf individually and in each capacity stated below.
NAME TITLE DATE ---- ----- ---- /s/ J. MICHAEL HAGAN Chairman of the Board March 24, 1998 - ----------------------------------------------------- (Principal Executive J. Michael Hagan Officer) /s/ TERRENCE A. NOONAN President and Director March 24, 1998 - ----------------------------------------------------- Terrence A. Noonan /s/ PETER CHURM Chairman Emeritus March 24, 1998 - ----------------------------------------------------- Peter Churm /s/ MONTY A. HOUDESHELL Vice President, Chief March 24, 1998 - ----------------------------------------------------- Financial Officer and Monty A. Houdeshell Treasurer /s/ DAVID L. MASCARIN Controller March 24, 1998 - ----------------------------------------------------- David L. Mascarin /s/ COCHRANE CHASE Director March 24, 1998 - ----------------------------------------------------- Cochrane Chase /s/ H. DAVID BRIGHT Director March 24, 1998 - ----------------------------------------------------- H. David Bright /s/ WILLIAM D. CVENGROS Director March 24, 1998 - ----------------------------------------------------- William D. Cvengros /s/ R. DAVID THRESHIE Director March 24, 1998 - ----------------------------------------------------- R. David Threshie
56 58
NAME TITLE DATE ---- ----- ---- /s/ BRUCE E. RANCK Director March 24, 1998 - ----------------------------------------------------- Bruce E. Ranck /s/ WILLIAM C. SHEPHERD Director March 24, 1998 - ----------------------------------------------------- William C. Shepherd
57 59 FURON COMPANY INDEX TO EXHIBITS
SEQUENTIAL REGULATION S-K PAGE ITEM NUMBER NUMBER - -------------- ---------- 3 Restated Articles of Incorporation (Incorporated by reference to Exhibit 3 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088)..................................................... 3A Certificate of Amendment of Restated Articles of Incorporation effective December 2, 1997.................... 3.1 Amended and Restated Bylaws (Incorporated by reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994 and Exhibit 3.2 to the Registrant's Quarterly Report on Form 10-Q filed on September 13, 1994, Commission File No. 0-8088)................................. 4.1 Rights Agreement as amended (Incorporated by reference to Exhibit 2.1 to the Registrant's Registration Statement on Form 8-A filed March 22, 1989, and Exhibit 4.1 to the Registrant's Annual Report of Form 10-K filed on April 28, 1992, Commission File No. 0-8088)........................... 4.2 Indenture dated as of March 4, 1998 by and between Furon Company and The Bank of New York, as Trustee................ 10.1* 1982 Stock Incentive Plan as amended (Incorporated by reference to Exhibits 10.1 and 10.1A to the Registrant's Quarterly Reports on Form 10-Q filed on September 13, 1994 and September 2, 1997, respectively, Commission File No. 0-8088)..................................................... 10.2* Employee Relocation Assistance Plan as amended (Incorporated by reference to Exhibit 10.2 to the Registrant's Annual Report on Form 10-K filed on March 21, 1990, Commission File No. 0-8088)................................................. 10.3* Supplemental Executive Retirement Plan as presently in effect (Incorporated by reference to Exhibit 10.5 to the Registrant's Annual Report on Form 10-K filed on March 28, 1991, Exhibit 10.4 to the Registrant's Annual Report on Form 10-K filed on March 29, 1993, and Exhibits 10.4A and 10.3A to the Registrant's Quarterly Reports on Form 10-Q filed on September 13, 1994 and September 2, 1997, respectively, Commission File No. 0-8088)................................. 10.4 Agreement and Plan of Merger, dated November 12, 1996, by and among the Registrant, FCY, Inc. and Medex, Inc. (Incorporated by reference to Exhibit 99.10 to the Registrant's Schedule 14D-1 filed on November 15, 1996, Commission File No. 0-8088)................................. 10.5* Form of Indemnity Agreement with each of the directors and officers of the Registrant (Incorporated by reference to Exhibit C to the Registrant's definitive Proxy Statement filed May 2, 1988, Commission File No. 0-8088).............. 10.6* Form of Change-in-Control Agreement between the Registrant and each of its executive officers (Incorporated by reference to Exhibit 10.6 to the Registrant's Quarterly Report on Form 10-Q filed on May 30, 1997, Commission File No. 0-8088)................................................. 10.7* Deferred Compensation Plan (Incorporated by reference to Exhibit 10.7 to the Registrant's Annual Report on Form 10-K filed on March 29, 1993 and Exhibit 10.7A to the Registrant's Quarterly Report on Form 10-Q filed on September 2, 1997, Commission File No. 0-8088)..............
58 60
SEQUENTIAL REGULATION S-K PAGE ITEM NUMBER NUMBER - -------------- ---------- 10.8* Economic Value Added (EVA) Incentive Compensation Plan, as amended (Incorporated by reference to Exhibit 10.8 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, and Exhibit 10.8A to the Registrant's Quarterly Report on Form 10-Q filed on September 2, 1997, Commission File No. 0-8088)..................................................... 10.9* 1995 Stock Incentive Plan as amended (Incorporated by reference to Exhibit A to the Registrant's definitive Proxy Statement filed May 1, 1995, Exhibit 10.12A to the Registrant's Annual Report on Form 10-K filed March 28, 1997 and Exhibit 10.12B to the Registrant's Quarterly Report on Form 10-Q filed September 2, 1997, Commission File No. 0-8088)..................................................... 10.10* Promissory note and subordination agreement for Terrence A. Noonan relocation (Incorporated by reference to Exhibit 10.10 to the Registrant's Annual Report on Form 10-K filed on April 7, 1994, Commission File No. 0-8088)............... 10.11 1993 Non-Employee Directors' Stock Compensation Plan, as amended (Incorporated by reference to Exhibits 10.12, 10.12A and 10.11A to the Registrant's Quarterly Reports on Form 10-Q filed on June 2, 1994, August 24, 1995 and September 2, 1997, respectively, Commission File No. 0-8088)............. 10.12 First Amended and Restated Credit Agreement, dated as of March 27, 1997, by and among the Registrant, the Lenders party thereto, and co-agents, documentation agent, swing line lender and administrative agent, and arranging agent named therein (Incorporated by reference to Exhibit 10.13 to the Registrant's Quarterly Report on Form 10-Q filed May 30, 1997, Commission File No. 0-8088)........................... 10.13 Amendment No. 1, dated as of February 3, 1998, to Exhibit 10.12....................................................... 10.14 Purchase Agreement, dated as of February 26, 1998, by and among Furon Company and Lehman Brothers Inc., Bear, Stearns & Co. Inc. and BNY Capital Markets, Inc..................... 10.15 Registration Rights Agreement, dated as of March 4, 1998, by and among Furon Company and Lehman Brothers Inc., Bear Stearns & Co. Inc. and BNY Capital Markets, Inc............. 21 Subsidiaries of the Registrant.............................. 23 Consent of Independent Auditors............................. 27 Financial Data Schedule.....................................
- --------------- * A management contract or compensatory plan or arrangement. 59 EX-3.A 2 RESTATED ARTICLES OF INCORPORATION 1 EXHIBIT 3A CERTIFICATE OF AMENDMENT OF RESTATED ARTICLES OF INCORPORATION OF FURON COMPANY Monty A. Houdeshell and Donald D. Bradley certify that: 1. They are a Vice President and the Secretary, respectively, of Furon Company, a California corporation (the "Corporation"). 2. Article FIFTH of the Restated Articles of Incorporation of the Corporation is amended to read in its entirety as follows: FIFTH: The Corporation is authorized to issue two classes of shares designated "Preferred Stock" and "Common Stock," respectively. The number of shares of Preferred Stock authorized to be issued is 2,000,000 and said shares are without par value and the number of shares of Common Stock authorized to be issued is 30,000,000 and said shares are without par value. The Preferred Stock may be divided into and issued in such number of series as the Board of Directors may determine. The Board of Directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series of Preferred Stock, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any such series subsequent to the issue of shares of that series. Upon amendment of this Article FIFTH to read as herein set forth, each outstanding share of Common Stock is split and changed into two (2) shares of Common Stock. 3. The foregoing amendment of the Restated Articles of Incorporation has been duly approved by the Board of Directors of the Corporation. 4. The Corporation has only Common Stock outstanding. Pursuant to Section 902(c) of the California General Corporation Law, the foregoing amendment effecting a stock split (including an increase in the authorized number of shares in proportion thereto) may be adopted with approval by the Board of Directors alone. We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge. IN WITNESS WHEREOF, the undersigned have executed this Certificate of 2 Amendment on December 1, 1997. By: /s/ Monty A. Houdeshell ---------------------------- Monty A. Houdeshell Vice President By: /s/ Donald D. Bradley ---------------------------- Donald D. Bradley Secretary EX-4.2 3 INDENTURE DATED AS OF MARCH 4, 1998 1 EXHIBIT 4.2 ================================================================================ FURON COMPANY 8.125% SENIOR SUBORDINATED NOTES DUE 2008 INDENTURE Dated as of March 4, 1998 THE BANK OF NEW YORK Trustee ================================================================================ 2
CROSS-REFERENCE TABLE* Trust Indenture Act Section Indenture Section 310 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (i)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10 (ii)(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 311 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11 (iii)(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. 312 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.05 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03 (iv)(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.03 313 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06 (b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.03 (b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.07 (v)(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06; 11.02 (v)(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.06 314 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03; 11.02 (A)(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.02 (c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04 (c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.04 (c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (vi)(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.05 (f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NA 315 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05, 11.02 (B)(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01 (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.01 (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 (C)(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.12 317 (a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.08 (a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.09 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.04 318 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01 (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A. (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.01
N.A. means not applicable. *This Cross-Reference Table is not part of the Indenture. 3
TABLE OF CONTENTS PAGE ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.01. Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Section 1.02. Other Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Section 1.03. Incorporation By Reference Of Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . 16 Section 1.04. Rules of Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 ARTICLE 2. THE NOTES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 2.01. Form and Dating. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Section 2.02. Execution and Authentication. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Section 2.03. Registrar and Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 2.04. Paying Agent to Hold Money in Trust. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 2.05. Holder Lists. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Section 2.06. Transfer and Exchange. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Section 2.07. Replacement Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 2.08. Outstanding Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 2.09. Treasury Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Section 2.10. Temporary Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 2.11. Cancellation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 2.12. Defaulted Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Section 2.13. CUSIP Numbers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE 3. REDEMPTION AND PREPAYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 3.01. Notices to Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 3.02. Selection of Notes to Be Redeemed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 3.03. Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Section 3.04. Effect of Notice of Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 3.05. Deposit of Redemption Price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 3.06. Notes Redeemed in Part. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Section 3.07. Optional Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 3.08. Mandatory Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Section 3.09. Offer to Purchase by Application of Excess Proceeds. . . . . . . . . . . . . . . . . . . . . . . . 36 ARTICLE 4. COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 4.01. Payment of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 4.02. Maintenance of Office or Agency. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Section 4.03. Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 4.04. Compliance Certificate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Section 4.05. Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 4.06. Stay, Extension and Usury Laws. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 4.07. Restricted Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries. . . . . . . . . . . . . . . . . . . 43 Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock. . . . . . . . . . . . . . . . . . . . . 44 i
4 Section 4.10. Asset Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Section 4.11. Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Section 4.12. Liens. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 4.13. Business Activities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 4.14. Corporate Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 4.15. Offer to Repurchase Upon Change of Control. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 Section 4.16. No Senior Subordinated Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 4.17. Sale and Leaseback Transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 Section 4.18. Limitation on Guarantees of Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 4.19. Payments for Consent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 ARTICLE 5. SUCCESSORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 5.01. Merger, Consolidation or Sale of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 Section 5.02. Successor Corporation Substituted. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 ARTICLE 6. DEFAULTS AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 6.01. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Section 6.02. Acceleration. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 Section 6.03. Other Remedies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 6.04. Waiver of Past Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 6.05. Control by Majority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 6.06. Limitation on Suits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 Section 6.07. Rights of Holders of Notes to Receive Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 6.08. Collection Suit by Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 6.09. Trustee May File Proofs of Claim. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 Section 6.10. Priorities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 6.11. Undertaking for Costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 ARTICLE 7. TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 7.01. Duties of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 Section 7.02. Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 Section 7.03. Individual Rights of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 7.04. Trustee's Disclaimer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 7.05. Notice of Defaults. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Section 7.06. Reports by Trustee to Holders of the Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 7.07. Compensation and Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 Section 7.08. Replacement of Trustee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 Section 7.09. Successor Trustee by Merger, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 7.10. Eligibility; Disqualification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 7.11. Preferential Collection of Claims Against Company. . . . . . . . . . . . . . . . . . . . . . . . . 61 ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . 61 Section 8.02. Legal Defeasance and Discharge. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 Section 8.03. Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 8.04. Conditions to Legal or Covenant Defeasance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. . . . 64
ii 5 Section 8.06. Repayment to Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 Section 8.07. Reinstatement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 9.01. Without Consent of Holders of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 9.02. With Consent of Holders of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 Section 9.03. Compliance with Trust Indenture Act. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 9.04. Revocation and Effect of Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 9.05. Notation on or Exchange of Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 Section 9.06. Trustee to Sign Amendments, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67 ARTICLE 10. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 10.01. Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 10.02. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 10.03. Liquidation; Dissolution; Bankruptcy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 Section 10.04. Default on Designated Senior Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69 Section 10.05. Acceleration of Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 10.06. When Distribution Must Be Paid Over. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 10.07. Notice by Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 10.08. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70 Section 10.09. Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 10.10. Subordination May Not Be Impaired by Company. . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 10.11. Distribution or Notice to Representative. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 10.12. Rights of Trustee and Paying Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71 Section 10.13. Authorization to Effect Subordination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Section 10.14. Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 ARTICLE 11. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Section 11.1. Trust Indenture Act Controls. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Section 11.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72 Section 11.3. Communication by Holders of Notes with Other Holders of Notes. . . . . . . . . . . . . . . . . . . 73 Section 11.4. Certificate and Opinion as to Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . . . 73 Section 11.5. Statements Required in Certificate or Opinion. . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Section 11.6. Rules by Trustee and Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Section 11.7. No Personal Liability Of Directors, Officers, Employees And Shareholders. . . . . . . . . . . . . . 74 Section 11.8. Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 Section 11.9. No Adverse Interpretation of Other Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Section 11.10. Successors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Section 11.11. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Section 11.12. Counterpart Originals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75 Section 11.13. Table of Contents, Headings, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
iii 6 EXHIBITS Exhibit A-1 FORM OF NOTE Exhibit A-2 FORM OF REGULATION S TEMPORARY GLOBAL NOTE Exhibit B FORM OF CERTIFICATE OF TRANSFER Exhibit C FORM OF CERTIFICATE OF EXCHANGE Exhibit D FORM OF SUPPLEMENTAL INDENTURE iv 7 INDENTURE dated as of March 4, 1998 between Furon Company, a California corporation (the "Company"), and The Bank of New York , a New York banking corporation, as trustee (the "Trustee"). The Company and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders of the 8L% Senior Subordinated Notes due 2008 (the "Initial Notes") and the 8L% Subordinated Notes due 2008 issued in the Exchange Offer (the "Exchange Notes" and, together with the Initial Notes, the "Notes"): ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE Section 1.01. Definitions. "144A Global Note" means a global note in the form of Exhibit A-1 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A. "Acquired Debt" means, with respect to any specified Person, (i) Indebtedness of any other Person existing at the time such other Person is merged with or into or became a Subsidiary of such specified Person, including, without limitation, Indebtedness incurred in connection with, or in contemplation of, such other Person merging with or into or becoming a Subsidiary of such specified Person and (ii) Indebtedness secured by a Lien encumbering any assets acquired by such specified Person. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided, however, that beneficial ownership of 10% or more of the voting securities of a Person shall be deemed to be control. "Agent" means any Registrar, Paying Agent or co-registrar. "Applicable Procedures" means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Cedel that apply to such transfer or exchange. "Asset Sale" means (i) the sale, lease, conveyance or other disposition of any assets or rights (including without limitation, by way of a sale and leaseback) other than in the ordinary course of business (provided that the sale, lease, conveyance or other disposition of all or substantially all of the assets of the Company and its Restricted Subsidiaries taken as a whole will be governed by the provisions of Section 4.15 hereof and/or the provisions of Section 5.01 hereof and not by the provisions of Section 4.10 hereof, and (ii) the issue or sale by the Company or any of its Restricted Subsidiaries of Equity Interests of any of the Company's 1 8 Restricted Subsidiaries, in the case of either clause (i) or (ii), whether in a single transaction or a series of related transactions (a) that have a fair market value in excess of $3.0 million or (b) for Net Proceeds in excess of $3.0 million. Notwithstanding the foregoing: (i) a transfer of assets by the Company to a Wholly Owned Restricted Subsidiary of the Company or by a Wholly Owned Restricted Subsidiary of the Company to the Company or to another Wholly Owned Restricted Subsidiary of the Company, (ii) an issuance or sale of Equity Interests by a Wholly Owned Restricted Subsidiary of the Company to the Company or to another Wholly Owned Restricted Subsidiary of the Company, and (iii) (A) a Permitted Investment or (B) a Restricted Payment that is permitted by Section 4.07 hereof will not be deemed to be Asset Sales. "Attributable Debt" in respect of a sale and leaseback transaction means, at the time of determination, the present value (discounted at the rate of interest implicit in such transaction, determined in accordance with GAAP) of the obligation of the lessee for net rental payments (after excluding amounts paid in respect of insurance, taxes, assessments, utilities, operating and labor and similar charges) during the remaining term of the lease included in such sale and leaseback transaction (including any period for which such lease has been extended or may, at the option of the lessor, be extended). "Bankruptcy Law" means Title 11, U.S. Code or any similar federal or state law for the relief of debtors. "Board of Director" means the Board of Directors of the Company, or any committee thereof duly authorized to act on behalf of such Board. "Business Day" means any day other than a Legal Holiday. "Capital Lease Obligation" means, at the time any determination thereof is to be made, the amount of the liability in respect of a capital lease that would at such time be required to be capitalized on a balance sheet in accordance with GAAP. "Capital Stock" means (i) in the case of a corporation, corporate stock, (ii) in the case of an association or business entity, any and all shares, interests, participation, rights or other equivalents (however designated) of corporate stock, (iii) in the case of a partnership or limited liability company, partnership (whether general or limited) or membership interests and (iv) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distribution of assets of, the issuing Person. "Cash Equivalents" means (i) United States dollars, (ii) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality thereof having maturities of not more than one year from the date of acquisition, (iii) certificates of deposit and eurodollar time deposits with maturities of not more than one year from the date of acquisition, bankers' acceptances with maturities of not more than one year from the date of acquisition and overnight bank deposits, in each case with any domestic commercial bank having capital and surplus in excess of $250.0 million and a Thompson Bank Watch Rating of "B" or better, (iv) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (ii) and (iii) above entered into with any financial institution meeting the qualifications specified in clause (iii) above, (v) commercial paper having the highest rating obtainable from either Moody's Investors Service, Inc. or one of the two highest ratings from Standard & Poor's Rating Group ("S&P") with maturities of not more than one year from the date of acquisition and (vi) readily 2 9 marketable obligations issued or unconditionally and fully guaranteed by any state of the United States of America maturing within one year from the date of acquisition thereof, and at the time of acquisition, having one of the two highest ratings obtainable from Moody's and S&P, and (vii) money market funds at least 95% of the assets of which are comprised of assets specified in clauses (i) through (vi). "Cedel" means Cedel Bank, S.A. "Change of Control" means the occurrence of one or more of the following events: (i) any sale, lease, exchange or other transfer other than by a merger or consolidation (in one transaction or a series of related transactions) of all or substantially all of the assets of the Company and its Restricted Subsidiaries, taken as a whole, to any Person or group of related Persons for purposes of Section 13(d) of the Exchange Act (a "Group") together with any Affiliates thereof (whether or not otherwise in compliance with the provisions of the Indenture) unless immediately following such sale, lease, exchange or other transfer in compliance with the Indenture such assets are owned, directly or indirectly, by the Company or a Wholly Owned Restricted Subsidiary of the Company; (ii) the approval by the holders of Capital Stock of the Company of any plan or proposal for the liquidation or dissolution of the Company (whether or not otherwise in compliance with the provisions of the Indenture); (iii) the acquisition in one or more transactions by way of merger, consolidation or other business transaction or the purchase of beneficial ownership (within the meaning of Rule 13d-3 under the Exchange Act) by any Person or Group, whether directly or indirectly, of at least 35% of the Company's then outstanding voting securities entitled to vote on a regular basis for the Board of Directors; or (iv) the first day on which a majority of the members of the Board of Directors are not Continuing Directors. "Company" means Furon Company, and any and all successors thereto. "Consolidated Cash Flow" means, with respect to any Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication, (i) an amount equal to any extraordinary loss plus any net loss realized in connection with an Asset Sale (to the extent such losses were deducted in computing such Consolidated Net Income), plus (ii) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such provision for taxes was included in computing such Consolidated Net Income, plus (iii) consolidated interest expense (net of interest income) of such Person and its Restricted Subsidiaries for such period, whether paid or accrued and whether or not capitalized (including, without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income, plus (iv) depreciation and amortization (including amortization of goodwill, other intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses or charges (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation and amortization were deducted in computing such Consolidated 3 10 Net Income, minus (v) non-cash items increasing such Consolidated Net Income for such period, in each case, on a consolidated basis and determined in accordance with GAAP. "Consolidated Net Income" means, with respect to any Person for any period, an aggregate of the Net Income of such Person and its Restricted Subsidiaries (for such period, on a consolidated basis, determined in accordance with GAAP); provided that (i) the Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting shall be included only to the extent of the amount of dividends or distributions paid in cash to the referent Person or a Restricted Subsidiary, (ii) the Net Income of any Restricted Subsidiary shall be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, (iii) the Net Income of any Person acquired in a pooling of interests transaction for any period prior to the date of such acquisition shall be excluded, (iv) the cumulative effect of a change in accounting principles shall be excluded, and (v) the Net Income (but not loss) of any Unrestricted Subsidiary shall be excluded, whether or not distributed to the Company or one of its Subsidiaries. "Continuing Director" means, as of any date of determination, any member of the Board of Directors who (i) was a member of the Board of Directors on the date of this Indenture or (ii) was nominated for election or elected to the Board of Directors with the approval of a majority of the Continuing Directors who were members of the Board at the time of such nomination or election. "Corporate Trust Office of the Trustee" shall be at the address of the Trustee specified in Section 11.02 hereof or such other address as to which the Trustee may give notice to the Company. "Credit Facility" means that certain First Amended and Restated Credit Agreement, dated as of March 27, 1997 and amended as of February 3, 1998, between Furon Company, the various lenders thereto, The Bank of New York, as swing line lender and administration agent, and BNY Capital Markets, Inc., as arranging agent, providing for up to $200.0 million of revolving credit borrowings, as such agreement may be amended, restated, modified, renewed, refunded, replaced or refinanced from time to time thereafter, including any notes, guaranties, security or pledge agreements, letters of credit and other documents or instruments executed pursuant thereto and any appendices, exhibits or schedules to any of the foregoing, as the same may be in effect from time to time, in each case, as such agreements may be amended, modified, supplemented, renewed, refunded, replaced, refinanced, extended or restated from time to time (whether with the original agents and lenders or other agents and lenders or otherwise, and whether provided under the original credit agreement or other credit agreements or otherwise), including any appendices, exhibits or schedules to any of the foregoing. "Credit Facilities" means, with respect to the Company, one or more debt facilities (including, without limitation the Credit Facility) or commercial paper facility with banks or other institutional lenders providing for revolving credit loans, other borrowings (including term loans), receivables financing (including through the sale of receivables to such lenders or to special 4 11 purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time. "Custodian" means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto. "Default" means any event that is or with the passage of time or the giving of notice (or both) would be an Event of Default. "Definitive Note" means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, in the form of Exhibit A-1 hereto except that such Note shall not bear the Global Note Legend and shall not have the "Schedule of Exchanges of Interests in the Global Note" attached thereto. "Depositary" means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as depositary hereunder and having become such pursuant to the applicable provision of this Indenture. "Designated Senior Debt" means (i) any Indebtedness outstanding under the Credit Facility and (ii) any other Senior Debt permitted hereunder the principal amount of which is $25.0 million or more and that has been designated by the Company as "Designated Senior Debt." "Disqualified Stock" means any Capital Stock that, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable at the option of the holder thereof), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the Holder thereof, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature, except to the extent that such Capital Stock is solely redeemable with, or solely exchangeable for, any Capital Stock of such Person that is not Disqualified Stock. "Equity Interests" means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock). "Euroclear" means Morgan Guaranty Trust Company of New York, Brussels office, as operator of the Euroclear system. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Exchange Notes" means the Notes issued in the Exchange Offer pursuant to Section 2.06(f) hereof. "Exchange Offer" has the meaning set forth in the Registration Rights Agreement. "Exchange Offer Registration Statement" has the meaning set forth in the Registration Rights Agreement. 5 12 "Existing Indebtedness" means up to $17.0 million in aggregate principal amount of Indebtedness of the Company and its Restricted Subsidiaries (other than Indebtedness under the Credit Facility and the Notes) in existence on the Issue Date, until such amounts are repaid. "Fixed Charge Coverage Ratio" means with respect to any Person for any period, the ratio of the Consolidated Cash Flow of such Person and its Restricted Subsidiaries for such period to the Fixed Charges of such Person and its Restricted Subsidiaries for such period. In the event that the Company or any of its Restricted Subsidiaries incurs, assumes, guarantees or redeems any Indebtedness (other than revolving credit borrowings under any Credit Facility) or issues preferred stock subsequent to the commencement of the period for which the Fixed Charge Coverage Ratio is being calculated but on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to such incurrence, assumption, guarantee or redemption of Indebtedness, or such issuance or redemption of preferred stock, as if the same had occurred at the beginning of the applicable four-quarter reference period. In addition, for purposes of making the computation referred to above, (i) acquisitions that have been made by the Company or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions, during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date shall be deemed to have occurred on the first day of the four-quarter reference period and Consolidated Cash Flow for such reference period shall be calculated without giving effect to clause (iii) of the proviso set forth in the definition of Consolidated Net Income, (ii) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses disposed of prior to the Calculation Date, shall be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the referent Person or any of its Restricted Subsidiaries following the Calculation Date. "Fixed Charges" means, with respect to any Person for any period, the sum, without duplication, of (i) the consolidated interest expense (net of interest income) of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including without limitation, amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers' acceptance financings, and net payments (if any) pursuant to Hedging Obligations), (ii) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period, (iii) any interest expense on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries (whether or not such guarantee or Lien is called upon) and (iv) the product of (a) all dividend payments, whether or not in cash, on any series of Preferred Stock of such Person or any of its Restricted Subsidiaries, other than dividend payments on Equity Interests payable solely in Equity Interests of the Company (other than Disqualified Stock) and other than dividends paid or accrued for the benefit of the Company or a Restricted Subsidiary, times (b) a fraction, the numerator of which is one and the denominator of which is one minus the then current 6 13 combined federal, state and local statutory tax rate of such Person, expressed as a decimal, in each case, on a consolidated basis and in accordance with GAAP. "Foreign Subsidiary" shall mean a Restricted Subsidiary that is formed under the laws of a jurisdiction other than that of the United States of America or of a state or territory thereof. "GAAP" means generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants, the statements and pronouncements of the Financial Accounting Standards Board and such other statements by such other entities as have been approved by a significant segment of the accounting profession, which are applicable at the Issue Date. "Global Notes" means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes, in the form of Exhibit A hereto issued in accordance with Section 2.01, 2.06(b)(iv), 2.06(d)(ii) or 2.06(f) hereof. "Global Note Legend" means the legend set forth in Section 2.06(g)(ii), which is required to be placed on all Global Notes issued under this Indenture. "Government Securities" means direct obligations of, or obligations guaranteed by, the United States of America, and the payment for which the United States pledges its full faith and credit. "guarantee" means a guarantee (other than by endorsement of negotiable instruments for collection in the ordinary course of business), direct or indirect, in any manner (including, without limitation, letters of credit and reimbursement agreements in respect thereof), of all or any part of any Indebtedness. "Guarantee" means any guarantee of the Notes to be executed by any Subsidiary of the Company pursuant to the provisions of Section 4.18 hereof. "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 commodity prices, interest rates or currency exchange rates. "Holder" means a Person in whose name a Note 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 banker's acceptances or representing Capital Lease Obligations or the balance deferred and unpaid of the purchase price of any property or representing any Hedging Obligations, except any such balance that constitutes an accrued expense, customer advance, progress payment or trade payable, if and to the extent any of the foregoing indebtedness (other than letters of credit and Hedging Obligations) would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP, as well as all Indebtedness of others secured by a Lien on any asset of such Person (whether or not such Indebtedness is assumed by such Person) and, to the extent not otherwise included, the guarantee by such Person of any 7 14 Indebtedness of any other Person. The amount of any Indebtedness outstanding as of any date shall be (i) the accreted value thereof, in the case of any Indebtedness that does not require current payments of interest, and (ii) the principal amount thereof, together with any interest thereon that is more than 30 days past due, in the case of any other Indebtedness. "Indenture" means this Indenture, as amended or supplemented from time to time. "Indirect Participant" means a Person who holds a beneficial interest in a Global Note through a Participant. "Initial Notes" means $125.0 million in aggregate principal amount of Notes issued under this Indenture on the date hereof. "Independent Financial Advisor" means a reputable accounting, appraisal or investment banking firm that is, in the reasonable judgment of the Board of Directors, qualified to perform the task for which such firm has been engaged hereunder and disinterested and independent with respect to the Company and its Affiliates. "Investments" means, with respect to any Person, all investments by such Person in other Persons (including Affiliates) in the forms of direct or indirect loans (including guarantees of Indebtedness or other Obligations), advances of assets or capital contributions, purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If the Company or any of its Restricted Subsidiaries sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of the Company such that, after giving effect to any such sale or disposition, such Person is no longer a direct or indirect Restricted Subsidiary of the Company, the Company or such Restricted Subsidiary, as the case may be, shall be deemed to have made an Investment on the date of any such sale or disposition equal to the fair market value of the Equity Interests of such Restricted Subsidiary not sold or disposed of in an amount determined as provided in subsection (c) of Section 4.07 hereof. "Investments" shall exclude extensions of trade credit by the Company and the Restricted Subsidiaries on commercially reasonable terms in the ordinary course of business. "Issue Date" means the date on which the Notes are first issued and delivered. "Legal Holiday" means a Saturday, a Sunday or a day on which banking institutions in the City of New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period. "Letter of Transmittal" means the letter of transmittal to be prepared by the Company and sent to all Holders of the Notes for use by such Holders in connection with the Exchange Offer. "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 8 15 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 5 of the Registration Rights Agreement. "Net Income" means, with respect to any Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however, (i) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with (a) any Asset Sale (including, without limitation, dispositions pursuant to sale and leaseback transactions), or (b) the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries, (ii) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss) , and (iii) any non-cash write-off or charge (excluding any such non-cash write-off or charge to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) directly related to the acquisition of a Person in a Permitted Business if such non-cash write-off or charge is made within three months of such acquisition. "Net Proceeds" means the aggregate cash proceeds or Cash Equivalents received by the Company or any of its Restricted Subsidiaries in respect of any Asset Sale (including, without limitation, any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of all costs relating to such Asset Sale (including, without limitation, legal, accounting, investment banking and brokers fees, and sales and underwriting commissions) and any relocation expenses incurred as a result thereof, taxes paid or payable as a result thereof (after taking into account any available tax credits or deductions and any tax sharing agreements), amounts required to be applied to the repayment of Senior Debt (other than Senior Debt under one or more of the Company's Credit Facilities) secured by a Lien on the assets that were the subject of such Asset Sale, and any reserve for adjustment in respect of the sale price of such asset or assets established in accordance with GAAP. "Non-Recourse Debt and Preferred Stock" means Indebtedness or Preferred Stock (i) as to which neither the Company nor any of its Restricted Subsidiaries (a) provides any guarantee or credit support of any kind (including any undertaking, guarantee, indemnity, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable (as a guarantor or otherwise) or (c) constitutes the lender; and (ii) no default with respect to which (including any rights that the holders thereof may have to take enforcement action against an Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any holder of any other Indebtedness (other than the Notes being offered hereby) of the Company or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment thereof to be accelerated or payable prior to its stated maturity; and (iii) the incurrence of which will not result in any recourse against any of the assets or stock of the Company or its Restricted Subsidiaries. "Non-U.S. Person" means a Person who is not a U.S. Person. "Notes" has the meaning assigned to it in the preamble to this Indenture. 9 16 "Obligations" means any principal, premium, if any, interest (including interest accruing on or after the filing of any petition in bankruptcy or for reorganization relating to the Company or its Subsidiaries whether or not a claim for post-filing interest is allowed in such proceeding), penalties, fees, charges, expenses, indemnifications, reimbursement obligations, damages (including Liquidated Damages), guarantees and other liabilities or amounts payable under the documentation governing any Indebtedness or in respect thereof. "Offering" means the offering of the Initial Notes by the Company. "Officer" means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person. "Officers' Certificate" means a certificate signed on behalf of the Company by either the principal executive officer or the principal financial officer, the treasurer or the principal accounting officer of the Company, that meets the requirements of Section 11.05 hereof. "Opinion of Counsel" means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 11.05 hereof. The counsel may be an employee of or counsel to the Company, any Subsidiary of the Company or the Trustee. "Participant" means, with respect to the Depositary, Euroclear or Cedel, a Person who has an account with the Depositary, Euroclear or Cedel, respectively (and, with respect to The Depository Trust Company, shall include Euroclear and Cedel). "Participating Broker-Dealer" has the meaning set forth in the Registration Rights Agreement. "Permitted Business" means the lines of business conducted by the Company and its Subsidiaries on the date hereof and businesses reasonably related thereto and reasonable extensions thereof. "Permitted Investments" means (a) any Investment in the Company or in a Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents; (c) any Investment by the Company or any Subsidiary of the Company in a Person engaged in a Permitted Business, if as a result of such Investment (i) such Person becomes a Restricted Subsidiary or (ii) any Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its assets to, or is liquidated into, the Company or a Restricted Subsidiary; (d) any Investment made as a result of the receipt of non-cash consideration from an Asset Sale that was made pursuant to and in compliance with the provisions of Section 4.10 hereof; (e) any acquisition of assets solely in exchange for the issuance of Equity Interests (other than Disqualified Stock) of the Company; (f) Investments arising in connection with Hedging Obligations; (g) any Investment acquired by the Company or any of its Restricted Subsidiaries (x) in exchange for any other Investment or accounts receivable held by the Company or any such Restricted Subsidiary in connection with or as a result of a bankruptcy, workout, reorganization or recapitalization of the issuer of such other Investment or accounts receivable or (y) as a result of a foreclosure by the Company or any of its Restricted 10 17 Subsidiaries with respect to any Investment or other transfer of title with respect to any Investment in default; (h) any Investment existing on the Issue Date; and (i) other Investments by the Company or any of its Restricted Subsidiaries in any Person having an aggregate fair market value, when taken together with all other Investments made pursuant to this clause (i) that are at the time outstanding, not to exceed $30.0 million at the time of such Investment (with the fair market value being measured at the time made and without giving effect to subsequent changes in value). "Permitted Junior Securities" means Equity Interests in the Company or debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to the Indenture. "Permitted Refinancing Indebtedness" means any Indebtedness of the Company or any of its Restricted Subsidiaries or any Disqualified Stock of the Company issued in exchange for, or the net proceeds of which are used to extend, refinance, renew, replace, defease or refund other Indebtedness of the Company or any of its Restricted Subsidiaries; provided that: (i) the principal amount (or accreted value, if applicable) of such Permitted Refinancing Indebtedness does not exceed the principal amount of (or accreted value, if applicable), plus accrued interest on, the Indebtedness so extended, refinanced, renewed, replaced, defeased or refunded (plus the amount of reasonable expenses incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness has a final maturity date later than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is pari passu with the Notes, such Permitted Refinancing Indebtedness is pari passu with or subordinated in right of payment to the Notes or is Disqualified Stock; (iv) if the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded is subordinated in right of payment to the Notes, such Permitted Refinancing Indebtedness is subordinated in right of payment to the Notes on the terms at least as favorable to the Holders of Notes as those contained in the documentation governing the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded or is Disqualified Stock; and (v) such Indebtedness is incurred either by the Company or by the Restricted Subsidiary that is the obligor on the Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded, or such Disqualified Stock is issued by the Company, as applicable. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or agency or political subdivision thereof or any other entity. "Preferred Stock" means any Capital Stock of a Person, however designated, which entitles the holder thereof to a preference with respect to dividends, distributions or liquidation proceeds of such person over the holder to the other Capital Stock issued by such Person. 11 18 "Private Placement Legend" means the legend set forth in Section 2.06(g)(i) to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture. "Public Equity Offering" means any underwritten primary public offering of the Voting Stock of the Company pursuant to an effective registration statement (other than a registration statement on Form S-4, Form S-8, or any successor or similar form) under the Securities Act. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of March 4, 1998, by and among the Company and the other parties named on the signature pages thereof, as such agreement may be amended, modified or supplemented from time to time. "Regulation S" means Regulation S promulgated under the Securities Act. "Regulation S Global Note" means a Regulation S Temporary Global Note or a Regulation S Permanent Global Note, as the context requires. "Regulation S Permanent Global Note" means a permanent global Note in the form of Exhibit A-2 hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Regulation S Temporary Global Note upon expiration of the Restricted Period. "Regulation S Temporary Global Note" means a temporary global Note in the form of Exhibit A-2 hereto bearing the Private Placement Legend and deposited with or on behalf of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes initially sold in reliance on Rule 903 of Regulation S. "Responsible Officer," when used with respect to the Trustee, means any officer within the corporate trust department of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of such person's knowledge of and familiarity with the particular subject. "Restricted Definitive Note" means a Definitive Note bearing the Private Placement Legend. "Restricted Global Note" means a Global Note bearing the Private Placement Legend. "Restricted Investment" means any Investment other than a Permitted Investment. "Restricted Period" means the 40-day restricted period as defined in Regulation S. 12 19 "Restricted Subsidiary" of a Person means any Subsidiary of the referenced Person that is not an Unrestricted Subsidiary; provided that, on the date of the Indenture, all Subsidiaries of the Company shall be Restricted Subsidiaries. "Rule 144" means Rule 144 promulgated under the Securities Act. "Rule 144A" means Rule 144A promulgated under the Securities Act. "Rule 903" means Rule 903 promulgated under the Securities Act. "Rule 904" means Rule 904 promulgated under the Securities Act. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended. "Shelf Registration Statement" means the Shelf Registration Statement as defined in the Registration Rights Agreement. "Significant Subsidiary" means any Subsidiary that is a "significant subsidiary" as defined in Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act (as such Regulation is in effect on the date of this Indenture). "Stated Maturity" means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which such payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and shall not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof. "Subordinated Obligations" means any Indebtedness of the Company which is expressly subordinated or junior in right of payment to the Notes. "Subsidiary" means, with respect to any Person, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by such Person, (ii) any partnership (a) the sole general partner or the managing general partner of which is such Person or an entity described in clause (i) and related to such Person or (b) the only general partners of which are such Person or of one or more entities described in clause (i) and related to such Person (or any combination thereof) and (iii) any limited liability company, the sole managing member or the majority of the managing members of which are Persons described in clause (i) or (ii). "Tangible Net Assets" means, for any period the amount which would be set forth under the caption "Total Assets" (or any like caption) on a consolidated balance sheet of the Company and its Restricted Subsidiaries, less all Intangible Assets, all determined on a consolidated basis and (except as otherwise specifically provided below) in accordance with GAAP. For purposes of this definition, "Intangible Assets" means the amount (to the extent reflected in determining such consolidated equity of the common shareholders) of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of tangible 13 20 assets of a going concern business made within twelve months after the acquisition of such business) subsequent to November 1, 1997 in the book value of any asset owned by the Company and its Restricted Subsidiaries, (ii) all investments in unconsolidated Subsidiaries of the Company and in Persons which are not Restricted Subsidiaries of the Company, and (iii) all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, organization and developmental expenses and other intangible items of the Company and its Restricted Subsidiaries, all of the foregoing as determined in accordance with GAAP. "TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections 77aaa-77bbbb) as in effect on the date on which this Indenture is qualified under the TIA, except as provided by Section 9.03 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 serving hereunder. "Unrestricted Global Note" means a permanent global Note in the form of Exhibit A-1 attached hereto that bears the Global Note Legend and that has the "Schedule of Exchanges of Interests in the Global Note" attached thereto, and that is deposited with or on behalf of and registered in the name of the Depositary, representing a series of Notes that do not bear the Private Placement Legend. "Unrestricted Definitive Note" means one or more Definitive Notes that do not bear and are not required to bear the Private Placement Legend. "Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse Debt and Preferred Stock; (b) is not party to any agreement, contract, arrangement or understanding with the Company or any Restricted Subsidiary of the Company unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to the Company or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of the Company; (c) is a Person with respect to which neither the Company nor any of its Restricted Subsidiaries has any direct or indirect obligation (x) to subscribe for additional Equity Interests; provided, that an obligation to purchase an Equity Interest of an Unrestricted Subsidiary shall not be deemed to be such an obligation to subscribe to additional Equity Interests if the Company's obligation provides that it is subject, at the time the obligation is to be enforced, to the Company's ability to make such purchase and, after such purchase, no Default or Event of Default would be in existence or (y) to maintain or preserve such Person's financial condition or to cause such Person to achieve any specified levels of operating results; and (d) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any such designation by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the Board Resolution giving effect to such designation and an Officers' Certificate certifying that such designation complied with the foregoing conditions and was permitted by the provisions of Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the foregoing 14 21 requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date in accordance with the provisions of Section 4.09 hereof, the Company shall be in default of such provision). "U.S. Person" means a U.S. person as defined in Rule 902(o) under the Securities Act. "Voting Stock" of any person as of any date means the Capital Stock of such Person that is at the time entitled to vote in the election of the Board of Directors of such Person. "Weighted Average Life to Maturity" means, when applied to any Indebtedness at any date, the number of years obtained by dividing (i) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect thereof, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment, by (ii) the then outstanding principal amount of such Indebtedness. "Wholly Owned Restricted Subsidiary" means (i) a Restricted Subsidiary of the Company, 100% of the outstanding Capital Stock and other Equity Interests of which (other than Capital Stock constituting directors' qualifying shares or interests held by directors or shares or interests required to be held by foreign nationals, in each case to the extent mandated by applicable law) is directly or indirectly owned by the Company or by one or more Wholly Owned Restricted Subsidiaries of the Company. Section 1.02. Other Definitions.
Defined in Term Section "Affiliate Transaction" . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.11 "Asset Sale" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10 "Asset Sale Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.09 "Authentication Order" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.02 "Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.01 "Change of Control Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . 4.15 "Change of Control Payment" . . . . . . . . . . . . . . . . . . . . . . . . . 4.15 "Change of Control Payment Date" . . . . . . . . . . . . . . . . . . . . . . 4.15 "Covenant Defeasance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.03 "Designated Senior Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.02 "DTC" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03 "Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01 "Excess Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10 "incur" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.09 "Legal Defeasance" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.02 "Offer Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.09 "Offer Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.09 "Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03
15 22 "Payment Blockage Notice" . . . . . . . . . . . . . . . . . . . . . . . . . . 10.04 "Payment Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.01 "Permitted Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.09 "Permitted Junior Securities" . . . . . . . . . . . . . . . . . . . . . . . . 10.02 "Purchase Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.09 "Registrar" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.03 "Representative" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.02 "Restricted Payments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.07 "Senior Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.02
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 Notes; "indenture security Holder" means a Holder of a Note; "indenture to be qualified" means this Indenture; "indenture trustee" or "institutional trustee" means the Trustee; and "obligor" on the Notes means the Company and any successor obligor upon the Notes. 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. 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; (5) provisions apply to successive events and transactions; and 16 23 (6) references to sections of or rules under the Securities Act shall be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time. ARTICLE 2. THE NOTES Section 2.01. Form and Dating. (a) General. The Notes and the Trustee's certificate of authentication shall be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note shall be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof. The terms and provisions contained in the Notes shall constitute, and are hereby expressly made, a part of this Indenture and the Company and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling. (b) Global Notes. Notes issued in global form shall be substantially in the form of Exhibits A-1 or A-2 attached hereto (including the Global Note Legend thereon and the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Notes issued in definitive form shall be substantially in the form of Exhibit A-1 attached hereto (but without the Global Note Legend thereon and without the "Schedule of Exchanges of Interests in the Global Note" attached thereto). Each Global Note shall represent such of the outstanding Notes as shall be specified therein and each shall provide that it shall represent the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby shall be made by the Trustee or the Note Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof. (c) Temporary Global Notes. Notes offered and sold in reliance on Regulation S shall be issued initially in the form of the Regulation S Temporary Global Note, which shall be deposited on behalf of the purchasers of the Notes represented thereby with the Trustee, at its New York office, as custodian for the Depositary, and registered in the name of the Depositary or the nominee of the Depositary for the accounts of designated agents holding on behalf of Euroclear or Cedel Bank, duly executed by the Company and authenticated by the Trustee as hereinafter provided. The Restricted Period shall be terminated upon the receipt by the Trustee of (i) a written certificate from the Depositary, together with copies of certificates from Euroclear and Cedel 17 24 Bank certifying that they have received certification of non-United States beneficial ownership of 100% of the aggregate principal amount of the Regulation S Temporary Global Note (except to the extent of any beneficial owners thereof who acquired an interest therein during the Restricted Period pursuant to another exemption from registration under the Securities Act and who will take delivery of a beneficial ownership interest in a 144A Global Note bearing a Private Placement Legend, all as contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers' Certificate from the Company. Following the termination of the Restricted Period, beneficial interests in the Regulation S Temporary Global Note shall be exchanged for beneficial interests in Regulation S Permanent Global Notes pursuant to the Applicable Procedures. Simultaneously with the authentication of Regulation S Permanent Global Notes, the Trustee shall cancel the Regulation S Temporary Global Note. The aggregate principal amount of the Regulation S Temporary Global Note and the Regulation S Permanent Global Notes may from time to time be increased or decreased by adjustments made on the records of the Registrar and the Depositary or its nominee, as the case may be, in connection with transfers of interest as hereinafter provided. (d) Euroclear and Cedel Procedures Applicable. The provisions of the "Operating Procedures of the Euroclear System" and "Terms and Conditions Governing Use of Euroclear" and the "General Terms and Conditions of Cedel Bank" and "Customer Handbook" of Cedel Bank shall be applicable to transfers of beneficial interests in the Regulation S Temporary Global Note and the Regulation S Global Notes that are held by Participants through Euroclear or Cedel Bank. Section 2.02. Execution and Authentication. Two Officers shall sign the Notes for the Company by manual or facsimile signature. The Company's seal shall be reproduced on the Notes and may be in facsimile form. If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note shall nevertheless be valid. A Note shall not be valid until authenticated by the manual signature of the Trustee. The signature shall be conclusive evidence that the Note has been authenticated under this Indenture. The Trustee shall, upon a written order of the Company signed by an Officer (an "Authentication Order"), authenticate Notes for original issue up to the aggregate principal amount stated in paragraph 4 of the Notes. The aggregate principal amount of Notes outstanding at any time may not exceed such amount except as provided in Section 2.07 hereof. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Notes. An authenticating agent may authenticate Notes 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 Holders or an Affiliate of the Company. 18 25 Section 2.03. Registrar and Paying Agent. The Company shall maintain an office or agency where Notes may be presented for registration of transfer or for exchange ("Registrar") and an office or agency where Notes may be presented for payment ("Paying Agent"). The Registrar shall keep a register of the Notes 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. The Company initially appoints The Depository Trust Company ("DTC") to act as Depositary with respect to the Global Notes. The Company initially appoints the Trustee to act as the Registrar and Paying Agent and to act as Note Custodian with respect to the Global Notes. Section 2.04. Paying Agent to Hold Money in Trust. 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, premium or Liquidated Damages, if any, or interest on the Notes, 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. Upon any bankruptcy or reorganization proceedings relating to the Company, the Trustee shall serve as Paying Agent for the Notes. Section 2.05. Holder 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 all Holders and shall otherwise comply with TIA Section 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 the Holders of Notes and the Company shall otherwise comply with TIA Section 312(a). 19 26 Section 2.06. Transfer and Exchange. (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred as a whole except by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Company for Definitive Notes if (i) the Company delivers to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Company within 120 days after the date of such notice from the Depositary or (ii) the Company in its sole discretion determines that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and delivers a written notice to such effect to the Trustee; provided that in no event shall the Regulation S Temporary Global Note be exchanged by the Company for Definitive Notes prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act. Upon the occurrence of either of the preceding events in (i) or (ii) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Section 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b),(c) or (f) hereof. (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes shall be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes shall be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also shall require compliance with either subparagraph (i) or (ii) below, as applicable, as well as one or more of the other following subparagraphs, as applicable: (i) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend; provided, however, that prior to the expiration of the Restricted Period, transfers of beneficial interests in the Temporary Regulation S Global Note may not be made to a U.S. Person or for the account or benefit of a U.S. Person (other than an Initial Purchaser). Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(i). 20 27 (ii) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(i) above, the transferor of such beneficial interest must deliver to the Registrar either (A) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in another Global Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given in accordance with the Applicable Procedures containing information regarding the Participant account to be credited with such increase or (B) (1) a written order from a Participant or an Indirect Participant given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged and (2) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (1) above; provided that in no event shall Definitive Notes be issued upon the transfer or exchange of beneficial interests in the Regulation S Temporary Global Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903 under the Securities Act. Upon consummation of an Exchange Offer by the Company in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(ii) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof. (iii) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(ii) above and the Registrar receives the following: (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; and (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Temporary Global Note or the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof. (iv) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in the Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(ii) above and: 21 28 (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker- dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above. Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note. (c) Transfer or Exchange of Beneficial Interests for Definitive Notes. (i) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such 22 29 beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation: (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof; (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such beneficial interest is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (F) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(i) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein. (ii) Notwithstanding Sections 2.06(c)(i)(A) and (C) hereof, a beneficial interest in the Regulation S Temporary Global Note may not be exchanged for a Definitive Note or transferred to a Person who takes delivery thereof in the form of a Definitive Note prior to (x) the expiration of the Restricted Period and (y) the receipt by the Registrar of any certificates required pursuant to Rule 903(c)(3)(ii)(B) under the Securities Act, except in the case of a 23 30 transfer pursuant to an exemption from the registration requirements of the Securities Act other than Rule 903 or Rule 904. (iii) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(b) thereof; or (2) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a Definitive Note that does not bear the Private Placement Legend, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iv) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(ii) hereof, the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Company shall execute and the Trustee shall authenticate 24 31 and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depositary and the Participant or Indirect Participant. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(iii) shall not bear the Private Placement Legend. (d) Transfer and Exchange of Definitive Notes for Beneficial Interests. (i) Restricted Definitive Notes to Beneficial Interests in Restricted Global Notes. If any Holder of a Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note or to transfer such Restricted Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in a Restricted Global Note, then, upon receipt by the Registrar of the following documentation: (A) if the Holder of such Restricted Definitive Note proposes to exchange such Note for a beneficial interest in a Restricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (2)(b) thereof; (B) if such Restricted Definitive Note is being transferred to a QIB in accordance with Rule 144A under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof; (C) if such Restricted Definitive Note is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof; (D) if such Restricted Definitive Note is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144 under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof; (E) if such Restricted Definitive Note is being transferred to the Company or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or (F) if such Restricted Definitive Note is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof, the Trustee shall cancel the Restricted Definitive Note, increase or cause to be increased the aggregate principal amount of, in the case of clause (A) above, the appropriate Restricted Global Note, in the case of clause (B) above, the 144A Global Note, and in the case of clause (C) above, the Regulation S Global Note. 25 32 (ii) Restricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of a Restricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Restricted Definitive Note to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note only if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Definitive Notes proposes to exchange such Notes for a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(c) thereof; or (2) if the Holder of such Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of a beneficial interest in the Unrestricted Global Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. Upon satisfaction of the conditions of any of the subparagraphs in this Section 2.06(d)(ii), the Trustee shall cancel the Definitive Notes and increase or cause to be increased the aggregate principal amount of the Unrestricted Global Note. (iii) Unrestricted Definitive Notes to Beneficial Interests in Unrestricted Global Notes. A Holder of an Unrestricted Definitive Note may exchange such Note for a beneficial interest in an Unrestricted Global Note or transfer such Definitive Notes to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note at any time. Upon receipt of a request for such an exchange or transfer, the Trustee shall cancel the applicable Unrestricted Definitive Note and increase or cause to be increased the aggregate principal amount of one of the Unrestricted Global Notes. 26 33 If any such exchange or transfer from a Definitive Note to a beneficial interest is effected pursuant to subparagraphs (ii)(B), (ii)(D) or (iii) above at a time when an Unrestricted Global Note has not yet been issued, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee shall authenticate one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of Definitive Notes so transferred. (e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder's compliance with the provisions of this Section 2.06(e), the Registrar shall register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder shall present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by his attorney, duly authorized in writing. In addition, the requesting Holder shall provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e). (i) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following: (A) if the transfer will be made pursuant to Rule 144A under the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof; (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable. (ii) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if: (A) such exchange or transfer is effected pursuant to the Exchange Offer in accordance with the Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (1) a broker-dealer, (2) a Person 27 34 participating in the distribution of the Exchange Notes or (3) a Person who is an affiliate (as defined in Rule 144) of the Company; (B) any such transfer is effected pursuant to the Shelf Registration Statement in accordance with the Registration Rights Agreement; (C) any such transfer is effected by a Participating Broker-Dealer pursuant to the Exchange Offer Registration Statement in accordance with the Registration Rights Agreement; or (D) the Registrar receives the following: (1) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or (2) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof; and, in each such case set forth in this subparagraph (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Company to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act. (iii) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof. (f) Exchange Offer. Upon the occurrence of the Exchange Offer in accordance with the Registration Rights Agreement, the Company shall issue and, upon receipt of an Authentication Order in accordance with Section 2.02, the Trustee shall authenticate (i) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes tendered for acceptance by Persons that certify in the applicable Letters of Transmittal that (x) they are not broker-dealers, (y) they are not participating in a distribution of the Exchange Notes and (z) they are not affiliates (as defined in Rule 144) of the Company, and accepted for exchange in the Exchange Offer and (ii) Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer. Concurrently with the issuance of such Notes, 28 35 the Trustee shall cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Company shall execute and the Trustee shall authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Definitive Notes in the appropriate principal amount. (g) Legends. The following legends shall appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture. (i) Private Placement Legend. (A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form: "THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISION OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. IF THE PROPOSED TRANSFER IS PURSUANT TO CLAUSE (c) or (d) ABOVE, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE BANK OF NEW YORK (OR A SUCCESSOR TRUSTEE, AS APPLICABLE) SUCH CERTIFICATIONS, LEGAL OPINIONS, OR OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS PURSUANT TO AN EXEMPTION FROM, OR IN A 29 36 TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT." (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(iv), (c)(ii), (c)(iii), (d)(ii), (d)(iii), (e)(ii), (e)(iii) or (f) to this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) shall not bear the Private Placement Legend. (ii) Global Note Legend. Each Global Note shall bear a legend in substantially the following form: "THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (I) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.07 OF THE INDENTURE, (II) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (III) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (IV) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE COMPANY." (iii) Regulation S Temporary Global Note Legend. The Regulation S Temporary Global Note shall bear a legend in substantially the following form: "THE RIGHTS ATTACHING TO THIS REGULATION S TEMPORARY GLOBAL NOTE, AND THE CONDITIONS AND PROCEDURES GOVERNING ITS EXCHANGE FOR CERTIFICATED NOTES, ARE AS SPECIFIED IN THE INDENTURE (AS DEFINED HEREIN). NEITHER THE HOLDER NOR THE BENEFICIAL OWNERS OF THIS REGULATION S TEMPORARY GLOBAL NOTE SHALL BE ENTITLED TO RECEIVE PAYMENT OF INTEREST HEREON." (h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note shall be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note shall be reduced accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note shall be increased accordingly and an endorsement shall be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase. 30 37 (i) General Provisions Relating to Transfers and Exchanges. (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Global Notes and Definitive Notes upon the Company's order or at the Registrar's request. (ii) No service charge shall be made to a holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of 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 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof). (iii) The Registrar shall not be required to register the transfer of or exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part. (iv) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange. (v) The Company shall not be required (A) to issue, to register the transfer of or to exchange any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection, (B) to register the transfer of or to exchange any Note so selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part or (c) to register the transfer of or to exchange a Note between a record date and the next succeeding Interest Payment Date. (vi) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Company may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Company shall be affected by notice to the contrary. (vii) The Trustee shall authenticate Global Notes and Definitive Notes in accordance with the provisions of Section 2.02 hereof. (viii) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile. (ix) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Note (including any transfers between or among Depositary Participants or beneficial owners of interests in any Global Note) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by the 31 38 terms of, this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. Section 2.07. Replacement Notes. If any mutilated Note is surrendered to the Trustee or the Company and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Company shall issue and the Trustee, upon receipt of an Authentication Order, shall authenticate a replacement Note if the Trustee's requirements are met. 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 and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Company may charge for its expenses in replacing a Note. Every replacement Note is an additional obligation of the Company and shall be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder. Section 2.08. Outstanding Notes. The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Company or an Affiliate of the Company holds the Note; however, Notes held by the Company or a Subsidiary of the Company shall not be deemed to be outstanding for purposes of Section 3.07(b) hereof. If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a bona fide purchaser. If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest on it ceases to accrue. If the Paying Agent (other than the Company, a Subsidiary or an Affiliate of any thereof) holds, on a redemption date or maturity date, money sufficient to pay Notes payable on that date, then on and after that date such Notes shall be deemed to be no longer outstanding and shall cease to accrue interest. Section 2.09. Treasury Notes. In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Company, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Company, shall be considered as though 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 Notes that the Responsible Officer of the Trustee actually knows are so owned shall be so disregarded. 32 39 Section 2.10. Temporary Notes. Until Definitive Notes are ready for delivery, the Company may prepare and the Trustee, upon receipt of an Authentication Order, shall authenticate temporary Notes. Temporary Notes shall be substantially in the form of certificated Notes but may have variations that the Company considers appropriate for temporary Notes and as shall be reasonably acceptable to the Trustee. Without unreasonable delay, the Company shall prepare and the Trustee shall authenticate Definitive Notes in exchange for temporary Notes. Holders of temporary Notes shall be entitled to all of the benefits of this Indenture. Section 2.11. Cancellation. The Company at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent shall forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else shall cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and shall return canceled Notes to the Company. The Company may not issue new Notes to replace Notes that it has paid or that have been delivered to the Trustee for cancellation. Section 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Notes, it shall pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Company shall notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Company shall fix or cause to be fixed each such special record date and payment date, provided that no such special record date shall be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Company (or, upon the written request of the Company, the Trustee in the name and at the expense of the Company) shall mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid. Section 2.13. CUSIP Numbers. The Company in issuing the Notes may use "CUSIP" numbers (if then generally in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of redemption as a convenience to Holders; provided that any such notice may state that no representation is made as to the correctness of such numbers either as printed on the Notes or as contained in any notice of a redemption and that reliance may be placed only on the other identification numbers printed on the Notes, and any such redemption shall not be affected by any defect in or omission of such numbers. The Company will promptly notify the Trustee of any change in the "CUSIP" numbers. 33 40 ARTICLE 3. REDEMPTION AND PREPAYMENT Section 3.01. Notices to Trustee. If the Company elects to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee, at least 30 days but not more than 60 days before a redemption date, an Officers' Certificate setting forth (i) the clause of this Indenture pursuant to which the redemption shall occur, (ii) the redemption date, (iii) the principal amount of Notes to be redeemed and (iv) the redemption price. Section 3.02. Selection of Notes to Be Redeemed. If less than all of the Notes are to be redeemed or purchased in an offer to purchase at any time, the Trustee shall select the Notes to be redeemed or purchased among the Holders of the Notes in compliance with the requirements of the principal national securities exchange, if any, on which the Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot or in accordance with any other method the Trustee considers fair and appropriate. In the event of partial redemption by lot, the particular Notes to be redeemed shall be selected, unless otherwise provided herein, not less than 30 nor more than 60 days prior to the redemption date by the Trustee from the outstanding Notes not previously called for redemption. The Trustee shall promptly notify the Company in writing of the Notes selected for redemption and, in the case of any Note selected for partial redemption, the principal amount thereof to be redeemed. Notes and portions of Notes selected shall be in amounts of $1,000 or whole multiples of $1,000; except that if all of the Notes of a Holder are to be redeemed, the entire outstanding amount of Notes held by such Holder, even if not a multiple of $1,000, shall be redeemed. Except as provided in the preceding sentence, provisions of this Indenture that apply to Notes called for redemption also apply to portions of Notes called for redemption. Section 3.03. Notice of Redemption. Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a redemption date, the Company shall mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address. The notice shall identify the Notes (including CUSIP numbers(s)) to be redeemed and shall state: (a) the redemption date; (b) the redemption price; (c) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the redemption date upon surrender of such Note, a new Note or Notes in principal amount equal to the unredeemed portion shall be issued upon cancellation of the original Note; 34 41 (d) the name and address of the Paying Agent; (e) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price; (f) that, unless the Company defaults in making such redemption payment, interest on Notes called for redemption ceases to accrue on and after the redemption date; (g) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and (h) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at its expense; provided, however, that the Company shall have delivered to the Trustee, at least 45 days prior to the redemption date, an Officers' Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Section 3.04. Effect of Notice of Redemption. Once notice of redemption is mailed in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional. Section 3.05. Deposit of Redemption Price. One Business Day prior to the redemption date, the Company shall deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption price of and accrued interest on all Notes to be redeemed on that date. The Trustee or the Paying Agent shall promptly return to the Company any money deposited with the Trustee or the Paying Agent by the Company in excess of the amounts necessary to pay the redemption price of, and accrued interest on, all Notes to be redeemed. If the Company complies with the provisions of the preceding paragraph, on and after the redemption date, interest shall cease to accrue on the Notes or the portions of Notes called for redemption. If a Note is redeemed on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption shall not be so paid upon surrender for redemption because of the failure of the Company to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof. Section 3.06. Notes Redeemed in Part. Upon surrender of a Note that is redeemed in part, the Company shall issue and, upon the Company's written request, the Trustee shall authenticate for the Holder at the 35 42 expense of the Company a new Note equal in principal amount to the unredeemed portion of the Note surrendered. Section 3.07. Optional Redemption. (a) Except as set forth in clause (b) of this Section 3.07, the Company shall not have the option to redeem the Notes pursuant to this Section 3.07 prior to March 1, 2003. Thereafter, the Company shall have the option to redeem the Notes, in whole or in part, upon not less than 30 nor more than 60 days notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the applicable redemption date, if redeemed during the twelve-month period beginning on March 1 of the years indicated below:
YEAR PERCENTAGE ---- ---------- 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104.063% 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.708% 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.354% 2006 and thereafter . . . . . . . . . . . . . . . . . . . . . . . . 100.000%
(b) Notwithstanding the provisions of clause (a) of this Section 3.07, at any time prior to March 1, 2001, the Company may, on any one or more occasions, redeem up to 35% of the aggregate principal amount of Notes originally issued under this Indenture at a redemption price of 108.125% of the principal amount thereof plus accrued and unpaid Liquidated Damages thereon, if any, to the redemption date, with the net cash proceeds of any Public Equity Offering; provided that at least 65% of the aggregate principal amount of Notes originally issued on the Issue Date remain outstanding immediately after the occurrence of such redemption; and provided further, that such redemption shall occur within 60 days of the date of the closing of such Public Equity Offering. (c) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Section 3.01 through 3.06 hereof. Section 3.08. Mandatory Redemption. The Company shall not be required to make mandatory redemption or sinking fund payments with respect to the Notes. Section 3.09. Offer to Purchase by Application of Excess Proceeds. In the event that, pursuant to Section 4.10 hereof, the Company shall be required to commence an offer to all Holders to purchase Notes (an "Asset Sale Offer"), it shall follow the procedures specified below. The Asset Sale Offer shall remain open for a period of 20 Business Days following its commencement and no longer, except to the extent that a longer period is required by applicable law (the "Offer Period"). No later than five Business Days after the termination of the Offer Period (the "Purchase Date"), the Company shall purchase the principal amount of Notes required to be purchased pursuant to Section 4.10 hereof (the "Offer Amount") or, if less than the Offer Amount has been tendered, all Notes tendered in response to the Asset Sale Offer. 36 43 Payment for any Notes so purchased shall be made in the same manner as interest payments are made. If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest shall be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest shall be payable to Holders who tender Notes pursuant to the Asset Sale Offer. Upon the commencement of an Asset Sale Offer, the Company shall send, by first class mail, a notice to the Trustee and each of the Holders, with a copy to the Trustee. The notice shall contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The Asset Sale Offer shall be made to all Holders. The notice, which shall govern the terms of the Asset Sale Offer, shall state: (a) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer shall remain open; (b) the Offer Amount, the purchase price and the Purchase Date; (c) that any Note not tendered or accepted for payment shall continue to accrete or accrue interest; (d) that, unless the Company defaults in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer shall cease to accrete or accrue interest after the Purchase Date; (e) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may only elect to have all of such Note purchased and may not elect to have only a portion of such Note purchased; (f) that Holders electing to have a Note purchased pursuant to any Asset Sale Offer shall be required to surrender the Note, with the form entitled "Option of Holder to Elect Purchase" on the reverse of the Note completed, or transfer by book-entry transfer, to the Company, a depositary, if appointed by the Company, or a Paying Agent at the address specified in the notice at least three days before the Purchase Date; (g) that Holders shall be entitled to withdraw their election if the Company, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased; (h) that, if the aggregate principal amount of Notes surrendered by Holders exceeds the Offer Amount, the Company shall select the Notes to be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Company so that only Notes in denominations of $1,000, or integral multiples thereof, shall be purchased); and 37 44 (i) that Holders whose Notes were purchased only in part shall be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer). On or before the Purchase Date, the Company shall, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount of Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount has been tendered, all Notes tendered, and shall deliver to the Trustee an Officers' Certificate stating that such Notes or portions thereof were accepted for payment by the Company in accordance with the terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as the case may be, shall promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Company for purchase, and the Company shall promptly issue a new Note, and the Trustee, upon written request from the Company shall authenticate and mail or deliver such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Company to the Holder thereof. The Company shall publicly announce the results of the Asset Sale Offer on the Purchase Date. Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof. ARTICLE 4. COVENANTS Section 4.01. Payment of Notes. The Company shall pay or cause to be paid the principal of, premium, if any, and interest and Liquidated Damages, if any, on the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest and Liquidated Damages, if any, shall be considered paid on the date due if the Paying Agent, if other than the Company or a Subsidiary thereof, holds as of 10:00 a.m. Eastern Time on the due date money deposited by the Company in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest and Liquidated Damages, if any, then due. The Company shall pay all Liquidated Damages, if any, in the same manner on the dates and in the amounts set forth in the Registration Rights Agreement. The Company shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal at the rate equal to 1% per annum in excess of the then applicable interest rate on the Notes to the extent lawful; it shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate to the extent lawful. Section 4.02. Maintenance of Office or Agency. The Company shall maintain in the Borough of Manhattan, the City of New York, an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for 38 45 exchange and where notices and demands to or upon the Company in respect of the Notes and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, the City of New York for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as one such office or agency of the Company in accordance with Section 2.03 hereof. Section 4.03. Reports. Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, and irrespective of whether the Exchange Offer Registration Statement or the Shelf Registration Statement has been declared effective by the SEC, the Company shall furnish to each of the Holders of Notes within the time periods specified in the SEC's rules and regulations, beginning with annual financial information for the year ended January 31, 1998, (i) all quarterly and annual financial information that would be required to be contained in a filing with the SEC on Forms 10-Q and 10-K if the Company were required to file such information, including a "Management's Discussion and Analysis of Financial Condition and Results of Operations" that describes the financial condition and results of operations of the Company and any consolidated Subsidiaries and, with respect to the annual information only, reports thereon by the Company's independent public accountants (which shall be firm(s) of established national reputation) and (ii) all information that would be required to be filed with the SEC on Form 8- K if the Company were required to file such reports. In addition, whether or not required by the rules and regulations of the SEC, the Company shall file a copy of all such information and reports with the SEC for public availability within the time periods specified in the SEC's rules and regulations (unless the SEC will not accept such a filing) and make such information available to securities analysts and prospective investors upon request. The Company shall at all times comply with TIA Section 314(a). Section 4.04. Compliance Certificate. (a) The Company shall deliver to the Trustee, within 90 days after the end of each fiscal year, a certificate signed by either the principal executive officer, the principal financial officer or the principal accounting officer of the Company, stating that a review of the activities of the Company and its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing officer with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to the officer signing such certificate, that to the best of his or her knowledge the Company has kept, observed, performed and fulfilled each and every covenant contained in this Indenture 39 46 and is not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Company is taking or proposes to take with respect thereto) and that to the best of his or her 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 Notes is prohibited or if such event has occurred, a description of the event and what action the Company 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 year-end financial statements delivered pursuant to Section 4.03(a) 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 that would lead them to believe that the Company has violated any provisions of Article 4 or Article 5 hereof 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 shall, so long as any of the Notes are outstanding, deliver to the Trustee, forthwith upon any Officer becoming aware of any Default or Event of Default, an Officers' Certificate specifying such Default or Event of Default and what action the Company is taking or proposes to take with respect thereto. Section 4.05. Taxes. The Company shall pay, and shall cause each of its Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes. Section 4.06. Stay, Extension and Usury Laws. The Company covenants (to the extent that it may lawfully do so) that it shall 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, that may affect the covenants or the performance of this Indenture; and the Company (to the extent that it may lawfully do so) hereby expressly waives all benefit or advantage of any such law, and covenants that it shall not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted. Section 4.07. Restricted Payments. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make any other payment or distribution on account of the Company's or any of its Restricted Subsidiaries' Equity Interests (including, without limitation, any dividend, payment or distribution on account of such Equity Interests in connection with any merger or consolidation involving the Company or any of its Restricted 40 47 Subsidiaries) or to the direct or indirect holders of the Company's or any of its Restricted Subsidiaries' Equity Interests in their capacity as such (other than dividends or distributions payable in Equity Interests (other than Disqualified Stock) of the Company or a Restricted Subsidiary of the Company or dividends or distributions payable to the Company or any Wholly Owned Restricted Subsidiary); (ii) purchase, redeem or otherwise acquire or retire for value (including without limitation, in connection with any merger or consolidation involving the Company or any of its Restricted Subsidiaries) any Equity Interests of the Company or any direct or indirect parent of the Company or other Affiliate of the Company (other than any such Equity Interests owned by the Company or a Wholly Owned Restricted Subsidiary of the Company); (iii) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Subordinated Obligations, except a payment of interest or principal at Stated Maturity; or (iv) make any Restricted Investment (all such payments and other actions set forth in clauses (i) through (iv) above being collectively referred to as "Restricted Payments"), unless, at the time of and after giving effect to such Restricted Payment: (a) no Default or Event of Default shall have occurred and be continuing or would occur as a consequence thereof; and (b) the Company would, at the time of such Restricted Payment and after giving pro forma effect thereto as if such Restricted Payment had been made at the beginning of the applicable four-quarter period, have been permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of the covenant described below under Section 4.09 hereof; and (c) such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by the Company and any of its Restricted Subsidiaries after the Issue Date (excluding Restricted Payments permitted by Clauses (ii), (iii), (iv), (v), (vi), (vii) or (viii) of the next succeeding paragraph), is less than the sum of (i) 50% of the Consolidated Net Income of the Company for the period (taken as one accounting period) from the beginning of the first fiscal quarter immediately following the Issue Date to the end of the Company's most recently ended fiscal quarter for which internal financial statements are available at the time of such Restricted Payment (or, if such Consolidated Net Income for such period is a deficit, less 100% of such deficit), plus (ii) 100% of the aggregate Net Cash Proceeds received by the Company as a contribution to its common equity capital or from the issue or sale since the Issue Date of Equity Interests of the Company (other than Disqualified Stock), or of Disqualified Stock or debt securities of the Company that have been converted into such Equity Interests (other than Equity Interests (or Disqualified Stock or convertible debt securities) sold to a Subsidiary of the Company and other than Disqualified Stock or convertible debt securities that have been converted into Disqualified Stock), plus (iii) to the extent not already included in Consolidated Net Income of the Company for such period without duplication, any Restricted Investment that was made by the Company or any of its Restricted Subsidiaries after the Issue Date is sold for cash or otherwise liquidated or repaid for cash, the lesser of (A) the cash return of capital with respect to such Restricted Investment (less the cost of disposition, if any) and (B) the initial amount of such Restricted Investment, plus (iv) 50% of any dividends received by the Company or a Wholly Owned Restricted Subsidiary after the Issue Date from an Unrestricted Subsidiary of the Company, to the extent that such dividends were not otherwise included in the Consolidated Net Income of the Company for such period, plus (v) to the extent not already included pursuant to clause (iii) above and to the extent that any Unrestricted Subsidiary is 41 48 redesignated as a Restricted Subsidiary after the Issue Date, the lesser of (A) the fair market value of the Company's Investment in such Subsidiary as of the date of such redesignation or (B) such fair market value as of the date on which such Subsidiary was originally designated as an Unrestricted Subsidiary, plus (vi) to the extent that any Restricted Investment made after the Issue Date becomes a Permitted Investment, the lesser of (A) the fair market value of such Restricted Investment as of the date such Restricted Investment becomes a Permitted Investment or (B) the initial amount of such Restricted Investment. The foregoing provisions shall not prohibit (i) the payment of any dividend within 60 days after the date of declaration thereof, if at said date of declaration such payment would have complied with the provisions of this Indenture; (ii) the redemption, repurchase, retirement, defeasance or other acquisition of Subordinated Obligations or Equity Interests of the Company in exchange for, or out of the net cash proceeds of the substantially concurrent sale (other than to a Subsidiary of the Company) of, other Equity Interests of the Company (other than any Disqualified Stock); provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition shall be excluded from clause (c)(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase or other acquisition of Subordinated Obligations with the net cash proceeds from an incurrence of Permitted Refinancing Indebtedness; (iv) the payment of any dividend or distribution by a Restricted Subsidiary of the Company to the holders of its common Equity Interests on a pro rata basis; (v) the loan of cash to any Company-sponsored employee stock ownership plan for the purpose of acquiring Equity Interests of the Company; provided that the aggregate amount of all such loans shall not exceed $1,500,000 in any twelve-month period; (vi) contributions by the Company to a Company-grantor employee benefit trust for the purpose of repurchasing, redeeming or otherwise acquiring for value any Equity Interests of the Company by such trust, provided that contributions made after the Issue Date do not exceed at any time (x) the aggregate amount deducted after the Issue Date from the Company's or any of its Restricted Subsidiaries' employee wages for such employee benefit plus (y) $5,000,000; (vii) loans and advances to officers, directors and employees for business related travel, relocation expenses and similar expenses, in each case in the ordinary course of business; and (viii) other Restricted Payments in an aggregate amount since the Issue Date not to exceed $10.0 million, provided that with respect to clauses (ii), (iii), (iv), (vi), (vii) and (viii) above, no Default or Event of Default shall have occurred and be continuing immediately after such transaction. The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by the Company or such Restricted Subsidiary of the Company, pursuant to the Restricted Payment. The fair market value of any non-cash Restricted Payment which exceeds $1.0 million shall be determined by the Board of Directors of the Company, such determination to be based upon an opinion or appraisal issued by an Independent Financial Advisor if such fair market value exceeds $5.0 million. The Company shall deliver to the Trustee all resolutions of the Board of Directors of the Company with respect to the valuation of non-cash Restricted Payments not previously delivered to the Trustee each time the aggregate amount of non-cash Restricted Payments for which resolutions have not been delivered to the Trustee exceeds $5.0 million. Not later than the date of making any Restricted Payment in excess of $5.0 million, the Company shall deliver to the Trustee an Officers' Certificate stating that such Restricted Payment is permitted and setting forth the basis upon which the 42 49 calculations required by this Section 4.07 were computed, together with a copy of any fairness opinion or appraisal required by this Section 4.07. The Board of Directors may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such designation would not cause a Default. For purposes of making such determination, all outstanding Investments by the Company and its Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary so designated will be deemed to be Restricted Payments at the time of such designation and will reduce the amount available for Restricted Payments under this covenant. All such outstanding Investments will be deemed to constitute Investments in an amount equal to the fair market value of such Investments at the time of such designation. Such designation will only be permitted if such Restricted Payment would be permitted at such time and if such Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary. Any designation of an Unrestricted Subsidiary by the Board of Directors shall be evidenced to the Trustee by filing with the Trustee a certified copy of the resolution of the Board of Directors of the Company giving effect to such designation and an Officers' Certificate certifying that such designation complied with the terms of this Indenture governing the designation of Unrestricted Subsidiaries and was permitted by this Section 4.07. If, at any time, any Unrestricted Subsidiary fails to meet the foregoing requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the Company as of such date (and, if such Indebtedness is not permitted to be incurred as of such date under the covenant described under Section 4.09 hereof, the Company shall be in default of such covenant). The Board of Directors of the Company may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such designation shall be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such designation shall only be permitted if (i) such Indebtedness is permitted under Section 4.09 hereof calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period, and (ii) no Default or Event of Default would be in existence following such designation. Section 4.08. Dividend and Other Payment Restrictions Affecting Subsidiaries. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to exist or become effective any encumbrance or restriction on the ability of any Restricted Subsidiary of the Company to (i) (x) pay dividends or make any other distributions to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or (2) with respect to any other interest or participation in, or measured by, its profits, or (y) pay any Indebtedness owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or advances to the Company or any of its Restricted Subsidiaries or (iii) transfer any of its properties or assets to the Company or any of its Restricted Subsidiaries, except for such encumbrances or restrictions existing under or by reason of (a) Existing Indebtedness as in effect on the Issue Date, or as amended thereafter on terms, taken as a whole, no less favorable to the Holders of the Notes than the terms of such Indebtedness as in effect on the Issue Date, (b) the Credit Facility as in effect as of the Issue Date, and any amendments, modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings thereof, provided that such amendments, 43 50 modifications, restatements, renewals, increases, supplements, refundings, replacements or refinancings are no more restrictive, taken as a whole, with respect to such dividend and other payment restrictions than those contained in the Credit Facility as in effect on the Issue Date, (c) the Indenture and Notes, (d) applicable law, (e) any instrument governing Indebtedness or Capital Stock of a Person acquired by the Company or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness was incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired, provided that, in the case of Indebtedness, such Indebtedness was permitted by the terms of this Indenture to be incurred, (f) by reason of customary non-assignment provisions in leases and other agreements entered into in the ordinary course of business, (g) purchase money obligations for property acquired in the ordinary course of business that impose restrictions of the nature described in clause (iii) above on the property so acquired, (h) Indebtedness of Restricted Subsidiaries, provided that such Indebtedness was permitted to be incurred pursuant to the Indenture, (i) Permitted Refinancing Indebtedness, provided that the restrictions contained in the agreements governing such Permitted Financing Indebtedness are no more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced, (j) any agreement for sale of a Restricted Subsidiary that restricts distributions or transfers of assets by that Restricted Subsidiary pending its sale, (k) provisions with respect to the disposition or distribution of assets or property in joint venture agreements or other similar agreements entered into in the ordinary course of business and (l) secured Indebtedness otherwise permitted to be incurred pursuant to Section 4.12 hereof that limit the right of the debtor to dispose of the assets securing such Indebtedness. Section 4.09. Incurrence of Indebtedness and Issuance of Preferred Stock. The Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, "incur") any Indebtedness (including Acquired Debt) and that the Company shall not issue any Disqualified Stock and shall not permit any of its Subsidiaries to issue any shares of preferred stock; provided, however, that the Company may incur Indebtedness (including Acquired Debt) or the Company may issue shares of Disqualified Stock if the Company's Fixed Charge Coverage Ratio for the Company's most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Stock is issued would have been at least 2.00 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness has been incurred, or the Disqualified Stock had been issued, as the case may be, at the beginning of such four-quarter period. The provisions of the first paragraph of this Section 4.09 shall not apply to the incurrence of any of the following items of Indebtedness (collectively, "Permitted Debt"): (i) the incurrence by the Company of Indebtedness under one or more Credit Facilities, letters of credit and related guarantees under any such Credit Facility; provided that the aggregate principal amount of all Indebtedness (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of the Company thereunder) outstanding under such Credit Facilities after giving effect to such incurrence, 44 51 does not exceed $150.0 million, less the aggregate amount of Asset Sale proceeds applied to reduce any amount borrowed under any Credit Facility pursuant to the provisions of Section 4.10 hereof; provided that the Company may incur an additional $50.0 million of Indebtedness under such Credit Facilities, provided such additional Indebtedness may be incurred pursuant to the Fixed Charge Coverage Ratio under the first paragraph of this Section 4.09; (ii) the incurrence by the Company and its Restricted Subsidiaries of the Existing Indebtedness; (iii) the incurrence by the Company of Indebtedness represented by the Notes issued on the Issue Date; (iv) the incurrence by the Company or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of the Company or such Restricted Subsidiary, in an aggregate principal amount, including all Permitted Refinancing Indebtedness incurred to refund, refinance or replace Indebtedness incurred pursuant to this clause (iv), not to exceed 5% of Tangible Net Assets at any time outstanding; (v) the incurrence by the Company or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in respect of Indebtedness that was permitted by this Indenture to be incurred by such entity other than pursuant to clause (vi) below. (vi) the incurrence by the Company or any of its Restricted Subsidiaries of intercompany Indebtedness between or among the Company and any of its Restricted Subsidiaries; provided, however, that (i) if the Company is the obligor on such Indebtedness, such Indebtedness is expressly subordinated to the prior payment in full in cash of all Obligations with respect to the Notes and this Indenture and (ii) (A) any subsequent event or issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than the Company or a Restricted Subsidiary of the Company and (B) any sale or other transfer of any such Indebtedness to a Person that is not either the Company or a Restricted Subsidiary of the Company shall be deemed, in each case, to constitute an incurrence of such Indebtedness by the Company or such Restricted Subsidiary, as the case may be, that was permitted by this clause (vi); (vii) the incurrence by the Company or any of its Restricted Subsidiaries of Hedging Obligations that are incurred in the normal course of business or as required by any Credit Facility for the purpose of fixing or hedging currency, commodity or interest rate risk (including with respect to any floating rate Indebtedness that is permitted by the terms of this Indenture to be outstanding) in connection with the conduct of their respective businesses and not for speculative purposes; (viii) the guarantee by the Company or any of its Restricted Subsidiaries of Indebtedness of the Company or a Restricted Subsidiary of the Company that was permitted to be incurred by another provision of this Section 4.09; provided that such guarantee of 45 52 Indebtedness is a Permitted Investment or otherwise permitted by the provisions of Section 4.07 hereof; (ix) Indebtedness incurred by the Company or any Restricted Subsidiary under performance bonds, letter of credit obligations to provide security for worker's compensation claims, trade payables, payment obligations in connection with self-insurance or similar requirements and bank overdrafts incurred in the ordinary course of business; provided that any Obligations arising in connection with such bank overdraft Indebtedness is extinguished within five Business Days; (x) the incurrence by the Company or any of its Restricted Subsidiaries of additional Indebtedness in an aggregate principal amount (or accreted value, as applicable) at any time outstanding, including all Permitted Refinancing Indebtedness pursuant to this clause (x), not to exceed $25.0 million; (xi) the incurrence by the Company's Unrestricted Subsidiaries of Non-Recourse Debt and Preferred Stock, provided, however, that if any such Indebtedness or Preferred Stock ceases to be Non-Recourse Debt and Preferred Stock of an Unrestricted Subsidiary, such event shall be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of the Company that was not permitted by this clause (xi); and (xii) the incurrence by a Restricted Subsidiary that is a Foreign Subsidiary of Indebtedness in an amount not to exceed 75% of the net book value of the non-Affiliate accounts receivable of such Restricted Foreign Subsidiary determined in accordance with GAAP. For purposes of determining compliance with this Section 4.09, in the event that an item of Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (i) through (xii) above or is entitled to be incurred pursuant to the first paragraph of this Section 4.09, the Company shall, in its sole discretion, classify such item of Indebtedness in any manner that complies with this Section 4.09 and such item of Indebtedness shall be treated as having been incurred pursuant to only one of such clauses or pursuant to the first paragraph of this Section 4.09. Accrual of interest, the accretion of accreted value and the payment of interest in the form of additional Indebtedness will not be deemed to be an incurrence of Indebtedness for purposes of this Section 4.09. Section 4.10. Asset Sales. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company or such Restricted Subsidiary, as the case may be, receives consideration at the time of such Asset Sale at least equal to the fair market value (as determined in good faith by the Board of Directors and evidenced by a resolution of the Board of Directors set forth in an Officers' Certificate delivered to the Trustee), of the assets or Equity Interests issued or sold or otherwise disposed of and (ii) at least 75% of the consideration therefor received by the Company or such Restricted Subsidiary is in the form of cash or Cash Equivalents; provided that the amount of (x) any liabilities (as shown on the Company's or such Restricted Subsidiary's most recent balance sheet) of the Company or any Restricted Subsidiary of the Company (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Guarantee thereof) that are assumed by the transferee or any such assets pursuant to customary assumption and indemnity agreements 46 53 that releases the Company or such Restricted Subsidiary from further liability and (y) any securities, notes or other obligations received by the Company or such Restricted Subsidiary for such transferee that are converted by the Company or Restricted Subsidiary into cash (to the extent of the cash received) within 30 days after consummation of such Asset Sale, shall be deemed to be cash for purposes of this provision. Within 360 days after the receipt of any Net Proceeds from an Asset Sale, the Company or the Restricted Subsidiary, as applicable, may apply such Net Proceeds, at its option, (a) to repay Senior Debt under any Credit Facility or (b) to the acquisition of a controlling interest in a Permitted Business, the making of a capital expenditure or the acquisition of other assets, of which substantially all are long-term, that are used or useful in a Permitted Business or the acquisition of all or substantially all of the assets of a Permitted Business. Pending the final application of any such Net Proceeds, the Company may temporarily reduce Senior Debt under any Credit Facility or otherwise invest such Net Proceeds in any manner that is not prohibited by this Indenture. Any Net Proceeds from Asset Sales that are not applied or invested as provided in this sentence of this paragraph shall be deemed to constitute "Excess Proceeds." When the aggregate amount of Excess Proceeds exceeds $10.0 million, the Company shall be required to make an offer to all Holders of Notes (an "Asset Sale Offer") to purchase the maximum principal amount of Notes that may be purchased out of the Excess Proceeds, at an offer price in cash in an amount equal to 100% of the principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the date of purchase, in accordance with the procedures set forth in this Indenture. To the extent that the aggregate amount of Notes tendered pursuant to an Asset Sale offer is less than the Excess Proceeds, the Company may use any remaining Excess Proceeds for general corporate purposes. If the aggregate principal amount of Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select the Notes to be purchased on a pro rata basis. Upon completion of such offer to purchase, the amount of Excess Proceeds shall be reset at zero. Section 4.11. Transactions with Affiliates. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, contract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of any such Person (each of the foregoing, an "Affiliate Transaction"), unless (i) such Affiliate Transaction is on terms that are no less favorable to the Company or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by the Company or such Restricted Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee (x) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $5.0 million, a resolution of its Board of Directors set forth in an Officers' Certificate certifying that such Affiliate Transaction complies with clause (i) above and that such Affiliate Transaction has been approved by a majority of the disinterested members of its Board of Directors and (y) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $10.0 million, an opinion as to the fairness to the Holders of such Affiliate Transaction from a financial point of view issued by an Independent Financial Advisor; provided that none of the following shall be deemed to be Affiliate Transactions: (a) any employment agreement entered into by the Company or any of its Restricted Subsidiaries in the ordinary 47 54 course of business of the Company or such Restricted Subsidiary, as the case may be; (b) transactions between or among the Company and/or its Restricted Subsidiaries; (c) Restricted Payments that are permitted by the provisions of Section 4.07 hereof; and (d) fees, compensation and benefits paid to, and indemnity provided on behalf of, officers, directors or employees of the Company or any of its Restricted Subsidiaries, as determined by the Board of Directors of the Company or of any such Restricted Subsidiary, to the extent such fees, compensation and benefits are reasonable and customary. Section 4.12. Liens. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind securing Indebtedness which is pari passu or subordinate to the Notes or trade payables, unless the Notes are equally and ratably secured with the obligations so secured until such time as such obligations are no longer secured by any Lien; provided that in any case involving a Lien securing indebtedness subordinated to the Notes, such Lien is subordinated to the Lien securing the Notes to the same extent that such subordinated indebtedness is subordinated to the Notes. Section 4.13. Business Activities. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, engage in any line of business other than a Permitted Business, except to such extent as would not be material to the Company and its Restricted Subsidiaries taken as a whole. Section 4.14. Corporate Existence. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect (i) its corporate existence, and the corporate, partnership or other existence of each of its Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of the Company or any such Restricted Subsidiary and (ii) 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 of its Restricted Subsidiaries, 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 Restricted Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes. Section 4.15. Offer to Repurchase Upon Change of Control. (a) Upon the occurrence of a Change of Control, each Holder of 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 Notes pursuant to the offer described in this Section 4.15 (the "Change of Control Offer") at an offer price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages thereon, if any, to the purchase date (the "Change of Control Payment"). Within 30 days following any Change of Control, the Company shall mail a notice to each Holder describing the transaction or transactions that constitute a Change of Control and offering to repurchase Notes on the date 48 55 specified in such notice, which date shall be no earlier than 30 days and no later than 60 days from the date such notice is mailed (the "Change of Control Payment Date"), pursuant to the procedures required by this Indenture and described in such notice. The Company shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations thereunder to the extent such laws and regulations are applicable in connection with the repurchase of the Notes as a result of a Change of Control. (b) On a Change of Control Payment Date, the Company shall, to the extent lawful, (1) accept for payment all Notes or portions thereof properly tendered pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions thereof so tendered and (3) deliver or cause to be delivered to the Trustee the Notes so accepted together with an Officers' Certificate stating the aggregate principal amount of Notes or portions thereof being purchased by the Company. The Paying Agent shall promptly mail to each Holder of Notes so tendered the Change of Control Payment for such Notes, and the Trustee shall promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered, if any; provided that each such new Note shall be a principal amount of $1,000 or an integral multiple thereof. Prior to complying with the provisions of this Section 4.15, but in any event within 60 days following a Change of Control, the Company shall either repay all outstanding Senior Debt or obtain the requisite consents, if any, under all agreements governing outstanding Senior Debt to permit the repurchase of Notes required by this Section 4.15. The Company shall publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date. The Change of Control provisions described above will be applicable whether or not other provisions of this Indenture are applicable. (c) Notwithstanding anything to the contrary in this Section 4.15, the Company shall not be required to make a Change of Control Offer upon a Change of Control if a third party makes the Change of Control Offer in a manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.15 and Section 3.09 hereof and purchases all Notes validly tendered and not withdrawn under such Change of Control Offer. Section 4.16. No Senior Subordinated Debt. Notwithstanding the provisions of Section 4.09 hereof, the Company shall not incur, create, issue, assume, guarantee or otherwise become liable for any indebtedness that is subordinate or junior in right of payment to any Indebtedness and senior in any respect in right of payment to the Notes. Section 4.17. Sale and Leaseback Transactions. The Company shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that the Company may enter into a sale and leaseback transaction if (i) the Company could have incurred Indebtedness in an amount equal to the Attributable Debt relating to such sale and leaseback transaction pursuant to the Fixed Charge Coverage Ratio test set forth in the first paragraph of Section 4.09 hereof and (ii) the gross cash proceeds of such sale and leaseback transaction are at least equal to the fair market value (as determined in good faith by the Board of Directors and set forth in an Officers' Certificate delivered to the Trustee) of the property that is the subject of such sale and 49 56 leaseback transaction and (iii) the transfer of assets in such sale and leaseback transaction is permitted by, and the Company applies the proceeds of such transaction in compliance with, the provisions of Section 4.10 hereof. Section 4.18. Limitation on Guarantees of Indebtedness. The Company shall not permit any of its Restricted Subsidiaries, directly or indirectly, to Guarantee payment of any other Indebtedness of the Company unless such Restricted Subsidiary simultaneously executes and delivers a supplemental indenture to this Indenture, substantially in the form attached hereto as Exhibit D, providing for the Guarantee of the payment of the Notes by such Restricted Subsidiary, which Guarantee shall be (i) in the case of Indebtedness that is subordinated to the Notes, senior to such Restricted Subsidiary's Guarantee of or pledge to secure such other Indebtedness, (ii) in the case of Indebtedness that is pari passu with the Notes, pari passu with such Restricted Subsidiary's Guarantee of or pledge to secure such other Indebtedness, and (iii) in the case of Indebtedness that is Senior Debt, subordinated to the Guarantee of such Senior Debt to the same extent as the Notes are subordinated to such Senior Debt. Notwithstanding the foregoing, any such Guarantee by a Restricted Subsidiary of the Notes shall provide by its terms that it shall be automatically and unconditionally released and discharged upon the release of such Guarantee of any Senior Debt so long as no Rating Event has occurred and is continuing or upon any sale, exchange or transfer, to any Person not an Affiliate of the Company, of all of the Company's stock in, or all or substantially all the assets of, such Restricted Subsidiary, which sale, exchange or transfer is made in compliance with the applicable provisions of this Indenture. A "Rating Event" means the assigning of a rating on the Notes (a) from Moody's Investors Services, Inc., lower than "B2" or (b) from Standard & Poor's Rating Group lower than "B." Nothing in this Section 4.18 shall be construed to permit any Restricted Subsidiary of the Company to incur Indebtedness otherwise prohibited by the provisions of Section 4.09 hereof. Section 4.19. 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 Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid or is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement. ARTICLE 5. SUCCESSORS Section 5.01. Merger, Consolidation or Sale of Assets. 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 50 57 United States of America, any state thereof or the District of Columbia, (ii) the entity or Person formed by or surviving any such consolidation or merger (if other than the Company) or the entity or Person to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made assumes all the obligations of the Company pursuant to a supplemental indenture under the Notes and this Indenture pursuant to a supplemental indenture in a form reasonably satisfactory to the Trustee, (iii) immediately before and after such transaction, no Default or Event of Default shall have occurred and (iv) except in the case of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of the Company, the Company or the entity or Person formed by or surviving any such consolidation or merger (if other than the Company), or to which such sale, assignment, transfer, lease, conveyance or other disposition shall have been made will, at the time of such transaction and after giving pro forma effect thereto as if such transaction had occurred at the beginning of the applicable four- quarter period, be permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Ratio Test set forth in the first paragraph of covenant described in the provision of Section 4.09 hereof; provided, however, if the sole purpose of such merger is the reincorporation of the Company into another State, such merger with or into the Wholly Owned Restricted Subsidiary shall be permitted, so long as the amount of Indebtedness of the Company and its Restricted Subsidiaries is not increased thereby. Section 5.02. Successor Corporation Substituted. Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the assets of the Company in accordance with Section 5.01 hereof, the successor corporation formed by such consolidation or into or with which the Company is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, lease, conveyance or other disposition, the provisions of this Indenture referring to the "Company" shall refer instead to the successor corporation and not to the Company), and may exercise every right and power of the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; provided, however, that the predecessor Company shall not be relieved from the obligation to pay the principal of and interest on the Notes except in the case of a sale of all of the Company's assets that meets the requirements of Section 5.01 hereof. ARTICLE 6. DEFAULTS AND REMEDIES Section 6.01. Events of Default. An "Event of Default" occurs if: (a) the Company defaults in the payment when due of interest on, or Liquidated Damages, if any, with respect to, the Notes and such default continues for a period of 30 days, whether or not such payment is prohibited by the provisions of Article 10 hereof; (b) the Company defaults in the payment when due of principal of or premium, if any, on the Notes, whether or not such payment is prohibited by the provisions of Article 10 hereof; 51 58 (c) the Company fails to comply with any of the provisions of Section 5.01 hereof; (d) the Company or any of its Subsidiaries fails for 30 days after notice by the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes to comply with the provisions of Sections 4.07, 4.09, 4.10 or 4.15; (e) the Company or any of its Subsidiaries fails to observe or perform any other covenant, representation, warranty or other agreement in this Indenture or the Notes for 60 days after notice to the Company by the Trustee or the Holders of at least 25% in aggregate principal amount of the Notes then outstanding; (f) the Company or any of its Subsidiaries defaults under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by the Company or any of its Subsidiaries (or the payment of which is guaranteed by the Company or any of its Subsidiaries), whether such Indebtedness or guarantee exists at the Issue Date, or is created after the Issue Date, which default (a) is caused by a failure to pay principal of or premium, if any, or interest on such Indebtedness at final maturity prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a "Payment Default") or (b) results in the acceleration of such Indebtedness prior to its express maturity and, in each case, the principal amount of such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated aggregates without duplication $10.0 million or more. (g) the Company or any of its Significant Subsidiaries fails to pay a final judgment or final judgments for the payment of money which are entered by a court or courts of competent jurisdiction against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary and such judgment or judgments remain undischarged for a period (during which execution shall not be effectively stayed) of 60 days, provided that the aggregate of all such undischarged judgments exceeds $10 million (excluding amounts covered by insurance); (h) the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law: (i) commences a voluntary case, (ii) consents to the entry of an order for relief against it in an involuntary case, (iii) consents to the appointment of a Custodian of it or for all or substantially all of its property, (iv) makes a general assignment for the benefit of its creditors, or (v) generally is not paying its debts as they become due; or (i) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: 52 59 (i) is for relief against the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary in an involuntary case; (ii) appoints a Custodian of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary or for all or substantially all of the property of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; or (iii) orders the liquidation of the Company or any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary; and the order or decree remains unstayed and in effect for 60 consecutive days. Section 6.02. Acceleration. If any Event of Default (other than an Event of Default specified in clause (h) or (i) of Section 6.01 hereof with respect to the Company, any Significant Subsidiary or any group of Significant Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary) occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately; provided, that so long as Senior Debt or any commitment therefore is outstanding under the Credit Facility, any such notice shall not be effective until the earlier of (i) five Business Days after such notice is delivered to the representative for such Senior Debt. or, (ii) the acceleration of the Senior Debt under the Credit Facility. Notwithstanding the foregoing, if an Event of Default specified in clause (h) or (i) of Section 6.01 hereof occurs with respect to the Company, any of its Significant Subsidiaries or any group of Subsidiaries that, taken as a whole, would constitute a Significant Subsidiary, all outstanding Notes shall be due and payable immediately without further action or notice. The Holders of a majority in aggregate principal amount of the then outstanding Notes by written notice to the Trustee may on behalf of all of the Holders rescind an acceleration and its consequences if the rescission would not conflict with any judgment or decree and if all existing Events of Default (except nonpayment of principal, interest or premium that has become due solely because of the acceleration) have been cured or waived. 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 principal intention of avoiding payment of the premium that the Company would have had to pay if the Company then had elected to redeem the Notes pursuant to the optional redemption provisions of this Indenture, an equivalent premium shall also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to March 1, 2003 by reason of any willful action (or inaction) taken (or not taken) by or on behalf of the Company with the intention of avoiding the prohibition on redemption of the Notes prior to March 1, 2003, then the premium payable for purposes of this paragraph for each of the years beginning on March 1 of the years set forth below shall be as set forth in the following table expressed as a percentage of the amount that would otherwise be due but for the provisions of this sentence, plus accrued interest, if any, to the date of payment. 53 60
YEAR PERCENTAGE ---- ---------- 1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110.833% 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109.479% 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108.125% 2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.771% 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.417%
Section 6.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note 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. Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Liquidated Damages, if any, or interest on, the Notes (including in connection with an offer to purchase) (provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration). Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon. Section 6.05. Control by Majority. Holders of a majority in principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability. Section 6.06. Limitation on Suits. A Holder of a Note may pursue a remedy with respect to this Indenture or the Notes only if: (a) the Holder of a Note gives to the Trustee written notice of a continuing Event of Default; 54 61 (b) the Holders of at least 25% in principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy; (c) such Holder of a Note or Holders of Notes offer and, if requested, provide to the Trustee indemnity satisfactory to the Trustee against any loss, liability or expense; (d) the Trustee does not comply with the request within 60 days after receipt of the request and the offer and, if requested, the provision of indemnity; and (e) during such 60-day period the Holders of a majority in principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with the request. A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note. Section 6.07. Rights of Holders of Notes to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Liquidated Damages, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), 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 such Holder. Section 6.08. Collection Suit by Trustee. If an Event of Default specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Company for the whole amount of principal of, premium and Liquidated Damages, if any, and interest remaining unpaid on the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and 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 Holders of the Notes allowed in any judicial proceedings relative to the Company (or any other obligor upon the Notes), 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 Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, 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 in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, 55 62 and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders 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 Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder 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, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expense and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection; Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Liquidated Damages, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Liquidated Damages, if any and interest, respectively; and Third: to the Company or to such party as a court of competent jurisdiction shall direct. The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10. 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 and expenses, 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 of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in principal amount of the then outstanding Notes. ARTICLE 7. 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 its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person's own affairs. 56 63 (b) Except during the continuance of an Event of Default: (i) the duties of the Trustee shall be determined solely by the express provisions of this Indenture and 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; and (ii) 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, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee (including, without limitation, any certificates or opinions required to be furnished pursuant to Article 4 hereof), the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture (but need not confirm or investigate the accuracy of mathematical calculations or other facts stated therein). (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (i) this paragraph does not limit the effect of paragraph (b) of this Section; (ii) the Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and (iii) 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 hereof. (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section. (e) No provision of this Indenture shall require the Trustee to expend or risk its own funds or incur any liability. The Trustee shall be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder shall have offered to the Trustee security and indemnity satisfactory to it against any loss, liability or expense. (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 conclusively rely upon 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 57 64 takes or omits to take in good faith in reliance on such Officers' Certificate or Opinion of Counsel. The Trustee may consult with counsel of its selection and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon. (c) The Trustee may act through its attorneys and 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 that it believes to be authorized or within the rights or powers conferred upon it by this Indenture. (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Company shall be sufficient if signed by an Officer of the Company. (f) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities that might be incurred by it in compliance with such request or direction. (g) The Trustee shall not be deemed to have notice of any Default or Event of Default unless a Responsible Officer of the Trustee has actual knowledge thereof or unless written notice of any event which is in fact such a default is received by the Trustee at the Corporate Trust Office of the Trustee, and such notice references the Notes and this Indenture. Section 7.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Company or any Affiliate of the Company with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof. Section 7.04. Trustee's Disclaimer. The Trustee shall not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Company's use of the proceeds from the Notes or any money paid to the Company or upon the Company's direction under any provision of this Indenture, it shall not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it shall not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication. 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 Holders of Notes a notice of the Default or Event of Default 58 65 within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium, if any, or interest on any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes. Section 7.06. Reports by Trustee to Holders of the Notes. Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee shall mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA Section 313(a) (but if no event described in TIA Section 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also shall comply with TIA Section 313(b)(2). The Trustee shall also transmit by mail all reports as required by TIA Section 313(c). A copy of each report at the time of its mailing to the Holders of Notes shall be mailed to the Company and filed with the SEC and each stock exchange on which the Notes are listed in accordance with TIA Section 313(d). The Company shall promptly notify the Trustee when the Notes are listed on any stock exchange or of any delisting thereof. Section 7.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee's compensation shall not be limited by any law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses shall include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. The Company shall indemnify the Trustee against any and all losses, liabilities or reasonable expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Company (including this Section 7.07) and defending itself against any claim (whether asserted by the Company or any Holder or any other person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee shall notify the Company promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Company shall not relieve the Company of its obligations hereunder except to the extent such failure shall have materially prejudiced the Company. The Company shall defend the claim and the Trustee shall cooperate in the defense. If the Trustee is advised by counsel in writing that it may have available to it defenses which are in conflict with the defenses available to the Company, then the Trustee 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. The obligations of the Company under this Section 7.07 shall survive the satisfaction and discharge of this Indenture. 59 66 To secure the Company's payment obligations in this Section, the Trustee shall have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Notes. Such Lien shall survive the satisfaction and discharge of this Indenture. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(h) or (i) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. The Trustee shall comply with the provisions of TIA Section 313(b)(2) to the extent applicable. 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. The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Company. The Holders of Notes of a majority in principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Company in writing. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 7.10 hereof; (b) 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; (c) a Custodian or public officer takes charge of the Trustee or its property; or (d) 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 Notes 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 Notes of at least 10% in principal amount of the then outstanding Notes may, at the expense of the Company, petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee, after written request by any Holder of a Note who has been a Holder of a Note for at least six months, fails to comply with Section 7.10, such Holder of a Note 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 60 67 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 Holders of the Notes. The retiring Trustee shall promptly transfer all property held by it as Trustee to the successor Trustee, provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. 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. 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. There shall at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $50 million as set forth in its most recent published annual report of condition. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to TIA Section 310(b). Section 7.11. Preferential Collection of Claims Against Company. The Trustee is subject to TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE 8. LEGAL DEFEASANCE AND COVENANT DEFEASANCE Section 8.01. Option to Effect Legal Defeasance or Covenant Defeasance. The Company may, at the option of its Board of Directors evidenced by a resolution set forth in an Officers' Certificate, at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes upon compliance with the conditions set forth below in this Article 8. Section 8.02. Legal Defeasance and Discharge. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from its obligations with respect to all outstanding Notes on the date the conditions set forth below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes, which shall thereafter be deemed to be "outstanding" only for the purposes of Section 8.05 61 68 hereof and the other Sections of this Indenture referred to in (a) and (b) below, and to have satisfied all its other obligations under such Notes and this Indenture (and the Trustee, on demand of and at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following provisions which shall survive until otherwise terminated or discharged hereunder: (a) the rights of Holders of outstanding Notes to receive solely from the trust fund described in Section 8.04 hereof, and as more fully set forth in such Section, payments in respect of the principal of, premium, if any, and interest on such Notes when such payments are due, (b) the Company's obligations with respect to such Notes under Article 2 and Section 4.02 hereof, (c) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Company's obligations in connection therewith and (d) this Article 8. Subject to compliance with this Article 8, the Company may exercise its option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof. Section 8.03. Covenant Defeasance. Upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Company shall, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be released from its obligations under the covenants contained in Sections 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18, 4.19, and 5.01 hereof with respect to the outstanding Notes on and after the date the conditions set forth in Section 8.04 are satisfied (hereinafter, "Covenant Defeasance"), and the Notes shall thereafter be deemed not "outstanding" for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but shall continue to be deemed "outstanding" for all other purposes hereunder (it being understood that such Notes shall not be deemed outstanding for accounting purposes). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes, the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply shall not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes shall be unaffected thereby. In addition, upon the Company's exercise under Section 8.01 hereof of the option applicable to this Section 8.03 hereof, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(c) through 6.01(g) hereof shall not constitute Events of Default. Section 8.04. Conditions to Legal or Covenant Defeasance. The following shall be the conditions to the application of either Section 8.02 or 8.03 hereof to the outstanding Notes: In order to exercise either Legal Defeasance or Covenant Defeasance: (a) the Company must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders, cash in United States dollars, non-callable Government Securities, or a combination thereof, in such amounts as will be sufficient, in the opinion of a nationally recognized firm of independent public accountants, to pay the principal of, premium and Liquidated Damages, if any, and interest on the outstanding Notes on the stated date for payment thereof or on the applicable redemption date, as the case may be, and the Company 62 69 must specify whether the Notes are being defeased to maturity or to a particular redemption date; (b) in the case of an election under Section 8.02 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that (A) the Company has received from, or there has been published by, the Internal Revenue Service a ruling or (B) since the date of this Indenture, there has been a change in the applicable federal income tax law, in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred; (c) in the case of an election under Section 8.03 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel in the United States reasonably acceptable to the Trustee confirming that the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (d) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the incurrence of Indebtedness all or a portion of the proceeds of which will be used to defease the Notes pursuant to this Article 8 concurrently with such incurrence) or insofar as Sections 6.01(h) or 6.01(i) hereof is concerned, at any time in the period ending on the 91st day after the date of deposit; (e) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Restricted Subsidiaries is bound; (f) the Company shall have delivered to the Trustee an Opinion of Counsel (which may be subject to customary exceptions) to the effect that on the 91st day following the deposit, the trust funds will not be subject to the effect of any applicable bankruptcy, insolvency, reorganization or similar laws affecting creditors' rights generally; (g) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit was not made by the Company with the intent of preferring the Holders over any other creditors of the Company or with the intent of defeating, hindering, delaying or defrauding any other creditors of the Company; and (h) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for or relating to the Legal Defeasance or the Covenant Defeasance have been complied with. 63 70 Section 8.05. Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions. Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the "Trustee") pursuant to Section 8.04 hereof in respect of the outstanding Notes shall be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium, if any, and interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes. Anything in this Article 8 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon the request of the Company any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(a) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. Section 8.06. Repayment to Company. Any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, premium, if any, or interest on any Note and remaining unclaimed for two years after such principal, and premium, if any, or interest has become due and payable shall be paid to the Company on its request or (if then held by the Company) shall be discharged from such trust; and the Holder of such Note shall thereafter, as a creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in the New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Company. Section 8.07. Reinstatement. If the Trustee or Paying Agent is unable to apply any United States dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Company's obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred 64 71 pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Company makes any payment of principal of, premium, if any, or interest on any Note following the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent. ARTICLE 9. AMENDMENT, SUPPLEMENT AND WAIVER Section 9.01. Without Consent of Holders of Notes. Notwithstanding Section 9.02 of this Indenture, the Company and the Trustee may amend or supplement this Indenture or the Notes without the consent of any Holder of a Note: (a) to cure any ambiguity, defect or inconsistency; (b) to provide for uncertificated Notes in addition to or in place of certificated Notes or to alter the provisions of Article 2 hereof (including the related definitions) in a manner that does not materially adversely affect any Holder; (c) to provide for the assumption of the Company's obligations to the Holders of the Notes by a successor to the Company pursuant to Article 5 hereof; (d) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any Holder of the Note; or (e) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of any amended or supplemental Indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee shall not be obligated to enter into such amended or supplemental Indenture that affects its own rights, duties or immunities under this Indenture or otherwise. Section 9.02. With Consent of Holders of Notes. Except as provided below in this Section 9.02, the Company and the Trustee may amend or supplement this Indenture (including Section 3.09, 4.10 and 4.15 hereof) and the Notes may be amended or supplemented with the consent of the Holders of at least a majority in principal amount of the Notes then outstanding voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default (other than a Default or Event of Default in the payment of the principal of, premium, if any, or interest on the Notes, except a payment default resulting from an acceleration that has been rescinded) 65 72 or compliance with any provision of this Indenture or the Notes may be waived with the consent of the Holders of a majority in principal amount of the then outstanding Notes voting as a single class (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Without the consent of at least 75% in principal amount of the Notes then outstanding (including consents obtained in connection with a tender offer or exchange offer for, or purchase of, such Notes), no waiver or amendment to this Indenture may make any change in the provisions of Section 4.10, 3.09 or 4.15 hereof that adversely affects the rights of any Holder of Notes. Section 2.08 hereof shall determine which Notes are considered to be "outstanding" for purposes of this Section 9.02. Upon the request of the Company accompanied by a resolution of its Board of Directors authorizing the execution of any such amended or supplemental Indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 7.02 hereof, the Trustee shall join with the Company in the execution of such amended or supplemental Indenture unless such amended or supplemental Indenture directly affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such amended or supplemental Indenture. It shall not be necessary for the consent of the Holders of Notes under this Section 9.02 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, supplement or waiver under this Section becomes effective, the Company shall mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement 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. Subject to Sections 6.04 and 6.07 hereof, the Holders of a majority in aggregate principal amount of the Notes then outstanding voting as a single class may waive compliance in a particular instance by the Company with any provision of this Indenture or the Notes. However, without the consent of each Holder affected, an amendment or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder): (a) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver; (b) reduce the principal of or change the fixed maturity of any Note or alter or waive any of the provisions with respect to the redemption of the Notes except as provided above with respect to Sections 3.09, 4.10 and 4.15 hereof; (c) reduce the rate of or change the time for payment of interest, including default interest, on any Note; (d) waive a Default or Event of Default in the payment of principal of or premium, if any, interest or Liquidated Damages, if any on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration); 66 73 (e) make any Note payable in money other than that stated in the Notes; (f) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of principal of or premium, interest or Liquidated Damages, if any, on the Notes; (g) waive a redemption payment with respect to any Note (other than a payment required by one of the covenants described in Sections 3.09, 4.10 and 4.15); or (h) make any change in Section 6.04 or 6.07 hereof or in the foregoing amendment and waiver provisions. Section 9.03. Compliance with Trust Indenture Act. Every amendment or supplement to this Indenture or the Notes shall be set forth in a amended or supplemental Indenture that complies with the TIA as then in effect. Section 9.04. Revocation and Effect of Consents. Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or portion of a Note that evidences the same debt as the consenting Holder's Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the waiver, supplement or amendment becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder. Section 9.05. Notation on or Exchange of Notes. The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Company in exchange for all Notes may issue and the Trustee shall, upon receipt of an Authentication Order, authenticate new Notes that reflect the amendment, supplement or waiver. Failure to make the appropriate notation or issue a new Note shall not affect the validity and effect of such amendment, supplement or waiver. Section 9.06. Trustee to Sign Amendments, etc. The Trustee shall sign any amended or supplemental Indenture authorized pursuant to this Article Nine if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Company may not sign an amendment or supplemental Indenture until the Board of Directors approves it. In executing any amended or supplemental indenture, the Trustee shall be entitled to receive and (subject to Section 7.01 hereof) shall be fully protected in relying upon, in addition to the documents required by Section 11.04 hereof, an Officers' Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. 67 74 ARTICLE 10. SUBORDINATION Section 10.01. Agreement to Subordinate. The Company agrees, and each Holder by accepting a Note agrees, that the Indebtedness evidenced by the Notes is subordinated in right of payment, to the extent and in the manner provided in this Article 10, to the prior payment in full, in cash or Cash Equivalents, of all Senior Debt (whether outstanding on the date hereof or hereafter created, incurred, assumed or guaranteed), and that the subordination is for the benefit of the holders of Senior Debt. Section 10.02. Certain Definitions. "Designated Senior Debt" means (i) any Indebtedness outstanding under the Credit Facility and (ii) any other Senior Debt permitted hereunder the principal amount of which is $25.0 million or more and that has been designated by the Company as "Designated Senior Debt." "Permitted Junior Securities" means Equity Interests in the Company or debt securities that are subordinated to all Senior Debt (and any debt securities issued in exchange for Senior Debt) to substantially the same extent as, or to a greater extent than, the Notes are subordinated to Senior Debt pursuant to the Indenture. "Representative" means the indenture trustee or other trustee, agent or representative for any Senior Debt. "Senior Debt" means (i) all Indebtedness outstanding under Credit Facilities and all Hedging Obligations with respect thereto, (ii) any other Indebtedness permitted to be incurred by the Company under the terms of this Indenture, unless the instrument under which such Indebtedness is incurred expressly provides that it is on a parity with or subordinated in right of payment to the Notes and (iii) all Obligations of the Company with respect to the foregoing. Notwithstanding anything to the contrary in the foregoing, Senior Debt will not include (w) any liability for federal, state or other taxes owed or owing by the Company, (x) any Indebtedness of the Company to any of its Subsidiaries or other Affiliates, (y) any trade payables or (z) any Indebtedness that is incurred in violation of the Indenture, provided that Indebtedness under the Credit Facility will not cease to be Senior Debt if borrowed based upon a written certification (which can be included in a borrowing request) from a purported officer of the Company or the Director, Treasury to the effect that such Indebtedness was permitted by the Indenture to be incurred. A distribution may consist of cash, securities or other property, by set-off or otherwise. Section 10.03. Liquidation; Dissolution; Bankruptcy. Upon any distribution to creditors of the Company in a liquidation or dissolution of the Company or in a bankruptcy, reorganization, insolvency, receivership or similar proceeding 68 75 relating to the Company or its property, in an assignment for the benefit of creditors or any marshaling of the Company's assets and liabilities: (1) holders of Senior Debt shall be entitled to receive payment in full in cash or Cash Equivalents of all Obligations due in respect of such Senior Debt (including interest after the commencement of any such proceeding at the rate specified in the applicable Senior Debt) before Holders of the Notes shall be entitled to receive any payment with respect to the Notes (except that Holders may receive (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof); and (2) until all Obligations with respect to Senior Debt (as provided in subsection (1) above) are paid in full, in cash or Cash Equivalents, any distribution to which Holders would be entitled but for this Article 10 shall be made to holders of Senior Debt (except that Holders of Notes may receive (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof), as their interests may appear. Section 10.04. Default on Designated Senior Debt. The Company may not make any payment or distribution to the Trustee or any Holder in respect of Obligations with respect to the Notes and may not acquire from the Trustee or any Holder any Notes for cash or property (other than (i) Permitted Junior Securities and (ii) payments and other distributions made from any defeasance trust created pursuant to Section 8.01 hereof) until all principal and other Obligations with respect to the Senior Debt have been paid in full in cash or Cash Equivalents, if: (i) a default in the payment of any principal, of premium, if any, or interest with respect to Designated Senior Debt occurs and is continuing beyond any applicable grace period in the agreement, indenture or other document governing such Designated Senior Debt; or (ii) a default, other than a payment default defined in (i), on Designated Senior Debt occurs and is continuing that then permits holders of the Designated Senior Debt as to which such default relates to accelerate its maturity and the Trustee receives a notice of the default (a "Payment Blockage Notice") from the Company or the Representative of the holders of any Designated Senior Debt. If the Trustee receives any such Payment Blockage Notice, no subsequent Payment Blockage Notice shall be effective for purposes of this Section unless and until at least 360 days shall have elapsed since the effectiveness of the immediately prior Payment Blockage Notice. No nonpayment default that existed or was continuing on the date of delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the basis for a subsequent Payment Blockage Notice unless such default shall have been cured or waived for a period of at least 90 consecutive days. The Company may and shall resume payments on and distributions in respect of the Notes and may acquire them upon the earlier of: (1) in the case of a default referred to in Section 10.04(i) hereof, the date upon which such default is cured or waived, or 69 76 (2) in the case of a default referred to in Section 10.04(ii) hereof, the earlier of the date on which such default is cured or waived or 179 days after the date on which the applicable Payment Blockage Notice is received, unless the maturity of any Designated Senior Debt has been accelerated, if this Article 10 otherwise permits the payment, distribution or acquisition at the time of such payment or acquisition. Section 10.05. Acceleration of Securities. If payment of the Securities is accelerated because of an Event of Default, the Company shall promptly notify holders of Senior Debt of the acceleration. Section 10.06. When Distribution Must Be Paid Over. In the event that the Trustee or any Holder receives any payment of any Obligations with respect to the Notes at a time when the Trustee or such Holder, as applicable, has actual knowledge that such payment is prohibited by Section 10.04 hereof, such payment shall be held by the Trustee or such Holder, in trust for the benefit of, and shall be paid forthwith over and delivered, upon written request, to, the holders of Senior Debt as their interests may appear or their Representative under the indenture or other agreement (if any) pursuant to which Senior Debt may have been issued, as their respective interests may appear, for application to the payment of all Obligations with respect to Senior Debt remaining unpaid to the extent necessary to pay such Obligations in full in accordance with their terms, after giving effect to any concurrent payment or distribution to or for the holders of Senior Debt. With respect to the holders of Senior Debt, the Trustee undertakes to perform only such obligations on the part of the Trustee as are specifically set forth in this Article 10, and no implied covenants or obligations with respect to the holders of Senior Debt shall be read into this Indenture against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior Debt, and shall not be liable to any such holders if the Trustee shall pay over or distribute to or on behalf of Holders or the Company or any other Person money or assets to which any holders of Senior Debt shall be entitled by virtue of this Article 10, except if such payment is made as a result of the willful misconduct or gross negligence of the Trustee. Section 10.07. Notice by Company. The Company shall promptly notify the Trustee and the Paying Agent of any facts known to the Company that would cause a payment of any Obligations with respect to the Notes to violate this Article 10, but failure to give such notice shall not affect the subordination of the Notes to the Senior Debt as provided in this Article 10. Section 10.08. Subrogation. After all Senior Debt is paid in full and until the Notes are paid in full, Holders of Notes shall be subrogated (equally and ratably with all other Indebtedness pari passu with the Notes) to the rights of holders of Senior Debt to receive distributions applicable to Senior Debt to the extent that distributions otherwise payable to the Holders of Notes have been applied to the payment of Senior Debt. A distribution made under this Article 10 to holders of Senior Debt 70 77 that otherwise would have been made to Holders of Notes is not, as between the Company and Holders, a payment by the Company on the Notes. Section 10.09. Relative Rights. This Article 10 defines the relative rights of Holders of Notes and holders of Senior Debt. Nothing in this Indenture shall: (1) impair, as between the Company and Holders of Notes, the obligation of the Company, which is absolute and unconditional, to pay principal of and interest on the Notes in accordance with their terms; (2) affect the relative rights of Holders of Notes and creditors of the Company other than their rights in relation to holders of Senior Debt; or (3) prevent the Trustee or any Holder of Notes from exercising its available remedies upon a Default or Event of Default, subject to the rights of holders and owners of Senior Debt to receive distributions and payments otherwise payable to Holders of Notes. If the Company fails because of this Article 10 to pay principal of or interest on a Note on the due date, the failure is still a Default or Event of Default. Section 10.10. Subordination May Not Be Impaired by Company. No right of any holder of Senior Debt to enforce the subordination of the Indebtedness evidenced by the Notes shall be impaired by any act or failure to act by the Company or any Holder or by the failure of the Company or any Holder to comply with this Indenture. Section 10.11. Distribution or Notice to Representative. Whenever a distribution is to be made or a notice given to holders of Senior Debt, the distribution may be made and the notice given to their Representative. Upon any payment or distribution of assets of the Company referred to in this Article 10, the Trustee and the Holders of Notes shall be entitled to rely upon any order or decree made by any court of competent jurisdiction or upon any certificate of such Representative or of the liquidating trustee or agent or other Person making any distribution to the Trustee or to the Holders of Notes for the purpose of ascertaining the Persons entitled to participate in such distribution, the holders of the Senior Debt and other Indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 10. Section 10.12. Rights of Trustee and Paying Agent. Notwithstanding the provisions of this Article 10 or any other provision of this Indenture, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment or distribution by the Trustee, and the Trustee and the Paying Agent may continue to make payments on the Notes, unless the Trustee shall have received at its Corporate Trust Office at least five Business Days prior to the date of such payment written notice of facts that would cause the payment of any Obligations with respect to 71 78 the Notes to violate this Article 10. Only the Company or a Representative may give the notice. Nothing in this Article 10 shall impair the claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof. The Trustee in its individual or any other capacity may hold Senior Debt with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. Section 10.13. Authorization to Effect Subordination. Each Holder of Notes, by the Holder's acceptance thereof, authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination as provided in this Article 10, and appoints the Trustee to act as such Holder's attorney-in-fact for any and all such purposes. If the Trustee does not file a proper proof of claim or proof of debt in the form required in any proceeding referred to in Section 6.09 hereof at least 30 days before the expiration of the time to file such claim, the Representatives are hereby authorized to file an appropriate claim for and on behalf of the Holders of the Notes. Section 10.14. Amendments. The provisions of this Article 10 shall not be amended or modified without the written consent of the holders of all Senior Debt. ARTICLE 11. MISCELLANEOUS Section 11.1. Trust Indenture Act Controls. If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA Section 318(c), the imposed duties shall control. Section 11.2. Notices. Any notice or communication by the Company or the Trustee to the others is duly given if in writing and delivered in Person or mailed by first class mail (registered or certified, return receipt requested), telex, telecopier or overnight air courier guaranteeing next day delivery, to the others' address If to the Company: Furon Company 29982 Ivy Glenn Drive Laguna Niguel, California 9277 Telecopier No.: (714) 363-7265 Attention: Donald D. Bradley, Esq. With a copy to: O'Melveny & Myers LLP 610 Newport Center Drive 72 79 Newport Beach, California 92660 Telecopier No.: (714) 669-6994 Attention: Gary J. Singer, Esq. If to the Trustee: The Bank of New York 101 Barclay St., Floor 21 West New York, New York 10286 Telecopier No.: 212-575-5915 Attention: Corporate Trust Trustee Administration The Company or the Trustee, by notice to the others may designate additional or different addresses for subsequent notices or communications. All notices and communications (other than those sent to Holders) 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 receipt acknowledged, if telecopied; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery. Any notice or communication to a Holder shall be mailed by first class mail or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication shall also be so mailed to any Person described in TIA Section 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it shall not affect its sufficiency with respect to other Holders. If a notice or communication is mailed 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 Holders, it shall mail a copy to the Trustee and each Agent at the same time. Section 11.3. Communication by Holders of Notes with Other Holders of Notes. Holders may communicate pursuant to TIA Section 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). Section 11.4. 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 Officers' Certificate in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and 73 80 (b) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which shall include the statements set forth in Section 11.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied; provided, however, that the foregoing Officers' Certificate and Opinion of Counsel shall not be required to be furnished to the Trustee in connection with the issuance of the Initial Notes pursuant to this Indenture. Section 11.5. Statements Required in Certificate or Opinion. Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA Section 314(e) and shall include: (a) a statement that the Person making such certificate or opinion has read such covenant or condition; (b) 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; (c) a statement that, in the opinion of such Person, he or she has made such examination or investigation as is necessary to enable such person to express an informed opinion as to whether or not such covenant or condition has been satisfied; and (d) a statement as to whether or not, in the opinion of such Person, such condition or covenant has been satisfied. Section 11.6. Rules by Trustee and Agents. The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions. Section 11.7. No Personal Liability Of Directors, Officers, Employees And Shareholders. No director, officer, employee, incorporator, partner, member or stockholder of the Company or any Subsidiary of the Company, or of any member, partner or stockholder of any such entity, as such, shall have any liability for any obligations of the Company under the Notes or this Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy. Section 11.8. Governing Law. THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE 74 81 APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. Section 11.9. No Adverse Interpretation of Other Agreements. This Indenture may not be used to interpret any other indenture, loan or debt agreement of the Company or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture. Section 11.10. Successors. All agreements of the Company in this Indenture and the Notes shall bind its successors. All agreements of the Trustee in this Indenture shall bind its successors. Section 11.11. Severability. In case any provision in this Indenture or in the Notes 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 11.12. Counterpart Originals. The parties may sign any number of copies of this Indenture. Each signed copy shall be an original, but all of them together represent the same agreement. Section 11.13. 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 of this Indenture and shall in no way modify or restrict any of the terms or provisions hereof. [Signatures on following page] 75 82 SIGNATURES FURON COMPANY By: /s/ J. Michael Hagan -------------------------------------------- J. Michael Hagan Chief Executive Officer By: /s/ Monty A. Houdeshell -------------------------------------------- Monty A. Houdeshell Vice President and Chief Financial Officer THE BANK OF NEW YORK, as Trustee By: /s/ Mary Beth Lewicki -------------------------------------------- Name: Mary Beth Lewicki Title: Assistant Vice President By: /s/ Lucille Firrincieli -------------------------------------------- Name: Lucille Firrincieli Title: Vice President EX-10.13 4 FIRST AMENDED AND RESTATED CREDIT AGREEMENT 1 EXHIBIT 10.13 AMENDMENT NO. 1 TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT - -------------------------------------------------------------------------------- AMENDMENT NO. 1 (this "Amendment"), dated as of February 3, 1998, to the First Amended and Restated Credit Agreement (the "Credit Agreement"), dated as of March 27, 1997, by and among FURON COMPANY, a California corporation (the "Borrower"), the Lenders party thereto, THE FIRST NATIONAL BANK OF CHICAGO and NATIONSBANK OF TEXAS, N.A., as Co-Agents, and THE BANK OF NEW YORK, as swing line lender (in such capacity, the "Swing Line Lender"), ABN AMRO BANK N.V., LOS ANGELES INTERNATIONAL BRANCH, as Documentation Agent, and THE BANK OF NEW YORK, as administrative agent for the Lenders (in such capacity, the "Administrative Agent"). RECITALS A. Capitalized terms used herein which are not defined herein shall have the respective meanings ascribed thereto in the Credit Agreement. B. The Borrower intends to issue Senior Subordinated Notes (as defined below) and, in connection therewith, desires to reduce the Aggregate Revolving Credit Commitment Amount and to amend the Credit Agreement to the extent set forth below and the Administrative Agent and the Lenders are willing to agree to the foregoing, subject to the terms and conditions set forth below. C. The Borrower has requested that the Administrative Agent and the Lenders release the Medex Guaranty and the Administrative Agent, with the consent of the Lenders is willing to agree thereto, subject to the terms and conditions set forth below. Accordingly, in consideration of the covenants, conditions and agreements hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. The Aggregate Revolving Credit Commitments and Aggregate Revolving Credit Amount are hereby reduced from $250,000,000 to $200,000,000. 2. Section 1.1 of the Credit Agreement is amended by adding the following definitions in their appropriate alphabetical order: "Consolidated Senior Debt": at any date of determination, Consolidated Total Debt minus Subordinated Debt. "Senior Leverage Ratio": at any date of determination, the ratio of (x) Consolidated Senior Debt on such date to (y) Consolidated EBITDA for the four fiscal quarter period ending on such date or, if such date is not the 2 last day of a fiscal quarter, for the immediately preceding four fiscal quarter period. "Subordinated Debt": the Indebtedness of the Borrower under the Senior Subordinated Notes and the Senior Subordinated Indenture. "Senior Subordinated Indenture": the Indenture between the Borrower and the trustee named therein, pursuant to which the Senior Subordinated Notes are issued, as the same may be amended, supplemented or otherwise modified from time to time. "Senior Subordinated Notes": the $125,000,000 Senior Subordinated Notes, due 2008, issued by the Borrower pursuant to the Senior Subordinated Indenture, as the same may be amended, supplemented or otherwise modified from time to time. 3. The following definitions contained in Section 1.1 of the Credit Agreement are amended to read as follows: "Excess Disposition Proceeds": with respect to any fiscal year, the amount (if positive) equal to the amount of Net Cash Proceeds received by the Borrower and/or any of its Subsidiaries during such fiscal year minus $3,000,000. "Loan Documents": collectively, this Agreement and any promissory notes issued pursuant to Section 2.10. 4. Sections 2.6(b) and (d) of the Credit Agreement are amended in their entirety to read as follows: (b) Mandatory Reduction in Respect of an Equity Offering or Issuance of Refinancing Debt. The Aggregate Revolving Credit Commitment Amount shall be permanently reduced in the event of any Equity Offering or the issuance of any Refinancing Debt (other than the Senior Subordinated Notes) at the times and in the amounts set forth below: (i) in the case of an Equity Offering consummated within one year after the consummation of the Medex Stock Purchase, 100% of the Net Issuance Proceeds thereof, such reduction to be effective upon the receipt of such Net Issuance Proceeds; (ii) in the case of any other Equity Offering, 50% of the Net Issuance Proceeds thereof, such reduction to be effective upon the receipt of such Net Issuance Proceeds; and 3 (iii) in the case of the issuance of any Refinancing Debt (other than the Senior Subordinated Notes), 100% of the Net Issuance Proceeds thereof, such reduction to be effected upon the receipt of such Net Issuance Proceeds, provided, however, that the Aggregate Revolving Credit Commitment Amount shall not be reduced to less than $150,000,000 pursuant to this clause (iii). (d) Mandatory Reductions Relating to Dispositions. With respect to each Disposition described in Section 8.4(c), the Aggregate Revolving Credit Commitment Amount shall be permanently reduced on the applicable Disposition Reduction/Prepayment Date by an amount equal to 100% of the Disposition Reduction/Prepayment Amount in respect of such Disposition. 5. Section 2.6 of the Credit Agreement is further amended by adding the following new subsection (f) thereto: (f) Mandatory Reduction Relating to Asset Sales under the Senior Subordinated Indenture. The Aggregate Revolving Credit Commitment Amount shall be permanently reduced by an amount equal to any prepayment required to be made pursuant to Section 2.7(h) on the date of such prepayment. 6. Sections 2.7(d) and (f) of the Credit Agreement are amended in their entirety to read as follows: (d) Mandatory Prepayments in Respect of an Equity Offering or Issuance of Refinancing Debt. In the event of an Equity Offering or the issuance of Refinancing Debt (other than the Senior Subordinated Notes), the Borrower shall prepay the Revolving Credit Loans (and, if after giving effect to such prepayment, there are no Revolving Credit Loans outstanding, the Swing Line Loans) at the times and in the amounts set forth below: (i) in the case of an Equity Offering consummated within one year after the consummation of the Medex Stock Purchase, 100% of the Net Issuance Proceeds thereof; (ii) in the case of any other Equity Offering, 50% of the Net Issuance Proceeds thereof, such prepayment to be made upon the receipt of such Net Issuance Proceeds; and 4 (iii) in the case of the issuance of any Refinancing Debt (other than the Senior Subordinated Notes), 100% of the Net Issuance Proceeds thereof, such prepayment to be made on the date of the receipt of the Net Issuance Proceeds thereof. (f) Mandatory Prepayments Relating to Dispositions. In respect of any Disposition described in Section 8.4(c), on the applicable Disposition Reduction/Prepayment Date, the Borrower shall prepay the Revolving Credit Loans (and, if after giving effect to such prepayment, there are no Revolving Credit Loans outstanding, the Swing Line Loans) by an amount equal to 100% of the Disposition Reduction/Prepayment Amount in respect of such Disposition, if any. 7. Section 2.7 of the Credit Agreement is further amended by adding the following new subsection (h) thereto: (h) Mandatory Prepayment Relating to Asset Sales under the Senior Subordinated Indenture. In the event that the Borrower would be required to make an "Asset Sale Offer" (as defined in the Senior Subordinated Indenture), the Borrower shall make a prepayment of the Loans in an amount equal to the amount of such Asset Sale Offer that would be required under the Senior Subordinated Indenture on the Business Day immediately preceding the day on which the Borrower would be required to make such Asset Sale Offer. 8. Section 6.1 of the Credit Agreement is amended by substituting a comma for the word "and" at the end of clause (i) thereof and by adding the following before the period at the end of clause (ii) thereof: and (iii) the Loans requested shall constitute Indebtedness which the Borrower is permitted to incur pursuant to the provisions of the Senior Subordinated Indenture. 9. Section 6.2 of the Credit Agreement is amended in its entirety to read as follows: 6.2. Borrowing Request The Administrative Agent shall have received, a Borrowing Request, duly executed by an authorized officer or the Director, Treasury of the Borrower. 10. Section 7.11(b) of the Credit Agreement is amended with respect to the period on and after the Amendment No. 1 Effective Date in its entirety to read as follows: 5 (b) Leverage Ratio. Maintain at all times during the periods set forth below, a Leverage Ratio of not more than the ratios set forth below:
Period Ratio ------ ----- Amendment No. 1 Effective Date through July 31, 1999 4.25:1.00 August 1, 1999 through July 29, 2000 4.00:1.00 July 30, 2000 through August 5, 2001 3.75:1.00 August 6, 2001 and thereafter 3.50:1.00.
11. Section 7.11 of the Credit Agreement is amended by adding a new subsection (e) to the end thereof to read as follows: (e) Senior Leverage Ratio. Maintain at all times during the periods set forth below, a Senior Leverage Ratio of not more than the ratios set forth below:
Period Ratio ------ ----- Amendment No. 1 Effective Date through July 31, 1999 3.00:1.00 August 1, 1999 through July 29, 2000 2.75:1.00 July 30, 2000 and thereafter 2.50:1.00.
12. Section 8.1(v) of the Credit Agreement is amended by adding "(including the Indebtedness of the Borrower under the Senior Subordinated Notes)" immediately after the reference to "Refinancing Debt" at the beginning of such clause (v). 13. Sections 8.3(e)(iii) and 8.3(f)(iii) of the Credit Agreement are each amended to read as follows: (iii) the Leverage Ratio will not exceed 4:00:1.00 and the Borrower will be in compliance with each of the financial covenants contained in Section 7.11, in each case on a pro-forma basis after giving effect 6 to such Acquisition and any Indebtedness incurred or assumed in connection therewith which is permitted by Section 8.1, 14. Section 8.4(c)(iii) of the Credit Agreement is amended to read as follows: (iii) in the event that the Net Cash Proceeds of such Disposition together with the Net Cash Proceeds of all Dispositions made during the same fiscal year exceed $3,000,000 in the aggregate, the Aggregate Revolving Credit Commitment Amount shall be permanently reduced and the Borrower shall prepay the Loans at the times and in the amounts specified in Sections 2.6 and 2.7, if applicable, and 15. Section 8.5(j) of the Credit Agreement is amended to read in its entirety as follows: (j) Investments consisting of loans or contributions by the Borrower to the ESOP or to a grantor employee stock trust in the ordinary course of the operation thereof not in excess of $10,000,000 in the aggregate; and 16. Section 8 of the Credit Agreement is amended by adding new Sections 8.12 and 8.13 to the end thereof to read as follows: 8.12. Subordinated Debt Make any payment in respect of principal of, or premium or interest on, or purchase, voluntarily redeem or otherwise retire, or make any payment in respect of all or any part of the Indebtedness under the Senior Subordinated Indenture or the Senior Subordinated Notes or any other subordinated Indebtedness, or permit any Subsidiary so to do, except subject to the subordination provisions of the Senior Subordinated Indenture (as in effect on its original effective date), payments required to be made under the Senior Subordinated Indenture or with respect to the Senior Subordinated Notes. 8.13. Designated Senior Debt Designate any Indebtedness (other than the Indebtedness under the Loan Documents) as "Designated Senior Debt" for purposes of the Senior Subordinated Indenture without the prior written consent of Required Lenders. 17. Section 9.1(k) of the Credit Agreement is hereby deleted and Section 9.1(l) is relettered as 9.1(k). 18. Section 11.1(a) of the Credit Agreement is hereby amended by adding the word "or" immediately prior to clause (vi) thereof, by inserting a semi-colon immediately after the term 7 "Required Lenders" on the penultimate line thereof and by deleting "or (vii) release Medex from its obligations under the Medex Guaranty;" at the end thereof. 19. Each of the Lenders hereby consents to the release by the Administrative Agent of the Medex Guaranty. The Administrative Agent, with the consent of each of the Lenders, hereby releases Medex from the Medex Guaranty which shall be of no further force and effect. 20. Exhibits A, B and D in the form annexed is substituted for Exhibits A, B and D to the Credit Agreement. 21. Paragraphs 1-20 of this Amendment shall not be effective until the prior or simultaneous fulfillment of the following conditions (the "Amendment No. 1 Effective Date"): (a) the Amendment No. 1 Effective Date shall have occurred prior to September 1, 1998; (b) the Administrative Agent shall have received this Amendment executed by a duly authorized officer or officers of each party hereto; (c) the Administrative Agent shall have received a certificate of the Secretary or Assistant Secretary of the Borrower (i) attaching a true and complete copy of the resolutions of its Board of Directors and of all documents evidencing other necessary corporate action (in form and substance satisfactory to the Administrative Agent) taken by the Borrower to authorize the execution and delivery of this Amendment, the Senior Subordinated Indenture and the Senior Subordinated Notes, (ii) certifying that its certificate of incorporation and by-laws have not been amended since November 16, 1996, or, if so, setting forth the same and (iii) setting forth the incumbency of its officer or officers who may sign this Amendment, including therein a signature specimen of such officer or officers; (d) the Borrower shall have prepaid the Loans to the extent required by Section 2.7(b) of the Credit Agreement; (e) No Default or Event of Default would exist before or after giving effect to the issuance of the Senior Subordinated Notes and the Administrative Agent shall have received a certificate of a Financial Officer to such effect, which certificate shall attached a true, complete and correct copy of the Senior Subordinated Indenture and the offering memorandum with respect thereto; and (f) The Senior Subordinated Notes shall have been issued and the Borrower shall have received the net proceeds thereof. 22. This Amendment may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute one amendment. It shall not be necessary in making proof of this Amendment to produce or account for more than one counterpart signed by the party to be charged. 8 23. This Amendment is being delivered in and is intended to be performed in the State of New York and shall be construed and enforceable in accordance with, and be governed by, the internal laws of the State of New York without regard to principles of conflict of laws. 24. Except as amended hereby, the Credit Agreement shall in all other respects remain in full force and effect. 9 IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. FURON COMPANY By: /s/ J. Michael Hagan ------------------------------------------ Name: J. Michael Hagan Title: Chairman and CEO By: /s/ Monty Houdeshell ------------------------------------------ Name: Monty Houdeshell Title: Chief Financial Officer 10 AMENDMENT NO. 1 TO THE FURON CREDIT AGREEMENT THE BANK OF NEW YORK, Individually, as Swing Line Lender and as Administrative Agent By: /s/ Rebecca K. Levine ------------------------------------------ Name: Rebecca K. Levine Title: Vice President 11 AMENDMENT NO. 1 TO THE FURON CREDIT AGREEMENT ABN AMRO BANK N.V., LOS ANGELES INTERNATIONAL BRANCH, Individually, and as Documentation Agent By: /s/ John A. Miller ------------------------------------------ Name: John A. Miller Title: Group Vice President By: /s/ Heather F. Brandt ------------------------------------------ Name: Heather F. Brandt Title: Vice President 12 AMENDMENT NO. 1 TO THE FURON CREDIT AGREEMENT THE FIRST NATIONAL BANK OF CHICAGO, Individually, and as Co-Agent By: /s/ James D. Benko ------------------------------------------ Name: James D. Benko Title: Vice President 13 AMENDMENT NO. 1 TO THE FURON CREDIT AGREEMENT NATIONSBANK OF TEXAS, N.A., Individually, and as Co-Agent By: /s/ Charles F. Lilygren ------------------------------------------ Name: Charles F. Lilygren Title: Vice President 14 AMENDMENT NO. 1 TO THE FURON CREDIT AGREEMENT THE BANK OF NOVA SCOTIA By: /s/ Chris Osborn ------------------------------------------ Name: Chris Osborn Title: Relationship Manager 15 AMENDMENT NO. 1 TO THE FURON CREDIT AGREEMENT MELLON BANK, N.A. By: /s/ Gill S. Realon ------------------------------------------ Name: Gill S. Realon Title: Vice President 16 AMENDMENT NO. 1 TO THE FURON CREDIT AGREEMENT COMERICA BANK By: /s/ Emmanuel M. Skevofilax ------------------------------------------ Name: Emmanuel M. Skevofilax Title: Assistant Vice President 17 AMENDMENT NO. 1 TO THE FURON CREDIT AGREEMENT UNION BANK OF CALIFORNIA, N.A. By: /s/ Andrew G. Ewing, Jr. ------------------------------------------ Name: Andrew G. Ewing, Jr. Title: Vice President 18 AMENDMENT NO. 1 TO THE FURON CREDIT AGREEMENT BANK ONE, NA By: /s/ Douglas M. Klamfoth ------------------------------------------ Name: Douglas M. Klamfoth Title: Vice President 19 AMENDMENT NO. 1 TO THE FURON CREDIT AGREEMENT BANQUE NATIONALE DE PARIS By: /s/ Clive Bettles ------------------------------------------ Name: Clive Bettles Title: Senior Vice President & Manager By: /s/ Deborah Y. Gohh ------------------------------------------ Name: Deborah Y. Gohh Title: Vice President 20 AMENDMENT NO. 1 TO THE FURON CREDIT AGREEMENT THE INDUSTRIAL BANK OF JAPAN, LIMITED, LOS ANGELES AGENCY By: /s/ Vicente L. Timiraos ------------------------------------------ Name: Vicente L. Timiraos Title: Senior Vice President & Senior Deputy General Manager 21 AMENDMENT NO. 1 TO THE FURON CREDIT AGREEMENT WACHOVIA BANK OF GEORGIA, N.A. By: /s/ Mariel C. Albrecht ------------------------------------------ Name: Mariel C. Albrecht Title: Assistant Vice President EX-10.14 5 PURCHASE AGREEMENT 1 EXHIBIT 10.14 $125,000,000 FURON COMPANY 8 1/8% Senior Subordinated Notes due 2008 PURCHASE AGREEMENT February 26, 1998 LEHMAN BROTHERS INC., BEAR, STEARNS & CO. INC. BNY CAPITAL MARKETS, INC. c/o Lehman Brothers, Inc. Three World Financial Center New York, New York 10285 Dear Sirs: Furon Company, a California corporation (the "Company"), proposes to issue and sell to you (the "Initial Purchasers") $125.0 million in aggregate principal amount at maturity of its 8 1/8% Senior Subordinated Notes due 2008 (the "Initial Notes") to be issued pursuant to the terms of an Indenture (the "Indenture") between the Company and The Bank of New York, as trustee (the "Trustee"), relating to the Initial Notes. The Initial Purchasers propose to purchase the respective aggregate principal amount of Initial Notes set forth opposite their name on Schedule 1 hereto. Capitalized terms used but not defined herein shall have the meanings given to such terms in the Indenture. The Initial Notes will be offered and sold to you pursuant to exemptions from the registration requirements under the Securities Act of 1933, as amended (the "Securities Act"). The Company has prepared a preliminary offering memorandum, dated February 12, 1998 (the "Preliminary Offering Memorandum"), and a final offering memorandum (the "Offering Memorandum"), dated February 26, 1998, relating to the Company and the Initial Notes. As described in the Offering Memorandum, the Company will use the net proceeds from the offering of the Initial Notes to repay a portion of existing indebtedness under the Company's Credit Facility. Upon original issuance thereof, and until such time as the same is no longer required under the applicable requirements of the Securities Act, the Initial Notes (and all securities issued in exchange therefor or in substitution thereof) shall bear the following legend: 2 "THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISION OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1) (a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR 904 UNDER THE SECURITIES ACT OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE." You have represented and warranted to the Company that you will make offers (the "Exempt Resales") of the Initial Notes purchased by you hereunder on the terms set forth in the Offering Memorandum, as amended or supplemented, solely to (i) persons whom you reasonably believe to be "qualified institutional buyers," as defined in Rule 144A under the Securities Act ("QIBs"), and (ii) to persons other than U.S. Persons in offshore transactions meeting the requirements of Rule 903 or 904 of Regulation S (such persons specified in clauses (i) and (ii) being referred to herein as the "Eligible Purchasers"). As used herein, the terms "offshore transaction" and "U.S. person" have the respective meanings given to them in Regulation S. You will offer the Initial Notes to Eligible Purchasers initially at a price equal to 100% of the principal amount thereof. Such price may be changed at any time without notice. Holders (including subsequent transferees) of the Initial Notes will have the registration rights set forth in the registration rights agreement (the "Registration Rights Agreement"), to be dated March 4, 1998 (the "Closing Date"), in the form of Exhibit A hereto, for so long as such Initial Notes constitutes "Transfer Restricted Securities" (as defined in the Registration Rights Agreement). Pursuant to the Registration Rights Agreement, the Company will agree to file with the Securities and Exchange Commission (the "Commission") under the 3 circumstances set forth therein, (i) a registration statement under the Securities Act (the "Exchange Offer Registration Statement") relating to the Company's 8 1/8% New Notes due 2008 (the "New Notes" and, together with the Initial Notes, the "Notes") to be offered in exchange for the Initial Notes (such offer to exchange being referred to collectively as the "Exchange Offer") and (ii) a shelf registration statement pursuant to Rule 415 under the Securities Act (the "Shelf Registration Statement", and together with the Exchange Offer Registration Statement, the "Registration Statements") relating to the resale of the Initial Notes by certain holders of such Notes, and to use its best efforts to cause such Registration Statements to be declared effective. This Agreement, the Indenture and the Registration Rights Agreement are hereinafter referred to collectively as the "Operative Documents." 1. Representations, Warranties and Agreements of the Company. The Company represents, warrants and agrees as follows: (a) The Preliminary Offering Memorandum and Offering Memorandum have been prepared by the Company for use by the Initial Purchasers in connection with the Exempt Resales. No order or decree preventing the use of the Preliminary Offering Memorandum or the Offering Memorandum, or any order asserting that the transactions contemplated by this Agreement are subject to the registration requirements of the Securities Act, has been issued and no proceeding for that purpose has commenced or is pending or, to the knowledge of the Company, is contemplated. (b) The Preliminary Offering Memorandum and the Offering Memorandum as of their respective dates did not, and the Offering Memorandum as of the Closing Date will not, contain an untrue statement of a material fact or omit to state a material fact necessary, in order to make the statements contained therein, in light of the circumstances under which they were made, not misleading, except that this representation and warranty does not apply to statements in or omissions from the Preliminary Offering Memorandum and Offering Memorandum relating to the Initial Purchasers and made in reliance upon and in conformity with information furnished to the Company in writing by or on behalf of the Initial Purchasers expressly for use therein. (c) The market-related data included in the Preliminary Offering Memorandum and the Offering Memorandum are based upon estimates by the Company derived from sources which the Company believes to be reasonable; however, no assurance is given that such market-related data are accurate in all material respects. (d) The Company is a corporation duly incorporated and validly existing and in good standing under the laws of California with all requisite corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Preliminary Offering Memorandum and the Offering Memorandum, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify or to be in good standing would not have a material adverse effect on the condition (financial or other), business, properties or results of operations of the Company and its Subsidiaries, taken as a whole (a "Material Adverse Effect"). 4 (e) Medex, Inc. ("Medex") is a corporation duly incorporated and validly existing and in good standing under the laws of Ohio with all requisite corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Preliminary Offering Memorandum and the Offering Memorandum, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure so to register or qualify or to be in good standing would not have a Material Adverse Effect. (f) The Company has all requisite corporate power and corporate authority to execute, deliver and perform its obligations under this Agreement, the Indenture, the Notes and the Registration Rights Agreement. (g) This Agreement has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery by the Initial Purchasers, constitutes the legally valid and binding agreement of the Company, enforceable against the Company in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws relating to or affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether in a proceeding in equity or at law) and except as rights to indemnity and contribution hereunder may be limited by federal or state securities laws or principles of public policy. (h) The Registration Rights Agreement has been duly authorized by the Company and, upon its execution and delivery by the Company and, assuming due authorization, execution and delivery by the Initial Purchasers, will constitute the legally valid and binding agreement of the Company, enforceable against the Company in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws relating to or affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether in a proceeding in equity or at law) and except as rights to indemnity and contribution thereunder may be limited by federal or state securities laws or principles of public policy. (i) The Indenture has been duly authorized by the Company, and upon its execution and delivery by the Company and, assuming due authorization, execution and delivery by the Trustee, will constitute the legally valid and binding agreement of the Company, enforceable against the Company in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws relating to or affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether in a proceeding in equity or at law); no qualification of the Indenture 5 under the Trust Indenture Act of 1939 ("TIA") is required in connection with the offer and sale of the Initial Notes contemplated hereby or in connection with the Exempt Resales other than in connection with the performance of the Company's obligations under the Registration Rights Agreement. (j) The Initial Notes have been duly authorized by the Company and when duly executed by the Company in accordance with the terms of the Indenture and, assuming due authentication of the Initial Notes by the Trustee, upon delivery to the Initial Purchasers against payment therefor in accordance with the terms hereof, will have been validly issued and delivered, and will constitute legally valid and binding obligations of the Company entitled to the benefits of the Indenture, enforceable against the Company in accordance with their terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws relating to or affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether in a proceeding in equity or at law). (k) On or before the Closing Date the New Notes will have been duly authorized by the Company and if and when duly issued and authenticated in accordance with the terms of the Indenture and delivered in accordance with the Exchange Offer provided for in the Registration Rights Agreement, will constitute legally valid and binding obligations of the Company entitled to the benefits of the Indenture, enforceable against the Company in accordance with their terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws relating to or affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether in a proceeding in equity or at law). (l) The First Amended and Restated Credit Agreement, dated as of March 27, 1997, as amended on February 3, 1998, by and among Furon Company, the various lenders thereto, the Bank of New York, as swing line lender and administration agent, and BNY Capital Markets, Inc., as arranging agent providing for up to $200 million of revolving credit borrowings (the "Credit Agreement"), and any and all other agreements and instruments ancillary to or entered into in connection with the transaction contemplated by the Credit Agreement (the "Credit Documents"), were duly and validly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery by the other parties thereto, constitute the valid and binding agreements of the Company, enforceable against the Company in accordance with their respective terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, regardless of whether in a proceeding in equity or at law). As of the date hereof, the Company will have at least $175.0 million of borrowings available to it under the Credit Agreement (giving effect to the covenants and conditions contained in the Credit Agreement) after the Closing of the sale of the 6 Initial Notes hereunder, the receipt by the Company of the proceeds therefrom and the application of such proceeds as described under the caption "Use of Proceeds" in the Offering Memorandum. (m) All the shares of capital stock of the Company outstanding prior to the issuance of the Initial Notes have been duly authorized and validly issued and are fully paid and nonassessable. (n) Neither the Company nor any of its Subsidiaries owns capital stock or other equity interests of any corporation or entity except that of wholly owned Subsidiaries other than as disclosed in the Offering Memorandum or the Company's Exchange Act reports. Each of the Subsidiaries (other than Medex, as to which Section 1(e) applies) is a corporation duly incorporated and validly existing and in good standing under the laws of its jurisdiction of its incorporation, with all requisite corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum, and is duly registered and qualified to conduct its business and is in good standing in each jurisdiction or place where the nature of its properties or the conduct of its business requires such registration or qualification, except where the failure to so register or qualify or be in good standing would not have a Material Adverse Effect. All the outstanding shares of capital stock of each of the Company's Subsidiaries have been duly authorized and validly issued, are fully paid and nonassessable, and are wholly owned by the Company directly, or indirectly through one of its other Subsidiaries, free and clear of any lien, adverse claim, security interest, equity or other encumbrance, except as specifically described in the Offering Memorandum. (o) There are no legal or governmental proceedings pending or, to the knowledge of the Company or Medex , threatened, against the Company or any of its Subsidiaries or to which any of their respective properties is subject, that are not disclosed in the Offering Memorandum and which, are reasonably likely to have a Material Adverse Effect or to materially and adversely affect the issuance of the Notes or the consummation of the other transactions contemplated by the Operative Documents. Neither the Company nor any of its Subsidiaries is involved in any strike, job action or labor dispute with any group of employees, and, to the knowledge of the Company or Medex, no such action or dispute is threatened. (p) No material relationship, direct or indirect, exists between or among the Company or any of its Subsidiaries on the one hand, and the directors, officers, shareholders, customers or suppliers of the Company or any of its Subsidiaries on the other hand, that would be required to be described in the Offering Memorandum pursuant to Regulation S-K of the Act if Regulation S-K were applicable to the Offering Memorandum, which is not so described in the Offering Memorandum or the Company's Exchange Act reports. (q) The execution, delivery and performance of this Agreement and the other Operative Documents and the issuance of the Initial Notes and the New Notes and the consummation of the transactions contemplated hereby and thereby will not conflict with, or result in a breach or violation of any of the terms or provisions of, or (including with the giving of notice or the lapse of time or both) constitute a default under (i) any indenture, mortgage, deed of trust, loan agreement or other agreement or instrument to which the Company or any of its 7 Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound or to which any of the properties or assets of the Company or any of its Subsidiaries is subject, (ii) the provisions of the charter, by-laws or other organizational documents of the Company or any of its Subsidiaries or (iii) any statute or any order, rule or regulation of any court or governmental agency or body having jurisdiction over the Company or any of its Subsidiaries or any of their properties or assets, except in the cases of clause (i) or (iii), such breaches, violations or defaults that in the aggregate would not reasonably be expected to have a Material Adverse Effect; and no consent, approval, authorization or order of, or filing or registration with, any court or governmental agency or body is required for the execution, delivery and performance of this Agreement and the other Operative Documents and the issuance of the Initial Notes and the New Notes and the consummation of the transactions contemplated hereby and thereby except (A) as may be required by the securities or "blue sky" laws of any state of the United States in connection with the sale of the Initial Notes and the New Notes, and (B) as contemplated by the Registration Rights Agreement and (C) as required under the TIA for the issuance of the New Notes, and (D) in connection with trading of the Notes on PORTAL. (r) The accountants, Ernst & Young LLP, who have certified certain of the financial statements included as part of the Offering Memorandum, are independent public accountants under Rule 101 of the Code of Professional Conduct of the American Institute of Certified Public Accountants (the "AICPA"), and its interpretation and rulings. (s) The consolidated historical financial statements, together with the related notes thereto, set forth in the Offering Memorandum comply as to form in all material respects with the requirements of Regulation S-X under the Securities Act applicable to registration statements on Form S-3 under the Securities Act. Such historical financial statements fairly present the financial position of the Company and its Subsidiaries at the respective dates indicated and the results of operations and cash flows for the respective periods indicated, in each case in accordance with generally accepted accounting principles ("GAAP") consistently applied throughout such periods. The other financial and statistical information and data included in the Offering Memorandum are, in all material respects, accurately presented and prepared on a basis consistent with such financial statements and the books and records of the Company and its Subsidiaries. (t) Except as disclosed in the Offering Memorandum, since the date of the latest audited consolidated financial statements of the Company and its Subsidiaries included in the Offering Memorandum, neither the Company nor any of its Subsidiaries has incurred any liability or obligation, direct or contingent, or entered into any transaction, in each case not in the ordinary course of business, that is material to the Company and its Subsidiaries, taken as a whole, and there has been no material adverse change, nor to the Company's knowledge, after due inquiry, any development involving a prospective material adverse change, in the condition (financial or other), business, properties or results of operations of the Company and, except as disclosed in or contemplated by the Offering Memorandum, since November 1, 1997, there has been no (i) dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock (other than the payment of regular quarterly cash dividends), (ii) issuance of securities (other than pursuant to the Company's employee benefit plans and the 8 issuance of the Initial Notes offered hereby) or (iii) material increase in short-term or long-term debt of the Company. (u) The Company and its Subsidiaries, on a consolidated basis, maintain a system of internal accounting controls sufficient to provide reasonable assurances that (i) transactions are executed in accordance with management's general or specific authorization; (ii) transactions are recorded as necessary to permit preparation of consolidated financial statements in conformity with GAAP and to maintain accountability for assets; (iii) access to assets is permitted only in accordance with management's general or specific authorization; and (iv) the recorded accountability for assets is compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences. (v) The Company and each of its Subsidiaries has good and marketable title to all property (real and personal) described in the Offering Memorandum as being owned by it, free and clear of all liens, claims, security interests or other encumbrances except for Permitted Liens (as such term is defined in the Credit Agreement) or to the extent failure to have such title or existence of such liens would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect. All the material property described in the Offering Memorandum as being held under lease by the Company and each of its Subsidiaries is held under valid, subsisting and enforceable leases, with only such exceptions as would not in the aggregate, have a Material Adverse Effect. In addition, except as described in the Offering Memorandum, the consummation of the transactions contemplated by this Agreement will not give rise to any third party rights of first refusal under any Material Agreement (as herein defined) as to which the Company and any of its Subsidiaries or any of their property or assets may be subject. (w) The Company and each of its Subsidiaries own or possess all patents, trademarks, trademark registration, service marks, service mark registrations, trade names, copyrights, licenses, inventions, trade secrets and rights described in the Offering Memorandum as being owned by any of them or necessary for the conduct of their respective businesses, and the Company is not aware of any claim to the contrary or any challenge by any other person to the rights of the Company or any of the Subsidiaries with respect to such rights that is reasonably likely, in the aggregate, to have a Material Adverse Effect. (x) The Company, and its Subsidiaries have such permits, licenses, franchises, certificates, consents, orders and other approvals or authorizations of any governmental or regulatory authority ("Permits"), including, without limitation, any permits or approvals required by the United States Food and Drug Administration ("FDA") and corresponding state agencies and any other entity or agency regulating the sale or distribution of medical device products in countries other than the United States (a "Foreign Agency"), as are necessary under applicable law to own their respective properties and to conduct their respective businesses in the manner described in the Offering Memorandum, except to the extent that the failure to have such Permits would not have a Material Adverse Effect. The Company and its Subsidiaries have fulfilled and performed in all material respects, all their respective material obligations with respect to the Permits, and no event has occurred which allows, or after notice or lapse of time 9 would allow, revocation or termination thereof or results in any other material impairment of the rights of the holder of any such Permit, subject in each case to such qualification as may be set forth in the Offering Memorandum and except to the extent that any such revocation or termination would not have a Material Adverse Effect. Except as described in the Offering Memorandum, the Company and its Subsidiaries are not required to register with the FDA or file for FDA approval of its products. (y) Neither the Company nor any of its Subsidiaries nor any director, officer, nor, to the knowledge of the Company, any agent, employee or other person associated with or acting on behalf of the Company or any of its Subsidiaries, has used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment. (z) The Company is not currently and will not be, upon sale of the Initial Notes in accordance herewith and the application of the net proceeds therefrom as described in the Offering Memorandum under the caption "Use of Proceeds," an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (aa) Neither the Company nor any affiliate (as defined in Rule 501(b) of Regulation D ("Regulation D") under the Securities Act) of the Company has directly, or through any agent (provided that no representation is made as to the Initial Purchasers or any person acting on their behalf), (i) sold, offered for sale, solicited offers to buy or otherwise negotiated in respect of, any security (as defined in the Securities Act) which is or could be integrated with the offering and sale of the Notes in a manner that would require the registration of the Initial Notes under the Securities Act or (ii) engaged in any form of general solicitation or general advertising (within the meaning of Regulation D, including, but not limited to, advertisements, articles, notices or other communications published in any newspaper, magazine, or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising) in connection with the offering of the Initial Notes. No securities of the same class as the Initial Notes have been issued and sold by the Company within the six-month period immediately prior to the date hereof. (bb) Except as permitted by the Securities Act, the Company has not distributed and, prior to the Closing Date will not distribute, any offering material in connection with the offering and sale of the Initial Notes other than the Preliminary Offering Memorandum and Offering Memorandum. (cc) When the Initial Notes are issued and delivered pursuant to this Agreement, such Initial Notes will not be of the same class (within the meaning of Rule 144A under the Securities Act) as securities of the Company that are listed on a national securities exchange registered under Section 6 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or that are quoted in a United States automated inter-dealer quotation system. 10 (dd) Assuming (i) that the Initial Notes are issued, sold and delivered under the circumstances contemplated by the Offering Memorandum and this Agreement, (ii) that your representations and warranties in Section 2 are true, (iii) compliance by you with your covenants set forth in Section 2 and (iv) that each of the Eligible Purchasers is either (A) an entity that you reasonably believe to be a QIB or (B) a person who is not a "U.S. person" and who acquires the Initial Notes outside the United States in an "offshore transaction" (within the meaning of Regulation S), the purchase of the Initial Notes by you pursuant hereto and the initial resale of the Initial Notes pursuant to the Exempt Resales is exempt from the registration requirements of the Securities Act. (ee) The Company and each of its Subsidiaries are in compliance in all material respects with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations and published interpretations thereunder ("ERISA"); except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect, no "reportable event" (as defined in ERISA) has occurred with respect to any "pension plan" (as defined in ERISA) for which the Company would have any liability; the Company has not incurred and does not expect to incur liability under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended, including the regulations and published interpretations thereunder (the "Code"); each "pension plan" for which the Company would have any liability that is intended to be qualified under Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by failure to act, which would cause the loss of such qualification, except as would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect; and the statements set forth in the Offering Memorandum under the caption "Notice to Investors" do not include any untrue statements of material facts and do not omit any material facts necessary in order to make such statements, in light of the circumstances under which they were made, not misleading. (ff) Set forth on Exhibit B hereto is a list of each employee pension plan with respect to which the Company or any corporation considered an affiliate of the Company within the meaning of Section 407(d)(7) of ERISA (an "Affiliate") is a party in interest or a disqualified person. The execution and delivery of this Agreement, the other Operative Documents and the sale of the Initial Notes to be purchased by the Eligible Purchasers will not involve any prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. The representation made by the Company in the preceding sentence is made in reliance upon and subject to the accuracy of, and compliance with, the representations and covenants made or deemed made by the Eligible Purchasers as set forth in the Offering Memorandum under the section entitled "Notice to Investors." (gg) Except as described in the Offering Memorandum, there are no contracts, agreements or understandings between the Company or any of its Subsidiaries and any person granting such person the right to require the Company or any of its Subsidiaries to file a registration statement under the Securities Act with respect to any securities of the Company and its Subsidiaries owned or to be owned by such person or to require the Company or any of its Subsidiaries to include such securities in the securities registered pursuant to the 11 Registration Statements or in any securities being registered pursuant to any other registration statement filed by the Company or any of its Subsidiaries under the Securities Act. (hh) The Company and each of its Subsidiaries carry, or are covered by, insurance in such amounts and covering such risks as is adequate for the conduct of its businesses and the value of its properties and as is customary for companies engaged in similar businesses in similar industries. (ii) The Company and each of its Subsidiaries have filed (or obtained extensions in filing) all Federal, state and local income and franchise tax returns required to be filed through the date hereof and have paid all taxes due thereon, other than those being contested in good faith and for which reserves have been provided in accordance with GAAP or those currently payable without penalty or interest. No tax deficiency has been determined adversely to the Company or any of its Subsidiaries nor does the Company or any of its Subsidiaries have any knowledge of any tax deficiency which, if determined adversely to the Company, would have a Material Adverse Effect. (jj) Except as set forth in, or specifically contemplated by, the Offering Memorandum, there has been no storage, disposal, generation, transportation, handling or treatment of toxic wastes, medical wastes, hazardous wastes or hazardous substances by the Company or any of its Subsidiaries (or, to the knowledge of the Company, any of their predecessors in interest) at, upon or from any of the property now or previously owned or leased by the Company or any of its Subsidiaries in violation of any applicable law, ordinance, rule, regulation or order, or which would require remedial action under any applicable law, ordinance, rule, regulation or order, except for any violation or remedial action which would not have, or would not be reasonably likely to have, singularly or in the aggregate, a Material Adverse Effect; except as set forth in, or specifically contemplated by, the Offering Memorandum there has been no material spill, discharge, leak, emission, injection, escape, dumping or release of any kind onto such property or into the environment surrounding such property of any toxic wastes, medical wastes, solid wastes, hazardous wastes or hazardous substances due to or caused by the Company or any of its Subsidiaries or with respect to which the Company or any of its Subsidiaries has knowledge, except for any such spill, discharge, leak, emission, injection, escape, dumping or release which would not have or would not be reasonably likely to have, singularly or in the aggregate, a Material Adverse Effect; and the terms "hazardous wastes," "toxic wastes," "hazardous substances" and "medical wastes" shall have the meanings specified in any applicable local, state, federal and foreign laws or regulations with respect to environmental protection. (kk) None of the Company or any of its affiliates or any person acting on its or their behalf has engaged or will engage during the applicable restricted period in any directed selling efforts within the meaning of Rule 902(b) of Regulation S with respect to the Notes, and the Company and its affiliates and all persons acting on its or their behalf have complied with and will comply with the offering restrictions requirements of Regulation S in connection with the offering of the Notes outside of the United States; provided, that, no representation or covenant is made as to the Initial Purchasers or any person acting on their behalf. 12 (ll) The sale of the Initial Notes pursuant to Regulation S are "offshore transactions" and are not part of a plan or scheme to evade the registration provisions of the Securities Act. (mm) Set forth on Exhibit C hereto is a list of all the Subsidiaries of the Company. Except for Medex, none of the Subsidiaries, individually or in the aggregate, is or are material to the condition (financial or other), business, properties or results of operations of the Company. 2. Representations, Warranties and Agreements of the Initial Purchasers. Each Initial Purchaser represents and warrants with respect to itself that: (a) Such Initial Purchaser is a QIB with such knowledge and experience in financial and business matters as are necessary in order to evaluate the merits and risks of an investment in the Initial Notes. (b) Such Initial Purchaser (i) is not acquiring the Initial Notes with a view to any distribution thereof or with any present intention of offering or selling any of the Initial Notes in a transaction that would violate the Securities Act or the securities laws of any State of the United States or any other applicable jurisdiction; (ii) in connection with the Exempt Resales, will solicit offers to buy the Notes only from, and will offer to sell the Notes only to, the Eligible Purchasers in accordance with this Agreement and on the terms contemplated by the Offering Memorandum; and (iii) will not offer or sell the Notes pursuant to, nor has it offered or sold the Notes by, or otherwise engaged in, any form of general solicitation or general advertising (within the meaning of Regulation D; including, but not limited to, advertisements, articles, notices or other communications published in any newspaper, magazine, or similar medium or broadcast over television or radio, or any seminar or meeting whose attendees have been invited by any general solicitation or general advertising) in connection with the offering of the Initial Notes. (c) It understands that the Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons except in accordance with Regulation S or pursuant to an exemption from the registration requirements of the Securities Act. The Initial Purchasers represent that they have not offered, sold or delivered the Notes, and will not offer, sell or deliver the Notes (i) as part of its distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering and the Closing Date or such longer period as may then be applicable under Regulation S (such period, the "Restricted Period"), within the United States or to, or for the account or benefit of U.S. persons, except in accordance with Rule 144A under the Securities Act or another applicable exemption. Accordingly, each Initial Purchaser represents and agrees that neither it, its affiliates nor any persons acting on its or their behalf has engaged or will engage in any directed selling efforts within the meaning of Rule 902(b) of Regulation S with respect to the Notes, and it, its affiliates and all persons acting on its behalf have complied and will comply with the offering restriction requirements of Regulation S. (d) Such Initial Purchaser agrees that, at or prior to confirmation of all sales of Notes pursuant to Regulation S, it will have sent to each distributor, dealer or person receiving a 13 selling concession, fee or other remuneration that purchases Notes from it during the Restricted Period a confirmation or notice substantially to the following effect: "The Notes covered hereby have not been registered under the U.S. Securities Act of 1933 (the "Securities Act") and may not be offered and sold within the United States or to, or for the account or benefit of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40 days after the later of the commencement of the offering or the closing date, except in either case in accordance with Regulation S (or Rule 144A if available) under the Securities Act. Terms used above have the meanings assigned to them in Regulation S." Such Initial Purchaser further agrees that it has not entered and will not enter into any contractual arrangement with respect to the distribution or delivery of the Notes, except with its affiliates or with the prior written consent of the Company. (e) Such Initial Purchaser agrees not to cause any advertisement of the Notes to be published in any newspaper or periodical or posted in any public place and not to issue any circular relating to the Notes, except such advertisements as may be permitted by Regulation S. (f) The sale of the Initial Notes pursuant to Regulation S are "offshore transactions" and are not part of a plan or scheme to evade the registration provisions of the Securities Act. (g) Such Initial Purchaser understands that the Company and, for purposes of the opinions to be delivered to you pursuant to Section 7 hereof, counsel to the Company and counsel to the Initial Purchasers, will rely upon the accuracy and truth of the foregoing representations and you hereby consent to such reliance. The terms used in this Section 2 that have meanings assigned to them in Regulation S are used herein as so defined. 3. Purchase of the Notes by the Initial Purchasers. On the basis of the representations and warranties contained in, and subject to the terms and conditions of, this Agreement, the Company agrees to sell $125.0 million in aggregate principal amount of Initial Notes to the several Initial Purchasers and each of the Initial Purchasers, severally and not jointly, agrees to purchase the aggregate principal amount of Initial Notes set opposite that Initial Purchaser's name on Schedule 1 hereto. Each Initial Purchaser will purchase such aggregate principal amount of Initial Notes at an aggregate purchase price equal to 97.375% of the principal amount thereof (the "Purchase Price"). The Company shall not be obligated to deliver any of the Initial Notes to be delivered, except upon payment for all the Initial Notes to be purchased on such Closing Date as provided herein. 14 4. Delivery of and Payment. (a) Delivery to the Initial Purchasers of and payment for the Initial Notes shall be made at 10:00 a.m., New York City time, on the Closing Date at the offices of Latham & Watkins, 650 Town Center Drive, 20th Floor, Costa Mesa, California 92626, or such other place or time as you and the Company shall designate. (b) One or more Initial Notes in definitive form, registered in the name of Cede & Co., as nominee of The Depository Trust Company ("DTC"), or such other names as the Initial Purchasers may request upon at least one business days' notice to the Company, having an aggregate principal amount at maturity corresponding to the aggregate principal amount of Initial Notes sold pursuant to Exempt Resales (collectively, the "Global Notes"), shall be delivered by the Company to the Initial Purchasers, against payment by the Initial Purchasers of the purchase price thereof by wire transfer of immediately available funds as the Company may direct by written notice delivered to you two business days prior to the Closing Date. The Global Notes in definitive form shall be made available to you for inspection not later than 10:00 a.m. on the day immediately preceding the Closing Date. (c) Time shall be of the essence, and delivery at the time and place specified pursuant to this Agreement is a further condition of the obligation of each Initial Purchaser hereunder. 5. Further Agreements of the Company. The Company agrees: (a) To advise you promptly and, if requested by you, to confirm such advice in writing, of (i) the issuance by any state securities commission of any stop order suspending the qualification or exemption from qualification of any Initial Notes for offering or sale in any jurisdiction, or the initiation of any proceeding for such purpose by the Commission or any state securities commission or other regulatory authority, and (ii) the happening of any event that makes any statement of a material fact made in the Offering Memorandum untrue or that requires the making of any additions to or changes in the Offering Memorandum in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company shall use its best efforts to prevent the issuance of any stop order or order suspending the qualification or exemption of the Initial Notes under any state securities or Blue Sky laws and, if at any time any state securities commission shall issue any stop order suspending the qualification or exemption of the Initial Notes under any state securities or Blue Sky laws, the Company shall use every reasonable effort to obtain the withdrawal or lifting of such order at the earliest possible time. (b) To furnish to you, without charge, as many copies of the Preliminary Offering Memorandum and the Offering Memorandum, and any amendments or supplements thereto, as you may reasonably request. The Company consents to the use of the Preliminary Offering Memorandum and the Offering Memorandum, and any amendments and supplements thereto required pursuant to this Agreement, by you in connection with the Exempt Resales that are in compliance with this Agreement. 15 (c) Not to amend or supplement the Offering Memorandum prior to the Closing Date unless you shall previously have been advised of, and shall not have reasonably objected to, such amendment or supplement within a reasonable time, but in any event not longer than two Business Days after being furnished a copy of such amendment or supplement. If, in connection with any Exempt Resales or market-making transactions after the date of this Agreement and prior to the consummation of the Exchange Offer, any event shall occur that, in the judgment of the Company or in the judgment of counsel to you, makes any statement of a material fact in the Offering Memorandum untrue or that requires the making of any additions to or changes in the Offering Memorandum in order to make the statements in the Offering Memorandum, in light of the circumstances at the time that the Offering Memorandum is delivered to prospective Eligible Purchasers, not misleading, or if it is necessary to amend or supplement the Offering Memorandum to comply with any applicable laws, the Company shall promptly notify you of such event and prepare an appropriate amendment or supplement to the Offering Memorandum so that (i) the statements in the Offering Memorandum as amended or supplemented will, in light of the circumstances at the time that the Offering Memorandum is delivered to prospective Eligible Purchasers, not be misleading and (ii) the Offering Memorandum will comply with applicable law. (d) To cooperate with you and your counsel in connection with the qualification of the Initial Notes for offer and sale by you and by dealers under the state securities or Blue Sky laws of such jurisdictions as you may request (provided, however, that the Company shall not be obligated to qualify as a foreign corporation in any jurisdiction in which it is not now so qualified or to take any action that would subject it to general consent to service of process in any jurisdiction in which it is not now so subject or subject itself to taxation in excess of a nominal amount in any such jurisdiction where it is not then so subject). Subject to the provisions in the first sentence of this Section 5(d), the Company shall continue such qualification in effect so long as required by law for distribution of the Initial Notes and shall file such consents to service of process or other documents as may be necessary in order to effect such qualification. (e) Prior to the Closing Date, to furnish to you, any internal consolidated financial statements of the Company that have been prepared by the Company for any period subsequent to the period covered by the financial statements appearing in the Offering Memorandum. (f) To use its reasonable best efforts to do and perform all things required to be done and performed under this Agreement by it prior to or after the Closing Date and to satisfy all conditions precedent on its part to the delivery of the Initial Notes. (g) Not to sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the Securities Act) that would be integrated with the sale of the Initial Notes in a manner that would require the registration under the Securities Act of the sale to you or the Eligible Purchasers of Initial Notes. (h) For a period of 120 days from the date of the Offering Memorandum, not to, directly or indirectly, sell, contract to sell, grant any option to purchase, issue any instrument 16 convertible into or exchangeable for, or otherwise transfer or dispose of, any debt securities of the Company or any of its Subsidiaries in a public or private offering for cash having a maturity of more than one year from the date of issue of such securities, except (i) for the New Notes in connection with the Exchange Offer or (ii) with the prior consent of Lehman Brothers Inc., which consent shall not be unreasonably withheld. (i) For the period that is two years after the Closing Date or for so long as necessary to comply with Rule 144A in connection with resales by registered holders or beneficial owners of Initial Notes, whichever is longer, to make available to such registered holder or beneficial owner of Initial Notes in connection with any sale thereof and any prospective purchaser of such Initial Notes from such registered holder or beneficial owner, the information required by Rule 144A(d)(4) under the Securities Act (or any successor provision thereto). (j) To comply with its agreements in the Registration Rights Agreement, and all agreements set forth in the representation letters of the Company to DTC relating to the approval of the Notes by DTC for "book-entry" transfer. (k) To use its reasonable best efforts to effect the inclusion of the Notes in the National Association of Securities Dealers, Inc. Automated Quotation System - PORTAL ("PORTAL"). (l) To apply the net proceeds from the sale of the Initial Notes being sold by the Company as set forth in the Offering Memorandum under the caption "Use of Proceeds." (m) During the period that is two years after the Closing Date, to take such steps as shall be necessary to ensure that the Company does not become an "investment company" within the meaning of such term under the Investment Company Act of 1940 and the rules and regulations of the Commission thereunder. 6. Expenses. The Company agrees that, whether or not the transactions contemplated by this Agreement are consummated or this Agreement becomes effective or is terminated, to pay all costs, expenses, fees and taxes incident to and in connection with: (i) the preparation, printing, filing and distribution of the Preliminary Offering Memorandum and the Offering Memorandum (including, without limitation, financial statements) and all amendments and supplements thereto (but not, however, legal fees and expenses of your counsel incurred in connection therewith), (ii) the preparation, printing (including, without limitation, word processing and duplication costs) and delivery of this Agreement, the Indenture, any Blue Sky Memoranda and any other agreements, memoranda, correspondence and other documents printed and delivered in connection herewith and with the Exempt Resales (but not, however, legal fees and expenses of your counsel incurred in connection with any of the foregoing other than fees of such counsel plus reasonable disbursements incurred in connection with the preparation, printing and delivery of such Blue Sky Memoranda), (iii) the issuance and delivery by the Company of the Notes, (iv) the qualification of the Notes for offer and sale under the securities or Blue Sky laws of the several states (including, without limitation, the reasonable fees and disbursements of your counsel relating to such registration or qualification), (v) furnishing such 17 copies of the Preliminary Offering Memorandum and the Offering Memorandum, and all amendments and supplements thereto, as may be reasonably requested by the Initial Purchasers for use in connection with the initial Exempt Resales, (vi) the preparation of certificates for the Notes including, without limitation, printing and engraving, (vii) the fees, disbursements and expenses of the Company's counsel and accountants, (viii) all expenses and listing fees in connection with the application for quotation of the Initial Notes in PORTAL, (ix) all fees and expenses (including fees and expenses of counsel) of the Company in connection with approval of the Notes by DTC for "book-entry" transfer and (x) the performance by the Company of its other obligations under this Agreement to the extent not provided for above. 7. Conditions of Initial Purchasers' Obligations. The respective obligations of the Initial Purchasers hereunder are subject to the accuracy, when made and again on the Closing Date (as if made again on and as of such date), of the representations and warranties of the Company contained herein, to the performance by the Company of its obligations hereunder, and to each of the following additional terms and conditions: (a) The Offering Memorandum shall have been printed and copies made available to you not later than 9:00 a.m., New York City time, on the Business Day following the date of this Agreement, or at such later date and time as you may approve in writing. (b) No Initial Purchaser shall have discovered and disclosed to the Company on or prior to such Closing Date that the Offering Memorandum or any amendment or supplement thereto contains an untrue statement of a fact which, in the opinion of Latham & Watkins, counsel for the Initial Purchasers, is material or omits to state a fact which, in the opinion of such counsel, is material and is necessary to make the statements, in the light of the circumstances under which they were made, not misleading. (c) All corporate proceedings and other legal matters incident to the authorization, form and validity of this Agreement, the other Operative Documents, the Offering Memorandum and all other legal matters relating to this Agreement and the transactions contemplated hereby shall be reasonably satisfactory in all material respects to counsel for the Initial Purchasers, and the Company shall have furnished to such counsel all documents and information that they may reasonably request to enable them to pass upon such matters. (d) O'Melveny & Myers LLP shall have furnished to the Initial Purchasers, its written opinion, as counsel to the Company, addressed to the Initial Purchasers and dated as of the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers and their counsel, to the effect that: (i) The Company is a corporation validly existing and in good standing under the laws of the State of California and has corporate power and corporate authority to own, lease and operate its properties and to conduct its business as described in the Offering Memorandum. 18 (ii) The Company has corporate power and corporate authority to execute, deliver and perform its obligations under the Operative Documents and to authorize, issue and sell the Notes as contemplated by this Agreement. (iii) This Agreement has been duly and validly authorized, executed and delivered by the Company. (iv) The Registration Rights Agreement has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery by the Initial Purchasers, will constitute the legally valid and binding obligation of the Company, enforceable against the Company in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws relating to or affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, and the possible unavailability of specific performance or injunctive relief, regardless of whether in a proceeding in equity or at law) and except as rights to indemnity and contribution thereunder may be limited by federal or state securities laws or principles of public policy. (v) The Indenture has been duly authorized, executed and delivered by the Company and, assuming due authorization, execution and delivery by the Trustee, will constitute the legally valid and binding agreement of the Company, enforceable against the Company in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws relating to or affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, and the possible unavailability of specific performance or injunctive relief, regardless of whether in a proceeding in equity or at law); no qualification of the Indenture under the TIA is required in connection with the offer and sale of the Initial Notes contemplated hereby or in connection with the initial resale of such Initial Notes in the manner contemplated by this Agreement and the Offering Memorandum, it being understood that no opinion will be expressed as to any subsequent resale of any Initial Notes. (vi) The Initial Notes have been duly authorized by all requisite corporate action of the Company and when duly executed by the Company in accordance with the terms of the Indenture and, assuming due authentication of the Initial Notes by the Trustee, upon delivery to the Initial Purchasers against payment therefor in accordance with the terms hereof, will have been validly issued and delivered, and will constitute legally valid and binding obligations of the Company entitled to the benefits of the Indenture, enforceable against the Company in accordance with their terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws relating to or affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether in a proceeding in equity or at law). 19 (vii) The New Notes have been duly authorized by the Company and if and when duly issued and authenticated in accordance with the terms of the Indenture and delivered in accordance with the Exchange Offer provided for in the Registration Rights Agreement, will constitute legally valid and binding obligations of the Company entitled to the benefits of the Indenture, enforceable against the Company in accordance with their terms (subject to the qualification that the enforceability of the Company's obligations thereunder may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws relating to or affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether in a proceeding in equity or at law). (viii) Assuming due authorization, execution and delivery by the parties thereto, the Credit Agreement constitutes the valid and binding agreement of the Company, enforceable against the Company in accordance with its terms (subject to applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and other similar laws affecting creditors' rights generally from time to time in effect and to general principles of equity, including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing, regardless of whether in a proceeding in equity or at law). (ix) To the knowledge of such counsel, there are no legal or governmental proceedings pending or threatened against the Company or any of its Subsidiaries, or to which any of their respective properties is subject, that are not disclosed in the Offering Memorandum and which are reasonably likely to have a Material Adverse Effect or to materially and adversely affect the issuance of the Notes or the consummation of the other transactions contemplated by the Operative Documents. (x) None of the issuance, offer or sale of the Initial Notes, the execution, delivery or performance by the Company of this Agreement, the other Operative Documents, compliance by the Company with the provisions hereof or thereof nor consummation by the Company of the transactions contemplated hereby or thereby (i) requires any consent, approval, authorization or other order of, or registration or filing with, any court, regulatory body, administrative agency or other governmental body, agency or official (except such as may be required in connection with the registration under the Securities Act of the New Notes in accordance with the Registration Rights Agreement, qualification of the Indenture under the TIA and compliance with the securities or Blue Sky laws of various jurisdictions), or (ii) violates or will violate or constitutes or will constitute a breach of, or a default under, the certificate of incorporation or by-laws, or other organizational documents, of the Company or any of its Subsidiaries or (iii) violates or will violate or constitutes or will constitute a breach of, or a default under any agreement listed on a certificate of an officer of the Company as being any agreement material to the Company and its Subsidiaries, taken as a whole (the "Material Agreements"), or (iv) violates or will violate any law, rule or regulation of the United States or the State of New York or the General Corporation Law of the State of California that we have in the exercise of customary professional diligence, recognized as applicable to the Company or to 20 transactions of the type contemplated by this Agreement, or, to such counsel's knowledge, any order or decree of any court or government agency or instrumentality to which the property or assets of the Company or any of its Subsidiaries are subject or (v) will result in the creation or imposition of any Lien upon any property or assets of the Company or any of its Subsidiaries pursuant to the terms of any agreement or instrument to which any of them is a party or by which any of them may be bound or under which any of their respective property or assets is subject, except in each case in clauses (i) through (v), such breaches, conflicts or defaults that, individually or in the aggregate would not have a Material Adverse Effect. (xi) The Company is not and, immediately upon sale of the Initial Notes to be issued and sold thereby in accordance herewith and the application of the net proceeds to the Company of such sale as described in the Offering Memorandum under the caption "Use of Proceeds," will not be an "investment company" within the meaning of the Investment Company Act of 1940, as amended. (xii) When the Initial Notes are issued and delivered pursuant to this Agreement, such Initial Notes will not be of the same class (within the meaning of Rule 144A under the Securities Act) as securities of the Company that are listed on a national securities exchange registered under Section 6 of the Exchange Act or that are quoted in a United States automated inter-dealer quotation system. (xiii) Assuming (i) the accuracy of, and compliance by you with, your representations, warranties, and covenants in Section 2, (ii) that the initial resale of the Initial Notes by you is made only to Eligible Purchasers, (iii) the accuracy of the Company's representations and warranties with respect to whether (x) any form of general solicitation was used by the Company and (y) other offerings of securities are of the same class as other securities of the Company that are listed on a national securities exchange registered under Section 6 of the Exchange Act, or quoted in a U.S. automated inter-dealer quotation system, and (iv) that each QIB to whom you originally sell the Initial Notes receives a copy of the Offering Memorandum at or prior to the delivery of a confirmation of sale, no registration of the Initial Notes under the Securities Act and no qualification of the Indenture under the TIA is required in connection with the purchase of the Initial Notes by you, or the initial resale of the Initial Notes by you to Eligible Purchasers in the manner contemplated by the Agreement and the Offering Memorandum. (xiv) The descriptions of the Indenture, the Initial Notes and the Registration Rights Agreement in the Offering Memorandum conform in all material respects to the terms thereof. (xv) The statements set forth under the heading "Description of Notes" in the Offering Memorandum, insofar as such statements purport to summarize certain provisions of the Initial Notes, provide a fair summary of such provisions; and the statements set forth under the heading "Risk Factors -- Fraudulent Conveyance Statutes" in the Offering Memorandum insofar as they refer to statements of law or legal conclusions, are accurate in all material respects and present fairly the information shown. 21 (xvi) The statements set forth under the heading "Description of Certain Indebtedness" in the Offering Memorandum, insofar as such statements purport to summarize certain provisions of the Credit Agreement, provide a fair summary of such provisions. In addition, such counsel shall also state that such counsel has participated in conferences with certain officers of the Company, representatives of the independent public accountants for the Company and your representatives and counsel concerning the preparation of the Offering Memorandum and, although such counsel has made certain inquiries and investigations in connection with the preparation of the Offering Memorandum, it has not independently verified the accuracy, completeness or fairness of the statements contained therein, and the limitations inherent in the examination made by it and the knowledge available to it are such that it is not passing upon and does not assume any responsibility for the accuracy or completeness of the statements contained in the Offering Memorandum. However, on the basis of the foregoing participation and review, and relying as to materiality to an extent upon opinions of officers and other representatives of the Company, such counsel does not believe that the Offering Memorandum, as of its date or as of the Closing Date, included or includes an untrue statement of a material fact or omitted or omits to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading (it being understood that such counsel need express no belief or opinion with respect to the financial statements and other financial data included therein). The opinion of such counsel may be limited to the laws of the state of New York, the General Corporation Law of the State of California, and the Federal laws of the United States. Such counsel may take such other exceptions as are customary or appropriate. (e) Boyd & Boyd, special Ohio counsel to the Company, shall have furnished to the Initial Purchasers, its written opinion, as special counsel to the Company, addressed to the Initial Purchasers and dated as of the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers and their counsel, to the effect that: (i) Medex is a corporation validly existing and in good standing under the laws of the State of Ohio and has corporate power and corporate authority to own, lease and operate its properties and to conduct its business as presently conducted. Medex is duly qualified as a foreign corporation to conduct business and is in good standing in the State of Georgia. (ii) All the outstanding shares of capital stock of Medex have been duly authorized by all requisite corporate action on the part of Medex and are validly issued, fully paid and nonassessable, and are wholly owned by the Company, free and clear of any lien, adverse claim, security interest, equity or other encumbrance. (f) Donald D. Bradley, general counsel to the Company, shall have furnished to the Initial Purchasers, its written opinion, as counsel to the Company, addressed to the Initial Purchasers and dated as of the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers and their counsel, to the effect that: 22 (i) The Company is qualified as a foreign corporation to do business in the States of Alabama, Connecticut, Florida, Illinois, Louisiana, Massachusetts, Michigan, Minnesota, New Jersey, New York, Ohio, Pennsylvania, Rhode Island, Texas, Vermont and Washington and is in good standing in each of those States. (ii) All the shares of capital stock of the Company outstanding prior to the issuance of the Initial Notes have been duly authorized by all requisite corporate action on the part of the Company and are validly issued, fully paid and nonassessable. (iii) Except as described in the Offering Memorandum, the consummation of the transactions contemplated by this agreement shall not cause any third party to have any rights of first refusal under any Material Agreement. (iv) The Credit Agreement has been duly and validly authorized, executed and delivered by the Company. (v) To the knowledge of such counsel, except as disclosed in the Offering Memorandum, there are no contracts, agreements or understandings between the Company or any of its Subsidiaries and any person granting such person the right to require the Company or any of its Subsidiaries to file a registration statement under the Securities Act with respect to any securities of the Company owned or to be owned by such person or to require the Company or any of its Subsidiaries to include such securities in the securities registered pursuant to the Registration Statements or in any securities being registered pursuant to any other registration statement filed by the Company or any of its Subsidiaries under the Securities Act. (vi) The statements set forth under the heading "Business -- Legal Proceedings" in the Offering Memorandum insofar as they refer to statements of law or legal conclusions, are accurate in all material respects and present fairly the information shown. (g) The Initial Purchasers shall have received from Hyman, Phelps & McNamara, P.C., special regulatory counsel to the Company, its written opinion, as special counsel to the Company, dated as of the Closing Date, in form and substance reasonably satisfactory to the Initial Purchasers and their counsel, to the effect that: (i) the statements of federal law and regulation contained under the captions "Risk Factors -- Government Regulation," "Business - -- Medical Device Business" and " -- FDA Compliance/Product Regulation" in the Offering Memorandum (collectively, the "Regulatory Portion") are, in all material respects, correct and accurate statements or summaries of applicable federal law and regulation, subject to the qualifications set forth therein; (ii) to such counsel's knowledge, the Company's medical device business (as described in the Offering Memorandum) does not violate the FDC Act or any FDA rule or regulation, and, to such counsel's knowledge, there are no Federal Food, Drug and 23 Cosmetic Act (the "FCA") judicial or administrative proceedings pending or threatened against the Company. In addition, such counsel shall also state that nothing has come to the attention of such counsel that would lead such counsel to believe that the information contained in the Regulatory Portion of the Offering Memorandum (or any amendments or supplements thereof) contained or contains an untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (h) The Initial Purchasers shall have received from Latham & Watkins, counsel for the Initial Purchasers, such opinion or opinions, dated as of the Closing Date, with respect to the issuance and sale of the Initial Notes, the Offering Memorandum and other related matters as the Initial Purchasers may reasonably require, and the Company shall have furnished to such counsel such documents as they reasonably request for the purpose of enabling them to pass upon such matters. (i) The Company and the Trustee shall have entered into the Indenture and the Initial Purchasers shall have received counterparts, conformed as executed, thereof. (j) The Company and the Initial Purchasers shall have entered into the Registration Rights Agreement and the Initial Purchasers shall have received counterparts, conformed as executed, thereof. (k) With respect to the letter of Ernst & Young LLP delivered to the Initial Purchasers concurrently with the execution of this Agreement (the "initial letter"), the Company shall have furnished to the Initial Purchasers a letter (as used in this paragraph, the "bring-down letter") of such auditor, addressed to the Initial Purchasers and dated such Closing Date (i) confirming that they are independent auditors with respect to the Company under Rule 101 of the AICPA's Code of Professional Conduct and its interpretations and rulings, (ii) stating, as of the date of the bring-down letter (or, with respect to matters involving changes or developments since the respective dates as of which specified financial information is given in the Offering Memorandum, as of a date not more than two Business Days prior to the date of the bring-down letter), the conclusions and findings of such firm with respect to the financial information and other matters covered by the initial letter and (iii) confirming in all material respects the conclusions and findings set forth in the initial letter. (l) The Company shall have furnished to the Initial Purchasers a certificate, dated as of the Closing Date, of its Chief Executive Officer or President and its Chief Financial Officer or Treasurer stating that: (i) The representations, warranties and agreements of the Company (after giving effect to all materiality qualifiers therein) in Section 1 are true and correct as of such Closing Date and giving effect to the consummation of the transactions contemplated by this Agreement; the Company has complied in all material respects with all its agreements contained herein; and the condition set forth in Section 7(m) has been fulfilled; and 24 (ii) They have examined the Preliminary Offering Memorandum and the Offering Memorandum and, in their opinion, the Preliminary Offering Memorandum as of its date and the Offering Memorandum as of its date and the Closing Date did not include any untrue statement of a material fact and did not omit to state a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and (ii) since the date of the Offering Memorandum, no event has occurred which should have been set forth in a supplement or amendment to the Offering Memorandum. (m) (i) The Company and its Subsidiaries, taken as a whole, shall not have sustained since the date of the latest audited financial statements included in the Offering Memorandum any loss or interference with its business from fire, explosion, flood or other calamity, whether or not covered by insurance, or from any labor dispute or court or governmental action, order or decree, otherwise than as set forth or contemplated in the Offering Memorandum or (ii) since such date there shall not have been any change in the capital stock or long-term debt of the Company or any of its Subsidiaries or any change, or any development involving a prospective change, in or affecting condition (financial or other), business properties, or results of operations of the Company and its Subsidiaries, taken as a whole otherwise than as set forth or contemplated in the Offering Memorandum, the effect of which, in any such case described in clause (i) or (ii), is, in the judgment of the Initial Purchasers, so material and adverse as to make it impracticable or inadvisable to proceed with the payment for and delivery of the Notes being delivered on such Closing Date on the terms and in the manner contemplated in the Offering Memorandum. (n) There shall exist at and as of the Closing Date no conditions that would constitute a default (or an event that with notice or the lapse of time, or both, would constitute a default) under the Credit Agreement. On the Closing Date, the Credit Agreement shall be in full force and effect, shall conform to the description thereof contained in the Offering Memorandum (after giving effect to the amendment described therein) and shall not have been materially modified. (o) Latham & Watkins shall have been furnished with such other documents and opinions, in addition to those set forth above, as they may reasonably require for the purpose of enabling them to review or pass upon the matters referred to in this Agreement and in order to evidence the accuracy, completeness or satisfaction in all material respects of any of the representations, warranties or conditions herein contained. (p) Subsequent to the execution and delivery of this Agreement (i) no downgrading shall have occurred in the rating accorded the Company's debt securities by any "nationally recognized statistical rating organization," as that term is defined by the Commission for purposes of Rule 436(g)(2) under the Securities Act and (ii) no such organization shall have publicly announced that it has under surveillance or review, with possible negative implications, its rating of any of the Company's debt securities. (q) Subsequent to the execution and delivery of this Agreement there shall not have occurred any of the following: (i) trading in securities generally on the New York Stock 25 Exchange or the American Stock Exchange or in the over-the-counter market, or trading in any securities of the Company on any exchange or in the over-the-counter market, shall have been suspended or minimum prices shall have been established on any such exchange or such market by the Commission, by such exchange or by any other regulatory body or governmental authority having jurisdiction, (ii) a banking moratorium shall have been declared by Federal or state authorities, (iii) the United States shall have become engaged in hostilities, there shall have been an escalation in hostilities involving the United States or there shall have been a declaration of a national emergency or war by the United States or (iv) there shall have occurred such a material adverse change in general economic, political or financial conditions (or the effect of international conditions on the financial markets in the United States shall be such) as to make it, in the judgment of a majority in interest of the several Initial Purchasers, impracticable or inadvisable to proceed with the public offering or delivery of the Notes being delivered on such Closing Date on the terms and in the manner contemplated in the Offering Memorandum. All opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Initial Purchasers. 8. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless each Initial Purchaser, its officers and employees and each person, if any, who controls any Initial Purchaser within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof (including, but not limited to, any loss, claim, damage, liability or action relating to purchases and sales of Notes), to which that Initial Purchaser, officer, employee or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Offering Memorandum or the Offering Memorandum (in each case as amended or supplemented), or (ii) the omission or alleged omission to state in any Preliminary Offering Memorandum or the Offering Memorandum (in each case as amended or supplemented) any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading or (iii) any act or failure to act or any alleged act or failure to act by any Initial Purchaser in connection with, or relating in any manner to, the Notes or the offering contemplated hereby, and which is included as part of or referred to in any loss, claim, damage, liability or action arising out of or based upon matters covered by clauses (i) or (ii) above (provided that the Company and its Subsidiaries shall not be liable under this clause (iii) to the extent that it is determined in a final judgment by a court of competent jurisdiction that such loss, claim, damage, liability or action resulted directly from any such acts or failures to act undertaken or omitted to be taken by such Initial Purchaser through its gross negligence or willful misconduct); and shall reimburse each Initial Purchaser and each such officer, employee or controlling person promptly upon demand for any legal or other expenses reasonably incurred by that Initial Purchaser, officer, employee or controlling person in connection with investigating or 26 defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the Company and its Subsidiaries shall not be liable in any such case to the extent that any such loss, claim, damage, liability or action arises out of, or is based upon, any untrue statement or alleged untrue statement or omission or alleged omission made in any Preliminary Offering Memorandum or the Offering Memorandum (in each case as amended or supplemented) in reliance upon and in conformity with written information concerning such Initial Purchaser furnished to the Company by or on behalf of any Initial Purchaser specifically for inclusion therein. The foregoing indemnity agreement is in addition to any liability which the Company and its Subsidiaries may otherwise have to any Initial Purchaser or to any officer, employee or controlling person of that Initial Purchaser. (b) Each Initial Purchaser, severally and not jointly, shall indemnify and hold harmless the Company, its officers and employees, each of its directors, and each person, if any, who controls the Company within the meaning of the Securities Act, from and against any loss, claim, damage or liability, joint or several, or any action in respect thereof, to which the Company or any such director, officer, employee or controlling person may become subject, under the Securities Act or otherwise, insofar as such loss, claim, damage, liability or action arises out of, or is based upon, (i) any untrue statement or alleged untrue statement of a material fact contained in any Preliminary Offering Memorandum or the Offering Memorandum (in each case as amended or supplemented) or in any Blue Sky application or (ii) the omission or alleged omission to state in any Preliminary Offering Memorandum or the Offering Memorandum (in each case as amended or supplemented) or in any Blue Sky application any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, but in each case only to the extent that the untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information concerning such Initial Purchaser furnished to the Company by or on behalf of that Initial Purchaser specifically for inclusion therein, and shall reimburse the Company and any such director, officer, employee or controlling person for any legal or other expenses reasonably incurred by the Company or any such director, officer or controlling person in connection with investigating or defending or preparing to defend against any such loss, claim, damage, liability or action as such expenses are incurred. The foregoing indemnity agreement is in addition to any liability which any Initial Purchaser may otherwise have to the Company or any such director, officer, employee or controlling person. (c) Promptly after receipt by an indemnified party under this Section 8 of notice of any claim or the commencement of any action, the indemnified party shall, if a claim in respect thereof is to be made against the indemnifying party under this Section 8, notify the indemnifying party in writing of the claim or the commencement of that action; provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have under this Section 8 except to the extent it has been materially prejudiced by such failure and, provided, however, that the failure to notify the indemnifying party shall not relieve it from any liability which it may have to an indemnified party otherwise than under this Section 8. If any such claim or action shall be brought against an indemnified party, and it shall notify the indemnifying party thereof, the indemnifying party shall be entitled to participate 27 therein and, to the extent that it wishes, jointly with any other similarly notified indemnifying party, to assume the defense thereof with counsel reasonably satisfactory to the indemnified party. After notice from the indemnifying party to the indemnified party of its election to assume the defense of such claim or action, the indemnifying party shall not be liable to the indemnified party under this Section 8 for any legal or other expenses subsequently incurred by the indemnified party in connection with the defense thereof other than reasonable costs of investigation; provided, however, that the Initial Purchasers shall have the right to employ counsel to represent jointly the Initial Purchasers and their respective officers, employees and controlling persons who may be subject to liability arising out of any claim in respect of which indemnity may be sought by the Initial Purchasers against the Company under this Section 8 if, in the reasonable judgment of the Initial Purchasers, it is advisable for the Initial Purchasers, officers, employees and controlling persons to be jointly represented by separate counsel, and in that event the reasonable fees and expenses of such separate counsel shall be paid by the Company. No indemnifying party shall (i) without the prior written consent of the indemnified parties (which consent shall not be unreasonably withheld), settle or compromise or consent to the entry of any judgment with respect to any pending or threatened claim, action, suit or proceeding in respect of which indemnification or contribution may be sought hereunder (whether or not the indemnified parties are actual or potential parties to such claim or action) unless such settlement, compromise or consent includes an unconditional release of each indemnified party from all liability arising out of such claim, action, suit or proceeding, or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with the consent of the indemnifying party or if there be a final judgment of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. (d) If the indemnification provided for in this Section 8 shall for any reason be unavailable to or insufficient to hold harmless an indemnified party under Section 8(a) or 8(b) in respect of any loss, claim, damage or liability, or any action in respect thereof, referred to therein, then each indemnifying party shall, in lieu of indemnifying such indemnified party, contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability, or action in respect thereof, (i) in such proportion as shall be appropriate to reflect the relative benefits received by the Company on the one hand and the Initial Purchasers on the other from the offering of the Initial Notes or (ii) if the allocation provided by clause (i) above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and the Initial Purchasers on the other with respect to the statements or omissions which resulted in such loss, claim, damage or liability, or action in respect thereof, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Initial Purchasers on the other with respect to such offering shall be deemed to be in the same proportion as the total net proceeds from the offering of 28 the Initial Notes purchased under this Agreement (before deducting expenses) received by the Company, on the one hand, and the total discounts and commissions received by the Initial Purchasers with respect to the Initial Notes purchased under this Agreement, on the other hand, bear to the total gross proceeds from the offering of the Initial Notes under this Agreement, in each case as set forth in the table on the cover page of the Offering Memorandum. The relative fault shall be determined by reference to whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or the Initial Purchasers, the intent of the parties and their relative knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Initial Purchasers agree that it would not be just and equitable if contributions pursuant to this Section 8(d) were to be determined by pro rata allocation (even if the Initial Purchasers were treated as one entity for such purpose) or by any other method of allocation which does not take into account the equitable considerations referred to herein. The amount paid or payable by an indemnified party as a result of the loss, claim, damage or liability, or action in respect thereof, referred to above in this Section shall be deemed to include, for purposes of this Section 8(d), any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 8(d), no Initial Purchaser shall be required to contribute any amount in excess of the amount by which the total price at which the Initial Notes purchased by it was resold to Eligible Purchasers exceeds the amount of any damages which such Initial Purchaser has otherwise paid or become liable to pay by reason of any untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Initial Purchasers' obligations to contribute as provided in this Section 8(d) are several in proportion to their respective underwriting obligations and not joint. (e) The Initial Purchasers severally confirm and the Company acknowledges that the last paragraph on the cover page, the stabilization legend on page iii, the table of Initial Purchasers and the information contained in the fifth, sixth, seventh, ninth and tenth paragraphs of the section entitled "Plan of Distribution" constitute the only information concerning such Initial Purchasers furnished in writing to the Company by or on behalf of the Initial Purchasers specifically for inclusion in the Preliminary Offering Memorandum or the Offering Memorandum. 9. Termination. The obligations of the Initial Purchasers hereunder may be terminated by Lehman Brothers Inc. by notice given to the Company prior to delivery of and payment for the Initial Notes if, prior to that time, any of the events described in Sections 7(m), 7(p) or 7(q) shall have occurred or if the Initial Purchasers shall decline to purchase the Initial Notes for any reason permitted under this Agreement. 10. Reimbursement of Initial Purchasers' Expenses. If the Company shall fail to tender the Initial Notes for delivery to the Initial Purchasers by reason of any failure, refusal or inability on the part of the Company to perform any agreement on its part to be performed, or because any other condition of the Initial Purchasers' obligations hereunder required to be fulfilled by the Company is not fulfilled, the Company will reimburse the Initial Purchasers for all reasonable out-of-pocket expenses (including the fees and disbursements of their counsel) incurred by the Initial Purchasers in connection with this Agreement and the proposed purchase 29 of the Initial Notes, and upon demand the Company shall pay the full amount thereof to Lehman Brothers Inc. 11. Notices, etc. All statements, requests, notices and agreements hereunder shall be in writing, and: (a) if to the Initial Purchasers, shall be delivered or sent by mail, telex or facsimile transmission to Lehman Brothers Inc., Three World Financial Center, New York, New York 10285, Attention: Syndicate Department (Fax: 212-526-6588), with a copy to Latham & Watkins, 650 Town Center Drive, 20th Floor, Costa Mesa, California 92626, Attention: Patrick T. Seaver (Fax: 714-755-8290); and (b) if to the Company, shall be delivered or sent by mail, telex or facsimile transmission to Furon Company, 29982 Ivy Glenn Drive, Laguna Niguel, California 92677, Attention: Chief Financial Officer (Fax: 714-363-6276), with a copy to O'Melveny & Myers LLP, 610 Newport Center Drive, Suite 1700, Newport Beach, California 92660, Attention: Gary J. Singer (Fax: 714-669-6994). Any such statements, requests, notices or agreements shall take effect at the time of receipt thereof. The Company shall be entitled to act and rely upon any request, consent, notice or agreement given or made on behalf of the Initial Purchasers by Lehman Brothers Inc. Any notice of a change of address or facsimile transmission number must be given by the Company or by the Initial Purchasers, as the case may be, in writing, at least three days in advance of such change. 12. Persons Entitled to Benefit of Agreement. This Agreement shall inure to the benefit of and be binding upon the Initial Purchasers, the Company and their respective successors. This Agreement and the terms and provisions hereof are for the sole benefit of only those persons, except that (i) the representations, warranties, indemnities and agreements of the Company contained in this Agreement shall also be deemed to be for the benefit of the person or persons, if any, who control any Initial Purchaser within the meaning of Section 15 of the Securities Act and (ii) the representations, warranties, indemnities and agreements of the Initial Purchasers contained in this Agreement shall be deemed to be for the benefit of directors, officers and employees of the Company and any person controlling the Company within the meaning of Section 15 of the Securities Act. Nothing in this Agreement is intended or shall be construed to give any person, other than the persons referred to in this Section 12, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision contained herein. 13. Survival. The respective indemnities, representations, warranties and agreements of the Initial Purchasers and the Company contained in this Agreement or made by or on behalf on them, respectively, pursuant to this Agreement, shall survive the delivery of and payment for the Notes and shall remain in full force and effect, regardless of any investigation made by or on behalf of any of them or any person controlling any of them. 30 14. Definition of the Terms "Business Day" and "Subsidiary." For purposes of this Agreement, "Business Day" means any day on which the New York Stock Exchange, Inc. is open for trading, and "Subsidiary" means with respect to the Company, (i) any corporation, association or other business entity of which more than 50% of the total voting power of shares of capital stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is at the time owned or controlled, directly or indirectly, by the Company, (ii) any partnership (a) the sole general partner or the managing general partner of which is the Company or an entity described in clause (i) and related to the Company or (b) the only general partners of which are the Company or of one or more entities described in clause (i) and related to the Company (or any combination thereof) and (iii) any limited liability company, the sole managing member or the majority of the managing members of which are persons described in clause (i) or (ii). 15. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of New York without regard to principles of conflicts of laws. 16. Counterparts. This Agreement may be executed in one or more counterparts and, if executed in more than one counterpart, the executed counterparts shall each be deemed to be an original but all such counterparts shall together constitute one and the same instrument. 17. Headings. The headings herein are inserted for convenience of reference only and are not intended to be part of, or to affect the meaning or interpretation of, this Agreement. [signature pages follow] 31 If the foregoing correctly sets forth the agreement between the Initial Purchasers and the Company, please indicate your acceptance in the space provided for that purpose below. Very truly yours, FURON COMPANY By: /s/ J. Michael Hagan --------------------------------- J. Michael Hagan Chief Executive Officer By: /s/ Monty A. Houdeshell --------------------------------- Monty A. Houdeshell Vice President and Chief Financial Officer Accepted: LEHMAN BROTHERS INC. By: /s/ Michael A. Goldberg --------------------------------- Name: Michael A. Goldberg Title: Vice President BEAR, STEARNS & CO. INC. By: /s/ James B. Nish --------------------------------- James B. Nish Senior Managing Director BNY CAPITAL MARKETS, INC. By: /s/ John Roy --------------------------------- John Roy Managing Director 32 SCHEDULE 1
Initial Purchasers Principal Amount of Notes - ------------------ -------------------------- Lehman Brothers Inc. $ 81,250,000 Bear, Stearns & Co. Inc. 37,500,000 BNY Capital Markets, Inc. 6,250,000 ------------------ Total $ 125,000,000 ==================
33 EXHIBIT A Registration Rights Agreement 34 EXHIBIT B Employee pension plans with respect to which the Company or any corporation considered an affiliate of the Company within the meaning of Section 407(d)(7) of ERISA is a party-in-interest or disqualified person: Furon Company Employees Profit Sharing Retirement Plan; Furon Company Employees Stock Ownership Plan; Pension Plan for Bargaining Unit Employees of CHR Industries, Inc.; Medex, Inc. 401(k) Savings Plan. 35 EXHIBIT C Furon Company Subsidiaries
STATE OR OTHER JURISDICTION OF NAME OF SUBSIDIARY INCORPORATION OR ORGANIZATION ------------------ ----------------------------- Medex, Inc. Ohio Ashfield Medical Systems Limited United Kingdom Medex Medical France SARL France Medex Medical GmbH Germany AS Medical GmbH Germany Medex Medical S.r.l. Italy Medex Medical, Inc. Ohio Medex Medical Limited United Kingdom Medex Medical Instrumentation, Inc. Ohio Bunnell Plastics, Inc.* New Jersey CHR Industries, Inc.* Connecticut Dixon Industries Corporation* Rhode Island Fluorocarbon Components, Inc.* New York Fluorocarbon Foreign Sales Corporation Barbados Furon B.V. Netherlands Furon Europe, S.A. Belgium Furon Limited England Furon Seals N.V./S.A. Belgium Furon S.A. Belgium Premier Python Products, Ltd. England Premier Python Systems, Inc. Georgia Sepco Corporation* California
* A general business corporation with a wholly owned domestic subsidiary. EX-10.15 6 REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 10.15 ================================================================================ REGISTRATION RIGHTS AGREEMENT Dated as of March 4, 1998 by and among Furon Company, as Issuer and Lehman Brothers Inc. Bear, Stearns & Co. Inc., and BNY Capital Markets, Inc., as Initial Purchasers ================================================================================ 2 This Registration Rights Agreement (this "Agreement") is made and entered into as of March 4, 1998, by and among Furon Company, a California corporation (the "Company"), and Lehman Brothers Inc., Bear, Stearns & Co. Inc. and BNY Capital Markets, Inc. (each an "Initial Purchaser" and, collectively, the "Initial Purchasers"), each of whom has agreed to purchase the Company's 8-1/8% Senior Subordinated Notes due 2008 (the "Initial Notes" and, together with the New Notes (as defined), the "Notes") pursuant to the Purchase Agreement (as defined below). This Agreement is made pursuant to the Purchase Agreement, dated February 26, 1998 (the "Purchase Agreement"), by and among the Company and the Initial Purchasers. In order to induce the Initial Purchasers to purchase the Initial Notes, the Company has agreed to provide the registration rights set forth in this Agreement. The execution and delivery of this Agreement is a condition to the obligations of the Initial Purchasers set forth in Section 7(j) of the Purchase Agreement. Capitalized terms used herein and not otherwise defined shall have the meaning assigned to them in the Indenture, dated March 4, 1998, between the Company and The Bank of New York, as Trustee, relating to the Notes (the "Indenture"). The parties hereby agree as follows: SECTION 1. DEFINITIONS As used in this Agreement, the following capitalized terms shall have the following meanings: Act: The Securities Act of 1933, as amended. Affiliate: As defined in Rule 144 of the Act. Broker-Dealer: Any broker or dealer registered under the Exchange Act. Broker-Dealer Transfer Restricted Securities: New Notes that are acquired by a Broker-Dealer in the Exchange Offer in exchange for Notes that such Broker-Dealer acquired for its own account as a result of market making activities or other trading activities (other than Initial Notes acquired directly from the Company or any of its affiliates). Business Day: Any day except a Saturday, Sunday or other day in the City of New York, or in the city of the corporate trust office of the Trustee (as defined), on which banks are authorized to close. Closing Date: The date hereof. Commission: The Securities and Exchange Commission. Consummate: An Exchange Offer shall be deemed "Consummated" for purposes of this Agreement upon the occurrence of (a) the filing and effectiveness under the Act of the Exchange Offer Registration Statement relating to the New Notes to be issued in the Exchange Offer, (b) the maintenance of such Exchange Offer Registration Statement continuously effective and the keeping of the Exchange Offer open for a period not less than the period required pursuant to Section 3(b) hereof and (c) the delivery by the Company to the Registrar 3 under the Indenture of New Notes in the same aggregate principal amount as the aggregate principal amount of Initial Notes tendered by Holders thereof pursuant to the Exchange Offer. Effectiveness Deadline: As defined in Sections 3(a) and 4(a) hereof. Exchange Act: The Securities Exchange Act of 1934, as amended. Exchange Offer: The offer by the Company to exchange and issue a principal amount of New Notes (which shall be registered pursuant to the Exchange Offer Registration Statement) equal to the outstanding principal amount of Initial Notes that are tendered by such Holders in connection with such exchange and issuance. Exchange Offer Registration Statement: The Registration Statement relating to the Exchange Offer, including the related Prospectus. Exempt Resales: The transactions in which the Initial Purchasers propose to sell the Initial Notes to certain "qualified institutional buyers," as such term is defined in Rule 144A under the Act and pursuant to Regulation S under the Act. Filing Deadline: As defined in Sections 3(a) and 4(a) hereof. Holders: As defined in Section 2 hereof. Indemnified Holder: As defined in Section 8(a) hereof. Interest Payment Date: As defined in the Indenture and the Notes. NASD: National Association of Securities Dealers, Inc. New Notes: The Company's 8-1/8% Senior Subordinated Notes due 2008 to be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii) as contemplated by Section 4 hereof. Notes: The Initial Notes and the New Notes. Person: An individual, partnership, corporation, trust, unincorporated organization, joint venture, association, joint-stock company or a government or agency or political subdivision thereof. Prospectus: The prospectus included in a Registration Statement at the time such Registration Statement is declared effective, as amended or supplemented by any prospectus supplement and by all other amendments thereto, including post-effective amendments, and all material incorporated by reference into such Prospectus. Recommencement Date: As defined in Section 6(d) hereof. Registration Default: As defined in Section 5 hereof. Registration Statement: Any registration statement of the Company relating to (a) an offering of New Notes pursuant to an Exchange Offer or (b) the registration for resale of Transfer Restricted Securities pursuant to the Shelf Registration Statement, in each case, (i) that is filed pursuant to the provisions of this Agreement and (ii) including the Prospectus 4 included therein, all amendments and supplements thereto (including post-effective amendments) and all exhibits and material incorporated by reference therein. Regulation S: Regulation S promulgated under the Act. Restricted Broker-Dealer: Any Broker-Dealer that holds Broker-Dealer Transfer Restricted Securities. Shelf Registration Statement: As defined in Section 4 hereof. Suspension Notice: As defined in Section 6(d) hereof. TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb) as in effect on the date of the Indenture. Transfer Restricted Securities: Each Note, until the earliest to occur of (a) the date on which such Note is exchanged in the Exchange Offer and entitled to be resold to the public by the Holder thereof without complying with the prospectus delivery requirements of the Act, (b) the date on which such Note has been disposed of in accordance with a Shelf Registration Statement, (c) the date on which such Note is disposed of by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the Exchange Offer Registration Statement (including delivery of the Prospectus contained therein) or (d) the date on which such Note is distributed to the public pursuant to Rule 144 under the Act. Underwritten Registration or Underwritten Offering: A registration in which securities of the Company are sold to an underwriter for reoffering to the public. The Company shall not be required to engage in more than one Underwritten Offering for the benefit of the Holders, if any such Underwritten Registration or Underwritten Offering is requested. SECTION 2. HOLDERS A Person is deemed to be a holder of Transfer Restricted Securities (each, a "Holder") whenever such Person owns Transfer Restricted Securities. SECTION 3. REGISTERED EXCHANGE OFFER (a) Unless the Exchange Offer shall not be permitted by applicable federal law (after the procedures set forth in Section 6(a)(i) below have been complied with), the Company shall (i) cause the Exchange Offer Registration Statement to be filed with the Commission as soon as practicable after the Closing Date, but in no event later than 90 days after the Closing Date (such 90th day being the "Filing Deadline"), (ii) use its best efforts to cause such Exchange Offer Registration Statement to become effective at the earliest possible time, but in no event later than 150 days after the Closing Date (such 150th day being the "Effectiveness Deadline"), (iii) in connection with the foregoing, (A) file all pre-effective amendments to such Exchange Offer Registration Statement as may be necessary in order to cause it to become effective, (B) file, if applicable, a post-effective amendment to such Exchange Offer Registration Statement pursuant to Rule 430A under the Act and (C) cause all necessary filings, if any, in connection with the registration and qualification of the New Notes to be made under the Blue Sky laws of such jurisdictions as are necessary to permit Consummation of the Exchange Offer, and (iv) upon the effectiveness of such Exchange Offer Registration Statement, commence and 5 Consummate the Exchange Offer. The Exchange Offer shall be on the appropriate form permitting registration of the New Notes to be offered in exchange for the Initial Notes that are Transfer Restricted Securities and to permit resales of Broker-Dealer Transfer Restricted Securities as contemplated by Section 3(c) below. (b) The Company shall use its best efforts to cause the Exchange Offer Registration Statement to be effective continuously, and shall keep the Exchange Offer open for a period of not less than the minimum period required under applicable federal and state securities laws to Consummate the Exchange Offer; provided, however, that in no event shall such period be less than 20 Business Days. The Company shall cause the Exchange Offer to comply with all applicable federal and state securities laws. No securities other than the New Notes shall be included in the Exchange Offer Registration Statement. The Company shall use its best efforts to cause the Exchange Offer to be Consummated on the earliest practicable date after the Exchange Offer Registration Statement has become effective, but in no event later than 30 Business Days thereafter. (c) The Company shall include a "Plan of Distribution" section in the Prospectus contained in the Exchange Offer Registration Statement and indicate therein that any Restricted Broker-Dealer who holds Initial Notes that are Transfer Restricted Securities that were acquired for the account of such Broker-Dealer as a result of market-making activities or other trading activities (other than Transfer Restricted Securities acquired directly from the Company or any Affiliate of the Company), may exchange such Transfer Restricted Securities pursuant to the Exchange Offer; however, such Broker-Dealer may be deemed to be an "underwriter" within the meaning of the Act and must, therefore, deliver a prospectus meeting the requirements of the Act in connection with its initial sale of any New Notes received by such Broker-Dealer in the Exchange Offer and that the Prospectus contained in the Exchange Offer Registration Statement may be used to satisfy such prospectus delivery requirement. Such "Plan of Distribution" section shall also contain all other information with respect to such sales by such Broker-Dealers that the Commission may require in order to permit such sales pursuant thereto, but such "Plan of Distribution" shall not name any such Broker-Dealer or disclose the amount of Transfer Restricted Securities held by any such Broker-Dealer, except to the extent required by the Commission as a result of a change in policy, rules or regulations after the date of this Agreement. To the extent necessary to ensure that the Exchange Offer Registration Statement is available for resales of Broker-Dealer Transfer Restricted Securities by Restricted Broker-Dealers, the Company agrees to use its best efforts to keep the Exchange Offer Registration Statement continuously effective, supplemented and amended as required by the provisions of Section 6(c) hereof and in conformity with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of one year from the date on which the Exchange Offer is Consummated, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Registration Statement have been sold pursuant thereto. The Company shall promptly provide sufficient copies of the latest version of such Prospectus to such Broker-Dealers promptly upon written request, and in no event later than one Business Day after such request, at any time during such period. 6 SECTION 4. SHELF REGISTRATION (a) Shelf Registration. If (i) the Exchange Offer is not permitted by applicable law (after the Company has complied with the procedures set forth in Section 6(a)(i) below) or (ii) if any Holder of Transfer Restricted Securities shall notify the Company within 20 Business Days following the Consummation of the Exchange Offer that (A) such Holder was prohibited by law or Commission policy from participating in the Exchange Offer or (B) such Holder may not resell the New Notes acquired by it in the Exchange Offer to the public without delivering a prospectus and the Prospectus contained in the Exchange Offer Registration Statement is not appropriate or available for such resales by such Holder or (C) such Holder is a Broker-Dealer and holds Initial Notes acquired directly from the Company or any of its Affiliates, then the Company shall use its best efforts to: (x) cause to be filed, on or prior to 30 days after the earlier of (i) the date on which the Company determines that the Exchange Offer Registration Statement cannot be filed as a result of clause (a)(i) above and (ii) the date on which the Company receives the notice specified in clause (a) (ii) above, (such earlier date, the "Filing Deadline"), a shelf registration statement pursuant to Rule 415 under the Act (which may be an amendment to the Exchange Offer Registration Statement (the "Shelf Registration Statement")), relating to all Transfer Restricted Securities subject to the provisions of Section 4(b) hereof, and (y) cause such Shelf Registration Statement to become effective on or prior to 90 days after the Filing Deadline (such 90th day the "Effectiveness Deadline"). If, after the Company has filed an Exchange Offer Registration Statement that satisfies the requirements of Section 3(a) above, the Company is required to file and make effective a Shelf Registration Statement solely because the Exchange Offer is not permitted under applicable federal law, then the filing of the Exchange Offer Registration Statement shall be deemed to satisfy the requirements of clause (x) above; provided that, in such event, the Company shall remain obligated to meet the Effectiveness Deadline set forth in clause (y). The Company shall use its best efforts to keep any Shelf Registration Statement required by this Section 4(a) continuously effective, supplemented and amended as required by and subject to the provisions of Sections 6(b) and (c) hereof to the extent necessary to ensure that it is available for sales of Transfer Restricted Securities by the Holders thereof entitled to the benefit of this Section 4(a), and to ensure that it conforms with the requirements of this Agreement, the Act and the policies, rules and regulations of the Commission as announced from time to time, for a period of at least two years (as extended pursuant to Section 6(c)(i)) following the date on which such Shelf Registration Statement first becomes effective under the Act, or such shorter period as will terminate when all Transfer Restricted Securities covered by such Shelf Registration Statement have been sold pursuant thereto. (b) Provision by Holders of Certain Information in Connection with the Shelf Registration Statement. No Holder of Transfer Restricted Securities may include any of its Transfer Restricted Securities in any Shelf Registration Statement pursuant to this Agreement unless and until such Holder furnishes to the Company in writing, within 20 days after receipt of a request therefor, such information as the Company may reasonably request for use in connection with any Shelf Registration Statement or Prospectus or preliminary Prospectus included therein. No Holder of Transfer Restricted Securities shall be entitled to liquidated 7 damages pursuant to Section 5 hereof unless and until such Holder shall have provided all such reasonably requested information. Each Holder as to which any Shelf Registration Statement is being effected agrees to furnish promptly to the Company all additional information required to be disclosed in order to make the information previously furnished to the Company by such Holder not materially misleading. SECTION 5. LIQUIDATED DAMAGES If (i) any Registration Statement required by this Agreement is not filed with the Commission on or prior to the applicable Filing Deadline, (ii) any such Registration Statement has not been declared effective by the Commission on or prior to the applicable Effectiveness Deadline, (iii) the Exchange Offer has not been Consummated within 30 Business Days after the Exchange Offer Registration Statement is first declared effective by the Commission or (iv) any Registration Statement required by this Agreement is filed and declared effective but shall thereafter cease to be effective or fail to be usable for its intended purpose without being succeeded promptly (but in no event later than 30 days) by a post-effective amendment to such Registration Statement that cures such failure and that is itself declared effective immediately, the effectiveness of another Registration Statement or the use of the Prospectus (as amended or supplemented) is again permitted that cures such failure (each such event referred to in clauses (i) through (iv), a "Registration Default"), then the Company hereby agrees to pay to each Holder of Transfer Restricted Securities affected thereby liquidated damages in an amount equal to $.05 per week per $1,000 in principal amount of Transfer Restricted Securities held by such Holder for each week or portion thereof that the Registration Default continues for the first 90-day period immediately following the occurrence of such Registration Default. The amount of the liquidated damages shall increase by an additional $.05 per week per $1,000 in principal amount of Transfer Restricted Securities with respect to each subsequent 90-day period until all Registration Defaults have been cured, up to a maximum amount of liquidated damages of $.25 per week per $1,000 in principal amount of Transfer Restricted Securities; provided that the Company shall in no event be required to pay liquidated damages for more than one Registration Default at any given time. Notwithstanding anything to the contrary set forth herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (i) above, (2) upon the effectiveness of the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement), in the case of (ii) above, (3) upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon the filing of a post-effective amendment to the Registration Statement or an additional Registration Statement that causes the Exchange Offer Registration Statement (and/or, if applicable, the Shelf Registration Statement) to again be declared effective or made usable in the case of (iv) above, the liquidated damages payable with respect to the Transfer Restricted Securities as a result of such clause (i), (ii), (iii) or (iv), as applicable, shall cease. All accrued liquidated damages shall be paid to the Global Note Holders in the manner provided for the payment of interest in the Indenture, on each Interest Payment Date, as more fully set forth in the Indenture and the Notes. All obligations of the Company set forth in the preceding paragraph that are outstanding with respect to any Transfer Restricted Security at the time such security ceases to be a Transfer Restricted Security shall survive until such time as all such obligations with respect to such Security shall have been satisfied in full. 8 SECTION 6. REGISTRATION PROCEDURES (a) Exchange Offer Registration Statement. In connection with the Exchange Offer, the Company shall comply with all applicable provisions of Section 6(c) below, shall use its best efforts to effect such exchange and to permit the resale of New Notes by Broker-Dealers that tendered in the Exchange Offer Initial Notes that such Broker-Dealer acquired for its own account as a result of its market making activities or other trading activities (other than Initial Notes acquired directly from the Company or any of its Affiliates) being sold in accordance with the intended method or methods of distribution thereof, and shall comply with all of the following provisions: (i) If, following the date hereof there has been announced a change in Commission policy with respect to exchange offers such as the Exchange Offer, that in the reasonable opinion of counsel to the Company raises a substantial question as to whether the Exchange Offer is permitted by applicable federal law, the Company hereby agrees to seek a no-action letter or other favorable decision from the Commission allowing the Company to Consummate an Exchange Offer for such Transfer Restricted Securities. The Company hereby agrees to pursue the issuance of such a decision to the Commission staff level but shall not be required to take commercially unreasonable action to effect a change of Commission policy. The Company hereby agrees, however, to take all such other actions (so long as not commercially unreasonable) as may be requested by the Commission or otherwise required in connection with the issuance of such decision, including without limitation (A) participating in telephonic conferences with the Commission, (B) delivering to the Commission staff an analysis prepared by counsel to the Company setting forth the legal bases, if any, upon which such counsel has concluded that such an Exchange Offer should be permitted and (C) diligently pursuing a resolution (which need not be favorable) by the Commission staff. (ii) As a condition to its participation in the Exchange Offer, each Holder of Transfer Restricted Securities (including, without limitation, any Holder who is a Broker Dealer) shall furnish, upon the request of the Company, prior to the Consummation of the Exchange Offer, a written representation to the Company (which may be contained in the letter of transmittal contemplated by the Exchange Offer Registration Statement) to the effect that (A) it is not an Affiliate of the Company, (B) it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the New Notes to be issued in the Exchange Offer and (C) it is acquiring the New Notes in its ordinary course of business. Each Holder using the Exchange Offer to participate in a distribution of the New Notes hereby acknowledges and agrees that, if the resales are of New Notes obtained by such Holder in exchange for Initial Notes acquired directly from the Company or an Affiliate thereof, it (1) could not, under Commission policy as in effect on the date of this Agreement, rely on the position of the Commission enunciated in Morgan Stanley and Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988), as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and similar no-action letters (including, if applicable, any no-action letter obtained pursuant to clause (i) above), and (2) must comply with the 9 registration and prospectus delivery requirements of the Act in connection with a secondary resale transaction and that such a secondary resale transaction must be covered by an effective registration statement containing the selling security holder information required by Item 507 or 508, as applicable, of Regulation S-K. (iii) Prior to effectiveness of the Exchange Offer Registration Statement, the Company shall provide a supplemental letter to the Commission (A) stating that the Company is registering the Exchange Offer in reliance on the position of the Commission enunciated in Exxon Capital Holdings Corporation (available May 13, 1988), Morgan Stanley and Co., Inc. (available June 5, 1991) as interpreted in the Commission's letter to Shearman & Sterling dated July 2, 1993, and, if applicable, any no-action letter obtained pursuant to clause (i) above, (B) including a representation that the Company has not entered into any arrangement or understanding with any Person to distribute the New Notes to be received in the Exchange Offer and that, to the best of the Company's information and belief, each Holder participating in the Exchange Offer is acquiring the New Notes in its ordinary course of business and has no arrangement or understanding with any Person to participate in the distribution of the New Notes received in the Exchange Offer and (C) any other undertaking or representation required by the Commission as set forth in any no-action letter obtained pursuant to clause (i) above, if applicable. (b) Shelf Registration Statement. In connection with the Shelf Registration Statement, the Company shall comply with all the provisions of Section 6(c) below and shall use its best efforts to effect such registration to permit the sale of the Transfer Restricted Securities being sold in accordance with the intended method or methods of distribution thereof (as indicated in the information furnished to the Company pursuant to Section 4(b) hereof), and pursuant thereto the Company will prepare and file with the Commission a Registration Statement relating to the registration on any appropriate form under the Act, which form shall be available for the sale of the Transfer Restricted Securities in accordance with the intended method or methods of distribution thereof within the time periods and otherwise in accordance with the provisions hereof. (c) General Provisions. In connection with any Registration Statement and any related Prospectus required by this Agreement, the Company shall: (i) use its best efforts to keep such Registration Statement continuously effective and provide all requisite financial statements for the period specified in Section 3 or 4 of this Agreement, as applicable. Upon the occurrence of any event that would cause any such Registration Statement or the Prospectus contained therein (A) to contain a material misstatement or omission or (B) not to be effective and usable for resale of Transfer Restricted Securities during the period required by this Agreement, the Company shall file promptly an appropriate amendment to such Registration Statement curing such defect, and, if Commission review is required, use its best efforts to cause such amendment to be declared effective as soon as practicable. (ii) prepare and file with the Commission such amendments and post-effective amendments to the applicable Registration Statement as may be necessary to keep such Registration Statement effective for the applicable period 10 set forth in Section 3 or 4 hereof, as the case may be; cause the Prospectus to be supplemented by any required Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424 under the Act, and to comply fully with Rules 424, 430A and 462, as applicable, under the Act in a timely manner; and comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during the applicable period in accordance with the intended method or methods of distribution by the sellers thereof set forth in such Registration Statement or supplement to the Prospectus; (iii) advise the selling Holders promptly and, if requested by such Persons, confirm such advice in writing, (A) when the Prospectus or any Prospectus supplement or post-effective amendment has been filed, and, with respect to any applicable Registration Statement or any post-effective amendment thereto, when the same has become effective, (B) of any request by the Commission for amendments to the Registration Statement or amendments or supplements to the Prospectus or for additional information relating thereto, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement under the Act or of the suspension by any state securities commission of the qualification of the Transfer Restricted Securities for offering or sale in any jurisdiction, or the initiation of any proceeding for any of the preceding purposes, (D) of the existence of any fact or the happening of any event that makes any statement of a material fact made in the Registration Statement, the Prospectus, any amendment or supplement thereto or any document incorporated by reference therein untrue, or that requires the making of any additions to or changes in the Registration Statement in order to make the statements therein not misleading, or that requires the making of any additions to or changes in the Prospectus in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, or any state securities commission or other regulatory authority shall issue an order suspending the qualification or exemption from qualification of the Transfer Restricted Securities under state securities or Blue Sky laws, the Company shall use its best efforts to obtain the withdrawal or lifting of such order at the earliest possible time; (iv) subject to Section 6(c)(i), if any fact or event contemplated by Section 6(c)(iii)(D) above shall exist or have occurred, prepare a supplement or post-effective amendment to the Registration Statement or related Prospectus or any document incorporated therein by reference or file any other required document so that, as thereafter delivered to the purchasers of Transfer Restricted Securities, the Prospectus will not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; (v) furnish to the Initial Purchaser(s) and each selling Holder named in any Registration Statement or Prospectus in connection with such sale, if any, before filing with the Commission, copies of any Registration Statement or any Prospectus included therein or any amendments or supplements to any such Registration Statement or Prospectus (including all documents incorporated by 11 reference after the initial filing of such Registration Statement), which documents will be subject to the review and comment of such Holders in connection with such sale, if any, for a period of at least five Business Days, and the Company will not file any such Registration Statement or Prospectus or any amendment or supplement to any such Registration Statement or Prospectus (including all such documents incorporated by reference) to which the selling Holders of the Transfer Restricted Securities covered by such Registration Statement in connection with such sale, if any, shall reasonably object within five Business Days after the receipt thereof. A selling Holder shall be deemed to have reasonably objected to such filing if such Registration Statement, amendment, Prospectus or supplement, as applicable, as proposed to be filed, contains a material misstatement or omission or fails to comply with the applicable requirements of the Act; (vi) upon written request, promptly prior to the filing of any document that is to be incorporated by reference into an Exchange Offer Registration Statement or related Prospectus or promptly upon the filing of any document that is to be incorporated by reference into a Shelf Registration Statement or related Prospectus, provide copies of such document to the selling Holders in connection with such sale, if any, make the Company's representatives available for discussion of such document and other customary due diligence matters, and include such information in such document prior to the filing thereof as such selling Holders may reasonably request; (vii) make available at reasonable times for inspection by the selling Holders participating in any disposition pursuant to such Registration Statement and any attorney or accountant retained by such selling Holders, all financial and other records, pertinent corporate documents of the Company and cause the Company's officers, directors and employees to supply all information reasonably requested by any such selling Holder, attorney or accountant in connection with such Registration Statement or any post-effective amendment thereto subsequent to the filing thereof and prior to its effectiveness; (viii) if requested by any selling Holders in connection with such sale, if any, promptly include in any Registration Statement or Prospectus, pursuant to a supplement or post-effective amendment if necessary, such information as such selling Holders may reasonably request to have included therein, including, without limitation, information relating to the "Plan of Distribution" of the Transfer Restricted Securities; and make all required filings of such Prospectus supplement or post-effective amendment as soon as practicable after the Company is notified of the matters to be included in such Prospectus supplement or post-effective amendment; (ix) furnish to each selling Holder in connection with such sale, if any, without charge, at least one copy of the Registration Statement, as first filed with the Commission, and of each amendment thereto, including all documents incorporated by reference therein and all exhibits (including exhibits incorporated therein by reference); (x) deliver to each selling Holder, without charge, as many copies of the Prospectus (including each preliminary prospectus) and any amendment or 12 supplement thereto as such Persons reasonably may request; the Company hereby consents to the use (in accordance with law) of the Prospectus and any amendment or supplement thereto by each of the selling Holders in connection with the offering and the sale of the Transfer Restricted Securities covered by the Prospectus or any amendment or supplement thereto; (xi) upon the request of any selling Holder, enter into such agreements (including underwriting agreements) and make such representations and warranties and take all such other actions in connection therewith in order to expedite or facilitate the disposition of the Transfer Restricted Securities pursuant to any applicable Registration Statement contemplated by this Agreement as may be reasonably requested by any Holder of Transfer Restricted Securities in connection with any sale or resale pursuant to any applicable Registration Statement and in such connection, the Company shall: (A) upon request of any selling Holder, furnish (or in the case of paragraphs (2) and (3), use its best efforts to cause to be furnished) to each selling Holder, upon the effectiveness of the Shelf Registration Statement or upon Consummation of the Exchange Offer, as the case may be: (1) a certificate, dated such date, signed on behalf of the Company by (x) the Chief Executive Officer or President and (y) the Chief Financial Officer or Treasurer of the Company, as set forth in Section 7(l) of the Purchase Agreement, confirming, as of the date thereof, the matters set forth in such Section and such other similar matters as the selling Holders may reasonably request; (2) an opinion, dated the date of Consummation of the Exchange Offer, or the date of effectiveness of the Shelf Registration Statement, as the case may be, of counsel for the Company covering matters similar to those set forth in Sections 7(d) through (g) of the Purchase Agreement and such other matters as the selling Holders may reasonably request, and in any event including a statement to the effect that such counsel has participated in conferences with officers and other representatives of the Company, representatives of the independent public accountants for the Company and have considered the matters required to be stated therein and the statements contained therein, although such counsel has not independently verified the accuracy, completeness or fairness of such statements; and that such counsel advises that, on the basis of the foregoing (relying as to materiality to the extent such counsel deems appropriate upon the statements of officers and other representatives of the Company) and without independent check or verification), no facts came to such counsel's attention that caused such counsel to believe that the applicable Registration Statement, at the time such Registration Statement or any post-effective amendment thereto became effective and, in the case of the Exchange Offer Registration Statement, as of the date of 13 Consummation of the Exchange Offer, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that the Prospectus contained in such Registration Statement as of its date and, in the case of the opinion dated the date of Consummation of the Exchange Offer, as of the date of Consummation, contained an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Without limiting the foregoing, such counsel may state further that such counsel assumes no responsibility for, and has not independently verified, the accuracy, completeness or fairness of the financial statements, notes and schedules and other financial data included in any Registration Statement contemplated by this Agreement or the related Prospectus; and (3) a customary comfort letter, dated the date of Consummation of the Exchange Offer, or as of the date of effectiveness of the Shelf Registration Statement, as the case may be, from the Company's independent accountants, in the customary form and covering matters of the type customarily covered in comfort letters to underwriters in connection with underwritten offerings, and affirming the matters set forth in the comfort letters delivered pursuant to Section 7(k) of the Purchase Agreement, and (B) deliver such other documents and certificates as may be reasonably requested by the selling Holders to evidence compliance with clause (A) above and with any customary conditions contained in the any agreement entered into by the Company pursuant to this clause (xi); (xii) prior to any public offering of Transfer Restricted Securities, cooperate with the selling Holders and their counsel in connection with the registration and qualification of the Transfer Restricted Securities under the securities or Blue Sky laws of such jurisdictions as the selling Holders may request and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of the Transfer Restricted Securities covered by the applicable Registration Statement; provided, however, that the Company shall not be required to register or qualify as a foreign corporation where it is not now so qualified or to take any action that would subject it to the service of process in suits or to taxation, other than as to matters and transactions relating to the Registration Statement, in any jurisdiction where it is not now so subject; (xiii) issue, upon the request of any Holder of Initial Notes covered by any Shelf Registration Statement contemplated by this Agreement, New Notes having an aggregate principal amount equal to the aggregate principal amount of Initial Notes surrendered to the Company by such Holder in exchange therefor or being sold by such Holder; such New Notes to be registered in the name of such Holder 14 or in the name of the purchaser(s) of such New Notes, as the case may be; in return, the Initial Notes held by such Holder shall be surrendered to the Company for cancellation; (xiv) in connection with any sale of Transfer Restricted Securities that will result in such securities no longer being Transfer Restricted Securities, cooperate with the selling Holders to facilitate the timely preparation and delivery of certificates representing Transfer Restricted Securities to be sold and not bearing any restrictive legends; and to register such Transfer Restricted Securities in such denominations and such names as the selling Holders may request at least two Business Days prior to such sale of Transfer Restricted Securities; (xv) use its best efforts to cause the disposition of the Transfer Restricted Securities covered by the Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to enable the seller or sellers thereof to consummate the disposition of such Transfer Restricted Securities, subject to the proviso contained in clause (xii) above; (xvi) provide a CUSIP number for all Transfer Restricted Securities not later than the effective date of a Registration Statement covering such Transfer Restricted Securities and provide the Trustee under the Indenture with printed certificates for the Transfer Restricted Securities which are in a form eligible for deposit with the Depository Trust Company; (xvii) otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders with regard to any applicable Registration Statement, as soon as practicable, a consolidated earnings statement meeting the requirements of Rule 158 (which need not be audited) covering a twelve-month period beginning after the effective date of the Registration Statement (as such term is defined in paragraph (c) of Rule 158 under the Act); (xviii) make appropriate officers of the Company available to the selling Holders for meetings with prospective purchasers of the Transfer Restricted Securities and prepare and present to potential investors customary "road show" material in a manner consistent with other new issuances of other securities similar to the Transfer Restricted Securities; provided, however, that the Company shall not be required to make such presentation more than once in any 12-month period; and (xix) cause the Indenture to be qualified under the TIA not later than the effective date of the first Registration Statement required by this Agreement and, in connection therewith, cooperate with the Trustee and the Holders to effect such changes to the Indenture as may be required for such Indenture to be so qualified in accordance with the terms of the TIA; and execute and use its best efforts to cause the Trustee to execute, all documents that may be required to effect such changes and all other forms and documents required to be filed with the Commission to enable such Indenture to be so qualified in a timely manner; and 15 (xx) provide promptly to each Holder upon request each document filed with the Commission pursuant to the requirements of Section 13 or Section 15(d) of the Exchange Act. (d) Restrictions on Holders. Each Holder agrees by acquisition of a Transfer Restricted Security that, upon receipt of the notice referred to in Section 6(c)(i) or any notice from the Company of the existence of any fact of the kind described in Section 6(c)(iii)(D) hereof (in each case, a "Suspension Notice"), such Holder will forthwith discontinue disposition of Transfer Restricted Securities pursuant to the applicable Registration Statement until (i) such Holder's has received copies of the supplemented or amended Prospectus contemplated by Section 6(c)(iv) hereof, or (ii) such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and has received copies of any additional or supplemental filings that are incorporated by reference in the Prospectus (in each case, the "Recommencement Date"). Each Holder receiving a Suspension Notice hereby agrees that it will either (i) destroy any Prospectuses, other than permanent file copies, then in such Holder's possession which have been replaced by the Company with more recently dated Prospectuses or (ii) deliver, if so directed by the Company, to the Company (at the Company's expense) all copies, other than permanent file copies, then in such Holder's possession of the Prospectus covering such Transfer Restricted Securities that was current at the time of receipt of the Suspension Notice. The time period regarding the effectiveness of such Registration Statement set forth in Section 3 or 4 hereof, as applicable, shall be extended by a number of days equal to the number of days in the period from and including the date of delivery of the Suspension Notice to the date of delivery of the Recommencement Date. SECTION 7. REGISTRATION EXPENSES (a) All expenses incident to the Company's performance of or compliance with this Agreement will be borne by the Company, regardless of whether a Registration Statement becomes effective, including without limitation: (i) all registration and filing fees and expenses (including filings made by any Purchaser or Holder with the NASD (and if applicable, the fees and expenses of any "qualified independent underwriter") and its counsel that may be required by the rules and regulations of the NASD); (ii) all fees and expenses of compliance with federal securities and state Blue Sky or securities laws; (iii) all expenses of printing (including printing certificates, if applicable, for the New Notes to be issued in the Exchange Offer and printing of Prospectuses), messenger and delivery services and telephone; (iv) all fees and disbursements of counsel for the Company, subject to Section 7(b) hereof, and the Holders of Transfer Restricted Securities; (v) all application and filing fees in connection with listing the New Notes on a national securities exchange or automated quotation system pursuant to the requirements hereof; and (vi) all fees and disbursements of independent certified public accountants of the Company (including the expenses of any special audit and comfort letters required by or incident to such performance). The Company will, in any event, bear its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expenses of any annual audit and the fees and expenses of any Person, including special experts, retained by the Company. (b) In connection with any Registration Statement required by this Agreement (including, without limitation, the Exchange Offer Registration Statement and the Shelf Registration Statement), the Company will reimburse the Purchasers and the Holders of 16 Transfer Restricted Securities being tendered in the Exchange Offer and/or resold pursuant to the "Plan of Distribution" contained in the Exchange Offer Registration Statement or registered pursuant to the Shelf Registration Statement, as applicable, for the reasonable fees and disbursements of not more than one counsel, who shall be Latham & Watkins, unless another firm shall be chosen by the Holders of a majority in principal amount of the Transfer Restricted Securities for whose benefit such Registration Statement is being prepared. SECTION 8. INDEMNIFICATION (a) The Company agrees to indemnify and hold harmless (i) each Holder and (ii) each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) any Holder (any of the persons referred to in this clause (ii) being hereinafter referred to as a "controlling person") and (iii) the respective officers, directors, partners, employees, representatives and agents of any Holder or any controlling person (any person referred to in clause (i), (ii) or (iii) may hereinafter be referred to as an "Indemnified Holder"), from and against any and all losses, claims, damages, liabilities, judgments, (including without limitation, any legal or other expenses incurred in connection with investigating or defending any matter, including any action that could give rise to any such losses, claims, damages, liabilities or judgments) caused by any untrue statement or alleged untrue statement of a material fact contained in any Registration Statement, preliminary prospectus or Prospectus (or any amendment or supplement thereto) provided by the Company to any holder or any prospective purchaser of New Notes, or caused by any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or judgments are caused by an untrue statement or omission or alleged untrue statement or omission that is based upon information relating to any of the Holders furnished in writing to the Company by or on behalf of any of the Holders; provided, however, that the Company shall not be liable in any such case if a subsequent purchaser asserts that its losses, claims, damages, liabilities or judgments were based upon any untrue statement or alleged untrue statement of material fact or omission or alleged omission to state therein a material fact in the preliminary Prospectus, if a copy of the Registration Statement or final Prospectus in which such untrue statement or alleged untrue statement or omission or alleged omission was corrected had not been sent or given to such subsequent purchaser by the Holder provided that the Company had delivered to the Holder such Registration Statement or final Prospectus in requisite quantity and on a timely basis to permit such delivery or sending. (b) Each Holder of Transfer Restricted Securities agrees, severally and not jointly, to indemnify and hold harmless the Company, and its directors and officers, and each person, if any, who controls (within the meaning of Section 15 of the Act or Section 20 of the Exchange Act) the Company, to the same extent as the foregoing indemnity from the Company to each of the Indemnified Holders, but only with reference to information relating to such Indemnified Holder furnished in writing to the Company by or on behalf of such Indemnified Holder expressly for use in any Registration Statement. In no event shall any Indemnified Holder be liable or responsible for any amount in excess of the amount by which the total amount received by such Indemnified Holder with respect to its sale of Transfer Restricted Securities pursuant to a Registration Statement exceeds (i) the amount paid by such Indemnified Holder for such Transfer Restricted Securities and (ii) the amount of any damages that such Indemnified Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. 17 (c) In case any action shall be commenced involving any person in respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the "indemnified party"), the indemnified party shall promptly notify the person against whom such indemnity may be sought (the "indemnifying person") in writing and the indemnifying party shall assume the defense of such action, including the employment of counsel reasonably satisfactory to the indemnified party and the payment of all fees and expenses of such counsel, as incurred (except that in the case of any action in respect of which indemnity may be sought pursuant to both Sections 8(a) and 8(b), an Indemnified Holder shall not be required to assume the defense of such action pursuant to this Section 8(c), but may employ separate counsel and participate in the defense thereof, but the fees and expenses of such counsel, except as provided below, shall be at the expense of the Indemnified Holder). Any indemnified party shall have the right to employ separate counsel in any such action and participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of the indemnified party unless (i) the employment of such counsel shall have been specifically authorized in writing by the indemnifying party, (ii) the indemnifying party shall have failed to assume the defense of such action or employ counsel reasonably satisfactory to the indemnified party or (iii) the named parties to any such action (including any impleaded parties) include both the indemnified party and the indemnifying party, and the indemnified party shall have been advised by such counsel that there may be one or more legal defenses available to it which are different from or additional to those available to the indemnifying party (in which case the indemnifying party shall not have the right to assume the defense of such action on behalf of the indemnified party). In any such case, the indemnifying party shall not, in connection with any one action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the fees and expenses of more than one separate firm of attorneys (in addition to any local counsel) for all indemnified parties and all such fees and expenses shall be reimbursed as they are incurred. Such firm shall be designated in writing by a majority of the Indemnified Holders, in the case of the parties indemnified pursuant to Section 8(a), and by the Company, in the case of parties indemnified pursuant to Section 8(b). The indemnifying party shall indemnify and hold harmless the indemnified party from and against any and all losses, claims, damages, liabilities and judgments by reason of any settlement of any action (i) effected with its written consent or (ii) effected without its written consent if the settlement is entered into more than twenty business days after the indemnifying party shall have received a request from the indemnified party for reimbursement for the fees and expenses of counsel (in any case where such fees and expenses are at the expense of the indemnifying party) and, prior to the date of such settlement, the indemnifying party shall have failed to comply with such reimbursement request. No indemnifying party shall (i) without the prior written consent of the indemnified party, effect any settlement or compromise of, or consent to the entry of judgment with respect to, any pending or threatened action in respect of which the indemnified party is or could have been a party and indemnity or contribution may be or could have been sought hereunder by the indemnified party, unless such settlement, compromise or judgment includes an unconditional release of the indemnified party from all liability on claims that are or could have been the subject matter of such action or (ii) be liable for any settlement of any such action effected without its written consent (which consent shall not be unreasonably withheld), but if settled with the consent of the indemnifying party or if there be a final judgment of the plaintiff in any such action, the indemnifying party agrees to indemnify and hold harmless any indemnified party from and against any loss or liability by reason of such settlement or judgment. 18 (d) To the extent that the indemnification provided for in this Section 8 is unavailable to an indemnified party in respect of any losses, claims, damages, liabilities or judgments referred to therein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or judgments (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Holders, on the other hand, from their sale of Transfer Restricted Securities or (ii) if the allocation provided by clause 8(d)(i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause 8(d)(i) above but also the relative fault of the Company, on the one hand, and of the Indemnified Holder, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of the Indemnified Holder, on the other hand, shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Company, on the one hand, or by the Indemnified Holder, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The amount paid or payable by a party as a result of the losses, claims, damages, liabilities and judgments referred to above shall be deemed to include, subject to the limitations set forth in the second paragraph of Section 8(a), any legal or other fees or expenses reasonably incurred by such party in connection with investigating or defending any action or claim. The Company and each Holder agree that it would not be just and equitable if contribution pursuant to this Section 8(d) were determined by pro rata allocation (even if the Holders were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraph. The amount paid or payable by an indemnified party as a result of the losses, claims, damages, liabilities or judgments referred to in the immediately preceding paragraph shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any matter, including any action that could have given rise to such losses, claims, damages, liabilities or judgments. Notwithstanding the provisions of this Section 8, no Holder or its related Indemnified Holders shall be required to contribute, in the aggregate, any amount in excess of the amount by which the total received by such Holder with respect to the sale of its Transfer Restricted Securities pursuant to a Registration Statement exceeds the sum of (A) the amount paid by such Holder for such Transfer Restricted Securities plus (B) the amount of any damages which such Holder has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The Holders' obligations to contribute pursuant to this Section 8(c) are several in proportion to the respective principal amount of Transfer Restricted Securities held by each of the Holders hereunder and not joint. SECTION 9. RULE 144A The Company hereby agrees with each Holder, for so long as any Transfer Restricted Securities remain outstanding and during any period in which the Company is not 19 subject to Section 13 or 15(d) of the Securities Exchange Act, to make available, upon request of any Holder of Transfer Restricted Securities, to any Holder or beneficial owner of Transfer Restricted Securities in connection with any sale thereof and any prospective purchaser of such Transfer Restricted Securities designated by such Holder or beneficial owner, the information required by Rule 144A(d)(4) under the Act in order to permit resales of such Transfer Restricted Securities pursuant to Rule 144A. SECTION 10. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS No Holder may participate in any Underwritten Registration hereunder unless such Holder (a) agrees to sell such Holder's Transfer Restricted Securities on the basis provided in any underwriting agreements approved by the Person entitled hereunder to approve such arrangements and (b) completes and executes all reasonable questionnaires, powers of attorney, indemnities, underwriting agreements, lock-up letters and other documents required under the terms of such underwriting arrangements. SECTION 11. SELECTION OF UNDERWRITERS The Holders of Transfer Restricted Securities covered by the Shelf Registration Statement who desire to do so may sell such Transfer Restricted Securities in one Underwritten Offering. For any Underwritten Offering, the investment banker or investment bankers and manager or managers will administer such offering will be selected by the holders of a majority in aggregate principal amount of the Transfer Restricted Securities included in such offering; provided, that such investment bankers and managers must be reasonably satisfactory to the Company. Such investment bankers and managers are referred to herein as the "underwriters." SECTION 12. MISCELLANEOUS (a) Remedies. The Company acknowledges and agrees that any failure by the Company to comply with its obligations under Sections 3 and 4 hereof may result in material irreparable injury to the Initial Purchasers or the Holders for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of any such failure, the Initial Purchasers or any Holder may obtain such relief as may be required to specifically enforce the Company's obligations under Sections 3 and 4 hereof. The Company further agrees to waive the defense in any action for specific performance that a remedy at law would be adequate. (b) No Inconsistent Agreements. The Company will not, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. The Company has not previously entered into any agreement granting any registration rights with respect to its securities to any Person. The rights granted to the Holders hereunder do not in any way conflict with and are not inconsistent with the rights granted to the holders of the Company's securities under any agreement in effect on the date hereof. (c) Amendments and Waivers. The provisions of this Agreement may not be amended, modified or supplemented, and waivers or consents to or departures from the provisions hereof may not be given unless (i) in the case of Section 5 hereof and this Section 12(c)(i), the Company has obtained the written consent of Holders of all outstanding Transfer Restricted Securities and (ii) in the case of all other provisions hereof, the Company 20 has obtained the written consent of Holders of a majority of the outstanding principal amount of Transfer Restricted Securities (excluding Transfer Restricted Securities held by the Company of its Affiliates). Notwithstanding the foregoing, a waiver or consent to departure from the provisions hereof that relates exclusively to the rights of Holders whose securities are being tendered pursuant to the Exchange Offer and that does not affect directly or indirectly the rights of other Holders whose securities are not being tendered pursuant to such Exchange Offer may be given by the Holders of a majority of the outstanding principal amount of Transfer Restricted Securities subject to such Exchange Offer. (d) Third Party Beneficiary. The Holders shall be third party beneficiaries to the agreements made hereunder between the Company, on the one hand, and the Initial Purchasers, on the other hand, and shall have the right to enforce such agreements directly to the extent they may deem such enforcement necessary or advisable to protect its rights or the rights of Holders hereunder. (e) Notices. All notices and other communications provided for or permitted hereunder shall be made in writing by hand-delivery, first-class mail (registered or certified, return receipt requested), telex, telecopier, or air courier guaranteeing overnight delivery: (i) if to a Holder, at the address set forth on the records of the Registrar under the Indenture, with a copy to the Registrar under the Indenture; and (ii) if to the Company: Furon Company 29982 Ivy Glenn Drive Laguna Niguel, California 92677 Attention: Chief Financial Officer Telephone No. (714) 831-5350 Telecopier No.: (714) 363-6275 With a copy to: O'Melveny & Myers LLP 610 Newport Center Drive Suite 1700 Newport Beach. California 92660 Attention: Gary J. Singer, Esq. Telephone No. (714) 760-9600 Telecopier No.: (714) 669-6994 All such notices and communications shall be deemed to have been duly given: at the time delivered by hand, if personally delivered; three Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if telecopied; and on the next business day, if timely delivered to an air courier guaranteeing overnight delivery. 21 Copies of all such notices, demands or other communications shall be concurrently delivered by the Person giving the same to the Trustee at the address specified in the Indenture. Upon the date of filing of the Exchange Offer or a Shelf Registration Statement, as the case may be, notice shall be delivered to Lehman Brothers Inc., on behalf of the Initial Purchasers (in the form attached hereto as Exhibit A) and shall be addressed to: Attention: Compliance Department, Three World Financial Center, New York, New York 10285 (f) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties, including without limitation and without the need for an express assignment, subsequent Holders of Transfer Restricted Securities; provided, that nothing herein shall be deemed to permit any assignment, transfer or other disposition of Transfer Restricted Securities in violation of the terms hereof or of the Purchase Agreement or the Indenture. If any transferee of any Holder shall acquire Transfer Restricted Securities in any manner, whether by operation of law or otherwise, such Transfer Restricted Securities shall be held subject to all of the terms of this Agreement, and by taking and holding such Transfer Restricted Securities 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, including the restrictions on resale set forth in this Agreement and, if applicable, the Purchase Agreement, and such Person shall be entitled to receive the benefits hereof. (g) 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. (h) Headings. The headings in this Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICT OF LAW RULES THEREOF. (j) 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. (k) Entire Agreement. This Agreement is intended by the parties as a final expression of their agreement and intended to be a complete and exclusive statement of the agreement and understanding of the parties hereto in respect of the subject matter contained herein. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein with respect to the registration rights granted with respect to the Transfer Restricted Securities. This Agreement supersedes all prior agreements and understandings between the parties with respect to such subject matter. 22 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above. FURON COMPANY By: /s/ J. Michael Hagan ------------------------------------------ J. Michael Hagan Chief Executive Officer By: /s/ Monty A. Houdeshell ------------------------------------------ Monty A. Houdeshell Vice President and Chief Financial Officer LEHMAN BROTHERS INC. BEAR STEARNS & CO. INC. BNY CAPITAL MARKETS, INC. By: LEHMAN BROTHERS INC. By: /s/ Ed McGeough ------------------------------------------ Name: Ed McGeough Title: Managing Director 23 EXHIBIT A NOTICE OF FILING OF EXCHANGE OFFER REGISTRATION STATEMENT/ SHELF REGISTRATION STATEMENT To: Lehman Brothers Inc. Three World Financial Center New York, New York 10285 Attention: Compliance Department Fax: (212) 526-3738 From: Furon Company 8-1/8% Senior Subordinated Notes due 2008 Date:___________________, 1998 For your information only (NO ACTION REQUIRED): Today, ______, 1998, we filed [an Exchange Offer Registration Statement/a Shelf Registration Statement] with the Securities and Exchange Commission. We currently expect this registration statement to be declared effective within _____ business days of the date hereof. EX-21 7 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 Furon Company Significant and Certain Other Subsidiaries January 31, 1998 State or Other Jurisdiction of Name of Subsidiary Incorporation or Organization - ------------------ ----------------------------- INDUSTRIAL PRODUCTS: Bunnell Plastics, Inc.* New Jersey CHR Industries, Inc.* Connecticut Dixon Industries Corporation* Rhode Island Fluorocarbon Components, Inc.* New York Fluorocarbon Foreign Sales Corporation Barbados Furon B.V. Netherlands Furon Europe, S.A. Belgium Furon Limited England Furon Seals N.V./S.A. Belgium Furon S.A. Belgium Premier Python Products, Ltd. England Premier Python Systems, Inc. Georgia Sepco Corporation* California MEDICAL DEVICE PRODUCTS: Medex, Inc. Ohio Ashfield Medical Systems Limited United Kingdom Medex Medical France SARL France Medex Medical GmbH Germany AS Medical GmbH Germany Medex Medical S.r.l. Italy Medex Medical, Inc. Ohio Medex Medical Limited United Kingdom Medex Medical Instrumentation, Inc. Ohio - ----- * A general business corporation with a wholly owned domestic subsidiary. EX-23 8 CONSENT OF INDEPENDENT AUDITORS 1 EXHIBIT 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-02075), pertaining to the Furon Company 1995 Stock Incentive Plan and related Prospectus and in the Registration Statement, as amended (Form S-8 No. 33-54031), pertaining to the Furon Company 1982 Stock Incentive Plan and related Prospectus and in the Registration Statement, as amended (Form S-8 No. 2-93028), pertaining to the Furon Company Employees' Profit-Sharing/Retirement Plan and related Prospectus and in the Registration Statement, as amended (Form S-8 No. 33-55535), pertaining to the Furon Company Employee Stock Purchase Plan and related Prospectus and in the Registration Statement, as amended (Form S-8 No. 33-53987), pertaining to the Furon Company 1993 Non-Employee Directors' Stock Compensation Plan and related Prospectus of our report dated March 16, 1998, with respect to the consolidated financial statements and schedule of Furon Company included in the Annual Report (Form 10-K) for the year ended January 31, 1998. /S/ ERNST & YOUNG LLP Orange County, California April 9, 1998 EX-27.1 9 FDS - FOR THE YEAR ENDED JANUARY 31, 1998
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED STATEMENTS OF OPERATIONS, CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED WITHIN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED JANUARY 31, 1998 1,000 U.S. DOLLARS YEAR JAN-31-1998 JAN-31-1998 1 0 0 77,402 1,741 54,704 146,376 197,468 87,832 346,349 73,932 6,175 0 0 40,864 40,275 346,349 485,631 485,631 329,325 444,880 (2,506) 265 11,520 31,737 9,997 21,740 0 0 0 21,740 1.22 1.16
EX-27.2 10 FDS - FOR THE YEAR ENDED FEBRUARY 1, 1997
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED WITHIN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED FEBRUARY 1, 1997. 1,000 U.S. DOLLARS YEAR FEB-01-1997 FEB-01-1997 1 0 0 74,408 2,093 58,611 146,726 190,806 76,214 344,343 67,902 6,775 0 0 38,787 22,557 344,343 390,105 390,105 281,581 365,906 53,089 364 3,344 (32,234) 7,517 (39,751) 0 0 0 (39,751) (4.47) (4.47)
EX-27.3 11 FDS - FOR THE NINE MONTHS ENDED NOVEMBER 1, 1997
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED CONDENSED STATEMENTS OF INCOME, CONDENSED BALANCE SHEETS AND CONDENSED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED WITHIN THE COMPANY'S FORM 10-Q FOR THE NINE MONTHS ENDED NOVEMBER 1, 1997. 1,000 U.S. DOLLARS 9-MOS JAN-31-1998 NOV-01-1997 1 0 0 76,412 1,742 57,078 147,481 198,495 87,403 347,977 71,354 6,175 0 0 39,665 36,371 347,977 361,554 361,554 245,848 331,510 (1,622) 85 8,796 22,870 7,204 15,666 0 0 0 15,666 1.76 1.68
EX-27.4 12 FDS - SIX MONTHS ENDED AUGUST 2, 1997
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED CONDENSED STATEMENTS OF INCOME, CONDENSED BALANCE SHEETS AND CONDENSED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED WITHIN THE COMPANY'S FORM 10-Q FOR THE SIX MONTHS ENDED AUGUST 2, 1997. 1,000 U.S. DOLLARS 6-MOS JAN-31-1998 AUG-02-1997 1 164 0 70,820 1,793 54,551 140,709 194,195 83,215 330,805 67,238 6,175 0 0 39,708 30,043 330,805 238,345 238,345 161,544 218,308 (809) 149 5,954 14,892 4,691 10,201 0 0 0 10,201 1.15 1.10
EX-27.5 13 FDS - FOR THE THREE MONTHS ENDED MAY 3, 1997
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED CONDENSED STATEMENTS OF INCOME, CONDENSED BALANCE SHEETS AND CONDENSED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED WITHIN THE COMPANY'S FORM 10-Q FOR THE THREE MONTHS ENDED MAY 3, 1997. 1,000 3-MOS JAN-31-1998 MAY-03-1997 5,260 0 71,009 1,904 57,971 148,839 192,485 79,850 342,488 65,260 6,775 0 0 38,762 26,195 342,488 119,649 119,649 81,330 109,469 (410) 155 3,049 7,541 2,564 4,977 0 0 0 4,977 0.56 0.54
EX-27.6 14 FDS - FOR THE YEAR ENDED FEBRUARY 3, 1996
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED WITHIN THE COMPANY'S FORM 10-K FOR THE YEAR ENDED FEBRUARY 3, 1996. 1,000 YEAR FEB-03-1996 FEB-03-1996 0 0 53,048 1,367 39,827 102,053 147,745 68,093 211,484 41,349 0 0 0 37,575 65,307 211,484 344,886 344,886 249,102 327,439 (3,866) 724 2,899 18,414 5,245 13,169 0 0 0 13,169 1.51 1.46
EX-27.7 15 FDS - FOR THE NINE MONTHS ENDED NOVEMBER 2, 1996
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S UNAUDITED CONDENSED STATEMENTS OF INCOME, CONDENSED BALANCE SHEETS AND CONDENSED STATEMENTS OF CASH FLOWS WHICH IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED WITHIN THE COMPANY'S FORM 10-Q FOR THE NINE MONTHS ENDED NOVEMBER 2, 1996. 1,000 U.S. DOLLARS 9-MOS FEB-01-1997 NOV-02-1996 1 3,872 0 55,294 1,221 41,437 108,077 159,593 76,633 221,685 41,180 0 0 0 38,853 76,812 221,685 287,206 287,206 208,995 269,234 (2,918) 132 1,939 18,951 6,443 12,508 0 0 0 12,508 1.42 1.37
EX-27.8 16 FDS - FOR THE SIX MONTHS ENDED AUGUST 3, 1998
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED WITHIN THE COMPANY'S FORM 10-Q FOR THE SIX MONTHS ENDED AUGUST 3, 1996. 1,000 U.S. DOLLARS 6-MOS FEB-01-1997 AUG-03-1996 1 0 0 54,442 1,471 45,178 107,947 158,721 74,167 223,700 42,820 0 0 0 38,401 73,207 223,700 190,979 190,979 138,436 178,781 (1,963) 287 1,354 12,807 4,354 8,453 0 0 0 8,453 0.96 0.93
EX-27.9 17 FDS - FOR THE THREE MONTHS ENDED MAY 4, 1996
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S CONSOLIDATED STATEMENTS OF INCOME, CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF CASH FLOWS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED WITHIN THE COMPANY'S FORM 10-Q FOR THE THREE MONTHS ENDED MAY 4, 1996. 1,000 U.S. DOLLARS 3-MOS FEB-01-1997 MAY-04-1996 1 0 0 56,509 1,505 44,842 110,033 151,798 70,943 223,745 44,129 0 0 0 38,229 69,029 223,745 94,763 94,763 68,266 88,271 (1,090) 105 676 6,906 2,348 4,558 0 0 0 4,558 0.52 0.50
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