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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 9, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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CAREMARK RX, INC. CAREMARK RX CAPITAL TRUST I
(Exact Name of Registrant as Specified in its Charter) (Exact Name of Registrant as Specified in its Charter)
DELAWARE DELAWARE
(State or Other Jurisdiction of (State or Other Jurisdiction of
Incorporation or Organization) Incorporation or Organization)
63-1151076 51-6514376
(I.R.S. Employer Identification Number) (I.R.S. Employer Identification Number)
3000 GALLERIA TOWER, SUITE 1000 C/O CAREMARK RX, INC.
BIRMINGHAM, AL 35244 3000 GALLERIA TOWER, SUITE 1000
TELEPHONE: (205) 733-8996 BIRMINGHAM, AL 35244
(Address, including zip code, and telephone number, TELEPHONE: (205) 733-8996
including area code, of
Registrant's principal executive offices) (Address, including zip code, and telephone number,
including area code, of
Registrant's principal executive offices)
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E. MAC CRAWFORD
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
CAREMARK RX, INC.
3000 GALLERIA TOWER, SUITE 1000
BIRMINGHAM, AL 35244
TELEPHONE: (205) 733-8996
FACSIMILE: (205) 985-0636
(Name, address, including zip code, and telephone number, including area code of
agent for service)
COPIES TO:
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WILLIAM R. SPALDING EDWARD L. HARDIN, JR.
KING & SPALDING C/O CAREMARK RX, INC.
191 PEACHTREE STREET 3000 GALLERIA TOWER, SUITE 1000
ATLANTA, GEORGIA 30303 BIRMINGHAM, ALABAMA 35244
TELEPHONE: (404) 572-4600 TELEPHONE: (205) 733-8996
FACSIMILE: (404) 572-5145 FACSIMILE: (205) 982-4432
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]__________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF CLASS AMOUNT AGGREGATE AGGREGATE AMOUNT OF
OF SECURITIES TO BE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE(3)
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7% Shared Preference Redeemable Securities
("SPuRS")...................................... 4,000,000 $50 $200,000,000(1)(2) $55,600
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Convertible Subordinated Debentures Due 2029... (3)
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Common Stock, $0.001 par value, of Caremark Rx,
Inc............................................ 26,850,000
(4)
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Guarantee by Caremark Rx, Inc.
of the above-referenced SPuRS.................. (5)
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Total....................................... 100% $200,000,000 $55,600
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457.
(2) Exclusive of accrued interest and distributions, if any.
(3) $200,000,000 in aggregate principal amount of Convertible Subordinated
Debentures Due 2029 (the "Convertible Subordinated Debentures") were issued
and sold to Caremark Rx Capital Trust I (the "Trust") in connection with the
issuance by the Trust of 4,000,000 of its 7% Shared Preference Redeemable
Securities (the "SPuRS" or "Preferred Securities"). The Convertible
Subordinated Debentures may be distributed, under certain circumstances, to
holders of the Preferred Securities for no additional consideration.
(4) The SPuRS are convertible into Common Stock, par value $0.001 per share, of
Caremark Rx, Inc (the "Common Stock"), at an initial conversion rate of
6.7125 shares of Common Stock for each SPuRS, subject to adjustment under
certain circumstances. Shares of Common Stock issued upon conversion of the
SPuRS will be issued without the payment of additional consideration.
(5) Includes rights of holders of the Convertible Subordinated Debentures under
the Guarantee. No separate consideration will be received for the Guarantee.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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The information in this Prospectus is not complete and may be changed. We
may not sell these securities until the registration statement filed with
the Securities and Exchange Commission is effective. This Prospectus is
not an offer to sell these securities and it is not soliciting an offer to
buy these securities in any State where the offer or sale is not
permitted.
SUBJECT TO COMPLETION, DATED NOVEMBER 9, 1999
PROSPECTUS
4,000,000 PREFERRED SECURITIES
CAREMARK RX CAPITAL TRUST I
7% SHARED PREFERENCE REDEEMABLE SECURITIES ("SPURS")(SM)
(LIQUIDATION PREFERENCE $50 PER PREFERRED SECURITY)
FULLY AND UNCONDITIONALLY GUARANTEED BY
AND CONVERTIBLE INTO THE COMMON STOCK OF
CAREMARK RX, INC.
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The 7% Shared Preference Redeemable Securities ("SPuRS" or "Preferred
Securities"), represent undivided preferred beneficial ownership interests in
the assets of Caremark Rx Capital Trust I. The Trust is a Delaware trust,
Caremark Rx Capital Trust I, created for the sole purpose of issuing the common
securities and the SPuRS and using the proceeds from that issuance to purchase
the Convertible Subordinated Debentures and the shares of our Common Stock, par
value $0.001 per share, issuable upon conversion of the SPuRS. The SPuRS were
issued and sold (the "Original Offering") on September 24, 1999 (the "Original
Offering Date") to the Initial Purchaser (as defined herein) for resale by the
Initial Purchaser in transactions exempt from the registration requirements of
the Securities Act of 1933, in the United States to persons reasonably believed
by the Initial Purchaser to be qualified institutional buyers as defined in Rule
144A under the Securities Act, and outside the United States in reliance on
Regulation S under the Securities Act).
The Selling Holders may offer, from time to time:
- 7% Shared Preference Redeemable Securities of Caremark Rx Capital Trust
I;
- Convertible Subordinated Debentures due 2029 of Caremark Rx, Inc.;
- Shares of Common Stock of Caremark Rx, Inc.
The Selling Holders may sell these securities from time to time directly to
purchasers or through agents, underwriters or dealers.
If required, the names of any other Selling Holders, agents or underwriters
involved in the sale of the Offered Securities and the applicable agent's
commission, dealer's purchase price or underwriter's discount, if any, will be
set forth in a supplement to this Prospectus.
YOU SHOULD CAREFULLY CONSIDER MATTERS DISCUSSED UNDER THE CAPTION "RISK
FACTORS" BEGINNING ON PAGE 3.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1999.
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TABLE OF CONTENTS
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PAGE
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Where You Can Find More
Information....................... ii
Incorporation of Certain Documents
by Reference.................... ii
Cautionary Information............ iii
About this Prospectus............. 1
Our Company....................... 1
Risk Factors...................... 3
Ratio of Earnings to Fixed
Charges......................... 13
Accounting Treatment.............. 13
Use of Proceeds................... 14
Caremark Rx Capital Trust I....... 15
Description of Preferred
Securities...................... 16
Description of the Preferred
Securities Guarantee............ 29
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Description of the Convertible
Subordinated Debentures......... 32
Effect of Obligations under the
Convertible Subordinated
Debentures and the Preferred
Securities Guarantee............ 42
Description of Capital Stock...... 43
Certain Federal Income Tax
Consequences.................... 47
Certain ERISA Considerations...... 54
Selling Holders................... 57
Plan of Distribution.............. 58
Experts........................... 59
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As used in this Prospectus, (i) the "Indenture" means the Convertible
Subordinated Debentures Indenture between Caremark Rx, Inc. and Wilmington Trust
Company, as trustee (the "Debenture Trustee") relating to Caremark Rx Capital
Trust I (the "Trust" or the "Issuer"); (ii) the "Declaration" means the
Declaration of Trust among Caremark Rx, Inc., as Depositor (the
"Depositor"),Wilmington Trust Company, as Property Trustee (the "Property
Trustee"), Wilmington Trust Company as Delaware Trustee (the "Delaware
Trustee"), and the individuals named as Administrative Trustees therein (the
"Administrative Trustees") (collectively with the Property Trustee and the
Delaware Trustee, the "Issuer Trustees") and the holders, from time to time, of
undivided beneficial interests in the assets of the Trust; (ii) "we," "us,"
"our," "Company," or "Caremark Rx" refers to Caremark Rx, Inc.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the Commission. You may read and copy any reports, statements
or other information we have filed with the Commission at the Commission's
public reference rooms in Washington, D.C., New York, New York, and Chicago,
Illinois. Please call the Commission at 1-800-SEC-0330 for further information
on the public reference rooms. Our public filings are also available to the
public from commercial document retrieval services and at the website maintained
by the Commission at http://www.sec.gov. Reports, proxy statements, and other
information concerning us also may be inspected at the offices of the New York
Stock Exchange, 20 Broad Street, New York, New York 10005. For further
information on obtaining copies of this information from the New York Stock
Exchange, you should call (212) 656-5282.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates by reference certain documents that we have
previously filed with the Commission. This means that we disclose important
information to you by referring you to another document filed separately with
the Commission. These documents contain important business information about us,
our business and our financial condition, results of operations and cash flows.
The information incorporated by reference is deemed to be a part of this
Prospectus, except as described below.
The following documents that we have previously filed with the Commission,
other than the exhibits thereto, are incorporated by reference in this
Prospectus:
- Our Annual Report on Form 10-K for the fiscal year ended December 31,
1998;
- Our Quarterly Report on Form 10-Q for the quarter ended March 31,
1999;
- Our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999;
- Our Current Report on Form 8-K filed on January 15, 1999;
- Our Current Report on Form 8-K filed on January 28, 1999;
- Our Current Report on Form 8-K filed on March 26, 1999;
- Our Current Report on Form 8-K filed on April 22, 1999;
- Our Current Report on Form 8-K filed on September 14, 1999;
- Our Current Report on Form 8-K filed on September 24, 1999; and
- Our Current Report on Form 8-K filed on October 1, 1999.
In addition, all documents filed by us with the Commission pursuant to
Sections 13(a), 13(c), 14, and 15(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") after the date hereof and prior to the date on
which this offering is completed or terminated are incorporated by reference
into this Prospectus.
You may request a copy of these filings at no cost, by writing or
telephoning us at the following address: Caremark Rx, Inc., 3000 Galleria Tower,
Suite 1000, Birmingham, Alabama 35244, Attention: Corporate Secretary, telephone
(205) 733-8996.
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CAUTIONARY INFORMATION
CERTAIN INFORMATION INCLUDED IN THIS PROSPECTUS CONTAINS, AND OTHER
MATERIALS FILED OR TO BE FILED BY US WITH THE COMMISSION INCORPORATED BY
REFERENCE HEREIN (AS WELL AS INFORMATION INCLUDED IN ORAL STATEMENTS MADE OR TO
BE MADE BY US) CONTAIN OR WILL CONTAIN, FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE
ACT. THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT
EXPECTATIONS OF CAREMARK RX AND MEMBERS OF ITS MANAGEMENT TEAM, AS WELL AS THE
ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE INVESTORS ARE
CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE
PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES AND THAT ACTUAL RESULTS MAY
DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS.
IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS
TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS ARE SET FORTH IN
THE SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS. WE
UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO
REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES
TO FUTURE OPERATING RESULTS OVER TIME.
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ABOUT THIS PROSPECTUS
No separate financial statements of the Issuer have been included herein.
We do not consider such financial statements material to the holders of
Convertible Preferred Securities because:
- all of the voting securities of the Issuer will be owned, directly or
indirectly, by us, and we are subject to the reporting requirements
under the Exchange Act;
- the Issuer has no independent operations but exists for the sole
purpose of issuing securities representing undivided beneficial
interests in the assets of the Issuer and investing the proceeds
thereof in Convertible Subordinated Debentures issued by us; and
- the obligations of the Issuer under the Preferred Securities are fully
and unconditionally guaranteed by us to the extent that the Issuer has
funds available to meet such obligations. See "Description of
Convertible Subordinated Debentures" and "Description of Guarantee."
OUR COMPANY
We are one of the largest pharmaceutical services companies in the United
States, with net revenue of approximately $2.6 billion for 1998 and $1.6 billion
for the first half of 1999. Our core operations are conducted through Caremark,
which is comprised of two business units: our pharmacy benefit management
services ("PBM") unit and our therapeutic pharmaceutical services unit ("CTS").
The services of these two business units are sold separately and together to
assist corporations, insurance companies, unions, government employee groups and
managed care organizations throughout the United States in delivering
prescription drugs to their members in a cost-effective manner. For the first
six months of 1999, our net revenues grew approximately 26% and our adjusted
EBITDA from continuing operations grew approximately 30% from the same period in
1998 (adjusted EBITDA consists of earnings before interest, taxes, depreciation,
amortization and restructuring expenses).
We are one of the largest PBM companies in the United States, with the
leading mail service pharmacy business among independent PBM companies in terms
of prescriptions filled in 1998. Pharmacy benefit management involves the design
and administration of programs aimed at reducing the costs and improving the
safety, effectiveness and convenience of prescription drug use. We dispense
prescription drugs to patients through a network of more than 50,000 retail
pharmacies (substantially all retail pharmacies in the United States) and
through three wholly-owned and operated mail service pharmacies. During 1998 and
the first half of 1999, we dispensed approximately 11 and 6 million
prescriptions, respectively, through our mail service pharmacies and processed
approximately 33 and 19 million retail prescriptions, respectively. For the
first half of 1999, the number of prescriptions processed by our PBM business
increased 12% over the first half of 1998. For the first half of 1999, our PBM
business accounted for approximately 84% of our total revenues and 67% of our
operating income from continuing operations before corporate overhead.
CTS provides specialty pharmaceutical distribution services for patients
with high cost, chronic illnesses and conditions in an effort to improve
outcomes for patients and to lower costs of care. We design, develop and manage
comprehensive programs including drug therapy, physician support and patient
education. We provide therapies and services to patients with such conditions as
hemophilia, growth disorders, immune deficiencies, cystic fibrosis, multiple
sclerosis, and infants with respiratory difficulties. Treatments for these
conditions generally involve high cost, injectable biotechnology drugs. We
believe CTS is the industry leader in the distribution of these types of drugs.
CTS owns and operates a national network of 23 specialty pharmacies, 22 of which
are accredited by the Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO"). As of June 30, 1999, CTS provided therapies and
services for approximately 22,600 patients, a 59% increase over those served as
of June 30, 1998. For the first half of 1999, CTS accounted for approximately
16% of our total revenues and 33% of our operating income from continuing
operations before corporate overhead.
We believe our principal competitive strengths are:
- Our Breadth of Service Offerings. Through our therapeutic pharmaceutical
services business, CTS, we offer to our customers the ability to manage
the high biotechnology pharmaceutical costs associated
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with certain chronic diseases. We believe that the size and strength of
our CTS business give us a competitive strength when coupled with the
offerings of our PBM business.
- Our Information Systems. We believe we are the only major PBM company
operating on a single information systems platform, which integrates our
retail pharmacy, mail pharmacy and claims processing operations. The
flexibility inherent in our systems architecture allows us to accommodate
a variety of pharmacy benefit plan designs and adapt quickly to program
changes, allowing our clients to better manage pharmaceutical costs.
- Our Clinical Management Programs. We have advanced clinical services and
data reporting capabilities, which allow us to provide high quality
utilization management and prescription drug formulary management
services to our customers.
- Our Mail Service Pharmacy System. We have the leading mail service
pharmacy business among independent PBM companies in the United States in
terms of prescriptions filled in 1998. We have recently implemented our
Tri-Star Pharmacy Manager automated fulfillment system in one of our mail
service pharmacies, which significantly reduces fulfillment costs,
increases processing capacity and improves the quality and turnaround
time of our mail service pharmacy operations.
- Our Independence from Ownership by Any Pharmaceutical Manufacturers and
Drug Stores. We believe that our independence from pharmaceutical
manufacturer ownership allows us to make unbiased formulary
recommendations to our clients, balancing both clinical efficacy and
cost, and that our independence from drug store ownership allows us to
construct a variety of convenient and cost-effective retail pharmacy
networks for our clients, without favoring any particular pharmacy chain.
OUR STRATEGY
Our mission is to provide innovative pharmaceutical solutions and quality
customer service in order to enhance patient outcomes and better manage overall
health care costs. We intend to increase our market share and enhance our
position in the pharmaceutical services industry by pursuing the following
strategies:
- Expand our PBM customer base, specifically to include more health
plans, and the scope of products and services provided to existing
clients;
- Maintain our strong customer relationships and high customer
satisfaction;
- Continue to introduce new and innovative products and services that
capitalize on our information technology capabilities;
- Cross-sell the products and services of our CTS and PBM businesses to
further differentiate ourselves and to expand our higher margin CTS
business; and
- Continue to reduce outstanding indebtedness.
RECENT DEVELOPMENTS
On October 28, 1999 the Company reported its results for the third quarter
and the first three quarters of fiscal 1999 ended September 30, 1999. For the
third quarter of fiscal 1999, the Company's net revenue was $813.0 million. Net
income from continuing operations available to common shareholders totaled $13.9
million and earnings per basic diluted share were $0.07 for this same period.
For the first three quarters of fiscal 1999, net revenue was $2.394 billion. Net
income available to common shareholders totaled $36.4 million and earnings per
basic diluted share were $0.19 for this same period.
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RISK FACTORS
You should carefully consider the following risks as well as other
information contained elsewhere in this prospectus.
RISKS RELATING TO OUR BUSINESS
OUR DISCONTINUED OPERATIONS AND RELATED LIABILITIES FOR WHICH WE REMAIN
RESPONSIBLE MAY REQUIRE US TO USE SIGNIFICANT AMOUNTS OF CASH WHICH COULD
ADVERSELY AFFECT OUR LIQUIDITY, AND OUR RECENT CHANGE IN STRATEGIC FOCUS MAY
CONTINUE TO CONSUME SIGNIFICANT MANAGEMENT TIME AND ATTENTION.
Prior to 1998, we were primarily focused on our PPM operations. During
1998, we changed our senior management team and announced a new strategic focus
whereby Caremark would become our core operating unit. We announced that in
pursuing our new strategy, we would divest our other businesses, which included
our PPM and contract services businesses. We have encountered difficulties in
this divestiture process, including litigation and the announcement of
significant charges against earnings. Resolving these difficulties has consumed
significant time and resources of our company and management, which otherwise
would have been devoted to pursuing our strategy of focusing on Caremark. There
can be no assurance that the problems we have encountered as a result of the
change in strategic focus or similar matters which may arise in the future will
not continue to consume significant time and resources or have an adverse effect
on us.
We will remain responsible for certain liabilities relating to these
discontinued operations, including predisposition claims relating to our
California PPM operations. We intend to rely upon amounts available from the
sale of discontinued operations, borrowings under our revolving credit facility
and cash flow from operations to fund our discontinued operations, including any
liabilities we retain after disposition. However, if cash generated from these
sources is insufficient to fund our discontinued operations, our liquidity could
be materially adversely affected, which would have a material adverse effect on
our business, financial condition and results of operations. In addition, it is
possible that even after we dispose of our discontinued operations, other
liabilities relating to these operations, known or unknown, could be attributed
to us, which could have a similar adverse impact on our liquidity.
These events could hinder our ability to make scheduled payments of
principal and distributions or interest on, and to refinance, if necessary, the
Preferred Securities and our other indebtedness. In that event, we would seek to
enhance our liquidity position through further modifications to our credit
facility, incurrence of additional indebtedness and/or sales of additional
securities. Each of these alternatives is dependent upon future events,
conditions and other matters outside of our control. There can be no assurance
that we will be able to enhance our liquidity position through such alternatives
or otherwise if necessary.
OUR SUBSTANTIAL DEBT SERVICE OBLIGATIONS COULD IMPEDE OUR OPERATIONS AND
FLEXIBILITY.
We have substantial leverage, which means that the amount of our
outstanding debt significantly exceeds the net book value of our assets, and we
also have substantial repayment obligations and interest expense with respect to
our debt. In November 1999, we will begin required amortization payments of
principal under the tranche A term loan under our credit facility. In September
2000, we will be required to repay approximately $420 million of debt under our
Senior Subordinated Notes due 2000. In addition, the revolving portion of our
credit facility and the tranche A and B term loans under our credit facility
will mature in June 2001, with all amounts then outstanding due at that time. We
may incur additional indebtedness in the future. For the foreseeable future we
will have to use a substantial portion of our cash flow from operations for debt
service rather than for our operations. In addition, some of our indebtedness is
at variable interest rates, so we may be vulnerable in the event that rates
increase. Our level of debt could cause adverse consequences, including the
following:
- we may not be able to obtain additional debt financing for future
working capital, capital expenditures, the refinancing of debt as it
becomes due or other corporate purposes;
- we may be less able to take advantage of significant business
opportunities, such as acquisition opportunities, or to react to
changes in market or industry conditions;
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- we could be more vulnerable to general adverse economic and industry
conditions; and
- we may be disadvantaged compared to competitors with less leverage.
ANY FAILURE TO MEET OUR DEBT OBLIGATIONS COULD ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
If our cash flow and capital resources are insufficient to fund our debt
service obligations, we may be forced to sell additional assets, seek to obtain
additional equity or debt capital or restructure our debt. In addition, any
failure to make scheduled payments of interest and principal on our outstanding
indebtedness would likely result in a reduction of our credit rating with
Standard & Poor's or Moody's, which could adversely affect our ability to incur
additional indebtedness on acceptable terms. We cannot assure you that our cash
flow and capital resources will be sufficient for payment of interest on and
principal of our debt in the future, or that any such alternative measures would
be successful or would permit us to meet scheduled debt service obligations.
We are scheduled to receive $481.4 million on August 31, 2000 arising out
of the sale in 1997 of our 6.50% Threshold Appreciation Price Securities
("TAPS"), and we intend to use the major portion of those funds to repay $420
million of our 6 7/8% Senior Subordinated Notes that mature on September 1,
2000. Our right to receive such funds has been challenged by certain holders of
the TAPS in litigation currently pending in New York State Supreme Court. As a
result of that litigation, we may not be able to obtain such funds. The paying
agent that is holding such funds pending the scheduled release thereof to us on
August 31, 2000 has the contractual right to withhold release of such funds in
the event a dispute over entitlement to such funds is pending on such date,
unless certain conditions are met, until such dispute is resolved. If the
litigation is still pending on August 31, 2000, we may not be able to require
the paying agent to release the funds to us on that date. Any adverse
determination in this litigation, or any delay in release of the U.S. Treasury
notes to us arising from continued pendency of this litigation, would materially
adversely affect our liquidity position, including our ability to repay our
Senior Subordinated Notes due in September 2000.
We have agreed that we will pledge all of the capital stock of our
subsidiary, Caremark International, Inc., the owner of all capital stock of
Caremark, our primary operating subsidiary, as security for our obligations
under our credit facility, with an equal and ratable pledge in favor of the
holders of our Senior Notes due 2006, upon receipt of requisite consent of our
lenders under the credit facility to the pledge in favor of the Senior Notes. If
we are unable to meet our obligations to our creditors under the credit facility
or the Senior Notes due 2006, those creditors could exercise their rights as
secured parties with respect to the pledged stock of Caremark International,
Inc. This would materially adversely impact our business, financial condition
and results of operations.
WE ARE PARTY TO SEVERAL LAWSUITS WHICH, IF WE LOSE, COULD ADVERSELY IMPACT OUR
BUSINESS.
We currently are party to several lawsuits, including pharmaceutical
industry litigation, litigation relating to the TAPS, and litigation related to
Caremark's discontinued home infusion business, which was divested in 1995. Any
of these proceedings, if determined adversely to our interests, could have a
material adverse effect on our business, financial condition and results of
operations. There can be no assurance that additional lawsuits will not be filed
against us. There also can be no assurance that these lawsuits will not have a
disruptive effect upon the operations of our business or that the defense of the
lawsuits will not consume the time and attention of our senior management or the
senior management of our subsidiaries.
For additional information regarding litigation, please refer to
"Business -- Legal Proceedings."
WE HAVE A HISTORY OF INCURRING LOSSES AND MAY CONTINUE TO INCUR LOSSES.
We have incurred losses in each of the last four fiscal years arising from
our discontinued operations, amounting to more than $2.3 billion in cumulative
losses over that four-year period. We may incur future losses related to
additional charges from discontinued operations. There can be no assurance that
we will achieve profitability, or if we achieve profitability, that we will be
able to sustain it. Our failure to achieve
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profitability in the future may adversely affect the price of the Preferred
Securities and Common Stock into which the Preferred Securities are convertible
or otherwise adversely impact our ability to make scheduled payments of interest
and principal on the Convertible Subordinated Debentures (and, consequently,
adversely affect the ability of the Trust to make related payments on the
Preferred Securities).
RESTRICTIVE FINANCING COVENANTS LIMIT THE DISCRETION OF OUR MANAGEMENT.
Our credit facility and certain agreements governing our other debt contain
a number of covenants that limit the discretion of our management with respect
to certain business matters. Our credit facility covenants, among other things,
restrict our ability to incur additional indebtedness or guarantee obligations,
pay dividends and other distributions, prepay or modify the terms of other
indebtedness, create liens, make capital expenditures, make certain investments
or acquisitions, enter into mergers or consolidations, make sales of assets and
engage in certain transactions with affiliates. In addition, under our credit
facility, we are required to satisfy a minimum fixed charge coverage ratio, a
minimum interest expense coverage ratio and a maximum leverage ratio. These
financial tests become more restrictive in future years.
The indentures for our Senior Notes due 2006 and our Senior Subordinated
Notes due 2000 contain covenants that, among other things, restrict our ability
to enter into mergers and consolidations and sell substantially all of our
assets, our ability to cause our subsidiaries to incur or guarantee additional
indebtedness and, in the case of the Senior Notes, our ability to incur
additional secured indebtedness.
A breach of any agreements governing our debt would permit the acceleration
of the related debt and acceleration of debt under other debt agreements that
may contain cross-acceleration or cross-default provisions, as well as
termination of the commitments of the lenders to make further extensions of
credit under our credit facility. This would have a material adverse effect on
our business, financial condition and results of operations.
IF WE CANNOT RESPOND ADEQUATELY TO COMPETITION IN OUR INDUSTRY, OUR ABILITY TO
ACHIEVE PROFITABILITY WILL BE ADVERSELY AFFECTED.
We compete in the markets for pharmacy benefit management and therapeutic
pharmaceutical services. These businesses are very competitive. If we fail to
respond to competition in these industries, the result will be an adverse effect
on our ability to achieve profitability and on our business, financial condition
and results of operations. Our competitors include companies which are or are
owned by large, profitable and well-established companies with substantially
greater purchasing power and financial, marketing and other resources than we
have and which are less leveraged than we are. As examples, Merck-Medco Managed
Care, LLC is owned by a large pharmaceutical manufacturer, PCS Health Systems,
Inc. is owned by a national drug store chain, and a large insurance company is a
major investor in Express Scripts, Inc. We may also experience competition from
other sources in the future, such as Internet-based drug stores.
Furthermore, our businesses are subject to consolidation pressures, meaning
that they are or may become dominated by a few large companies with significant
resources. The health benefit management business is relatively consolidated,
and additional consolidation is likely. Consolidation is leading to increased
competition among a smaller number of large companies. Over the last several
years, the competitive pressures described above have caused health benefit
management companies, including us, to reduce the prices charged to clients for
core services.
IF A SIGNIFICANT NUMBER OF OUR CONTRACTS WITH CUSTOMERS AND PHARMACEUTICAL
MANUFACTURER ARRANGEMENTS ARE TERMINATED, OUR BUSINESS WILL BE ADVERSELY
IMPACTED.
We, like the other companies in our industry, typically have contracts with
our customers, our contract network pharmacies or our pharmaceutical
manufacturers which are terminable on relatively short notice. Loss of contracts
with a significant number of our customers or network pharmacies would
materially adversely impact our business, financial condition and results of
operations. Others are renewable annually on a year-to-year basis, unless the
other party gives notice to us of its intention not to renew the contract. In
addition, the short-term nature of the contracts in our industry means that if
we acquire a company, there can
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be no assurance that we will retain the customers of that company for any
significant period of time. Our ten largest customers accounted for
approximately 30% of our revenues in fiscal 1996, 29% of our revenues in fiscal
1997, 27% of our revenues in fiscal 1998 and 26% of our revenues in the first
two quarters of fiscal 1999.
We also have contracts, typically with terms of three years, with
pharmaceutical manufacturers entitling us to certain rebates and other pricing
discounts. These arrangements are often terminable by either party on relatively
short notice. Termination of a significant number of these arrangements would
materially adversely affect our business, financial condition and results of
operations.
IF WE BECOME SUBJECT TO LIABILITY CLAIMS WHICH ARE NOT COVERED BY OUR INSURANCE
POLICIES, THEN WE MAY BE LIABLE FOR DAMAGES AND OTHER EXPENSES WHICH COULD HAVE
A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
Various aspects of our business, including dispensing pharmaceutical
products, performing drug utilization review, providing therapeutic services and
providing information to physicians about drug therapy entail a risk of
litigation and liability relating to product and professional liability claims.
A successful product or professional liability claim not covered by our
insurance policies or in excess of our insurance coverage could have a material
adverse effect upon our business, financial condition and results of operations.
We cannot assure you that we will be able to maintain appropriate types or
levels of insurance in the future, that adequate replacement policies will be
available on acceptable terms, or that insurance will cover all claims against
us.
IF WE DO NOT ADEQUATELY ADDRESS YEAR 2000 ISSUES, THEN OUR BUSINESS MAY BE
MATERIALLY ADVERSELY AFFECTED.
Our state of readiness for Year 2000. Many currently installed computer
systems and software products accept only two digit entries in the date code
field. These date code fields will need to accept four digit entries to
distinguish years after 1999 from years before 1999. As a result, computer
systems that cannot accept four-digit entries in the date field as of January 1,
2000 may not function properly. We have initiated a company-wide program to
address Year 2000 readiness with respect to the information systems and
equipment and systems utilized in our operations. Our program includes:
- an inventory of the information systems, hardware and equipment
utilized in our operations,
- an assessment of the Year 2000 issues associated with our systems,
hardware and equipment,
- the remediation of such systems, hardware and equipment to achieve
Year 2000 readiness,
- the testing of our systems, hardware and equipment to achieve Year
2000 readiness,
- the testing of such systems, hardware and equipment to confirm Year
2000 readiness, and
- the development of contingency plans to address the principal risks
facing us in our efforts to achieve Year 2000 readiness.
Our Year 2000 program also includes our "Trading Partners Initiative,"
which is designed to provide us with insights into the Year 2000 readiness of
certain of our customers, suppliers and vendors. We have also sent letters to
certain manufacturers of the hardware and equipment utilized in our operations
requesting that such manufacturers address the Year 2000 readiness of the
hardware and equipment.
Our costs to address Year 2000 issues. We estimate that we will incur
expenses of approximately $19.4 million in conjunction with our Year 2000
compliance project, of which approximately $13.3 million is associated with our
discontinued operations and approximately $15.4 million had been incurred as of
June 30, 1999. Of this incurred amount, we currently estimate that approximately
$12.2 million consisted of capital expenditures for new or replacement systems,
hardware and equipment and approximately $3.2 million consisted of expenses of
our Year 2000 program.
Risks of our Year 2000 issues. We believe that we may be adversely
affected by non-compliant systems which include embedded logic or software that
fail to be Year 2000 ready and which will cause such equipment to fail or to
operate improperly. The failure of the equipment we use in our therapeutic
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pharmaceutical services business could expose individual patients to potential
injury and may expose us to claims and liabilities from those patients.
Our contingency plans for Year 2000 malfunctions. We have established a
contingency plan for the failure of our equipment, hardware and systems. We are
continuously evaluating and updating our contingency plan. If our contingency
plan is inadequate or we fail to deal effectively with Year 2000 problems, such
inadequacy or failure could result in a material adverse effect on our business,
financial condition and results of operations.
For additional information regarding Year 2000 issues, please refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000."
IF ANOTHER PERSON OR COMPANY ATTEMPTS A TAKEOVER OF THE COMPANY, THEN
ANTI-TAKEOVER PROVISIONS IN OUR ORGANIZATIONAL DOCUMENTS, AGREEMENTS WITH OUR
EXECUTIVE OFFICERS AND THE TERMS OF THE PREFERRED SECURITIES COULD DELAY OR
PREVENT A CHANGE IN CONTROL AT A PREMIUM PRICE.
Certain provisions of our certificate of incorporation and bylaws, our
stockholders rights plan, and change in control provisions in employment
agreements which have been entered into with various executive officers, could
have an anti-takeover effect. These provisions include:
- a staggered board of directors;
- advance notice provisions for calling meetings of stockholders;
- preferred stock purchase rights which may deter offers for the common
stock; and
- large severance payments.
This anti-takeover effect could delay, defer or prevent a change in control
of the Company without further action by the stockholders, could discourage
potential investors from bidding for the Common Stock at a premium over the
market price of the Common Stock and could adversely affect the market price of,
and the voting and other rights of the holders of, the common stock. In
addition, provisions of the Delaware General Corporation Law restrict the
ability of stockholders to cause a merger or business combination or obtain
control of the Company.
In the event of a Change of Control, the Trust will be required to make an
offer to holders of Preferred Securities to repurchase the Preferred Securities
and the Company will be required to redeem Convertible Subordinated Debentures
having an aggregate principal amount equal to any Preferred Securities
repurchased pursuant to a Change of Control offer.
LOSS OF KEY MANAGEMENT COULD ADVERSELY AFFECT OUR BUSINESS.
Our success is materially dependent upon our key managers and, in
particular, upon the continued services of E. Mac Crawford, our Chairman,
President and Chief Executive Officer and John Arlotta,
President -- Pharmaceutical Services of Caremark. Our future business, financial
condition and results of operations could be materially adversely affected if
the services of Messrs. Crawford and Arlotta cease to be available.
CAREMARK IS SUBJECT TO HEIGHTENED FEDERAL REGULATORY SCRUTINY, WHICH COULD
RESULT IN SANCTIONS OR PENALTIES.
Our subsidiaries Caremark, Inc. and Caremark International, Inc. ("CII")
are subject to a corporate integrity agreement with the Office of Inspector
General ("OIG") within the United States Department of Health and Human Services
("HHS") that is in connection with a related plea agreement and settlement
agreement to which Caremark and CII are parties (collectively, the "Settlement
Agreement"). This agreement was executed in connection with the related plea
agreement and settlement agreement to which those subsidiaries are parties
relating to their operation of a home infusion business which has since been
divested. These agreements were entered into in connection with resolution of an
action brought by the OIG against these subsidiaries for alleged violation of
federal law relating to federally funded health programs. The
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subsidiaries agree to continue to maintain certain compliance related oversight
procedures through June 2000. Should the oversight procedures reveal credible
evidence of certain criminal or civil misconduct by CII and Caremark or any of
their employees regarding criminal law relating to a government program or
material violation of civil law or rules, then CII and Caremark are required to
report the potential violations to the OIG and the Department of Justice
("DOJ"). These subsidiaries are, therefore, subject to increased regulatory
scrutiny and may be subject to an increased risk of sanctions or penalties,
including exclusion from participation in the Medicare or Medicaid programs.
Sanctions and penalties would have a material adverse effect on our business,
financial condition and results of operations.
RISKS RELATING TO THE PREFERRED SECURITIES
OBLIGATIONS UNDER THE PREFERRED SECURITIES GUARANTEE AND CONVERTIBLE
SUBORDINATED DEBENTURES ARE SUBORDINATED.
Our obligations under the Preferred Securities Guarantee are subordinate
and junior in right of payment to all liabilities of the Company and will be
pari passu with the most senior preferred stock now or hereafter issued by the
Company and with any guarantee now or hereafter issued by the Company in respect
of any preferred securities of any affiliate of the Company. Our obligations
under the Convertible Subordinated Debentures are subordinate and junior in
right of payment to all of our present and future Senior Indebtedness. At June
30, 1999, our Senior Indebtedness aggregated approximately $1.4 billion. In
addition, because we are a holding company, our obligations under the Preferred
Securities Guarantee and the Convertible Subordinated Debentures will be
effectively subordinated to all existing and future liabilities of its
subsidiaries. There are no terms in the Preferred Securities, the Convertible
Subordinated Debentures or the Preferred Securities Guarantee that limit our
ability to incur additional indebtedness, including indebtedness that ranks
senior to the Convertible Subordinated Debentures or the Preferred Securities
Guarantee. See "Description of the Preferred Securities Guarantee -- Status of
the Preferred Securities Guarantee" and "Description of the Convertible
Subordinated Debentures -- Subordination."
WE ARE A HOLDING COMPANY THAT IS DEPENDENT ON OUR SUBSIDIARIES FOR CASH FLOW.
We may not be able to access cash generated by our subsidiaries in order to
pay interest and principal on the Convertible Subordinated Debentures or fulfill
other cash commitments. As a holding company with no business operations, our
material assets consist only of the stock of our subsidiaries. We will have to
rely upon dividends and other payments from its subsidiaries (including its
principal operating subsidiary, Caremark) to generate the funds necessary to pay
the principal of and interest on the Convertible Subordinated Debentures. Our
subsidiaries, however, are legally distinct from us and have no obligation,
contingent or otherwise, to pay amounts due pursuant to the Convertible
Subordinated Debentures or to make funds available for these payments. Our
subsidiaries have not guaranteed the Convertible Subordinated Debentures. The
ability of the our subsidiaries to make dividend and other payments to us is
subject to, among other things, the availability of funds, the terms of its
subsidiaries' indebtedness or the indebtedness they have guaranteed, and
applicable state laws. Our right or any right of our creditors, including
holders of the Convertible Subordinated Debentures, to participate in the assets
of any subsidiary upon the liquidation or reorganization of that subsidiary will
be subject to the prior claims of that subsidiary's creditors, including holders
of its indebtedness and trade creditors. Accordingly, the Convertible
Subordinated Debentures will be structurally subordinated to all existing and
future indebtedness and other liabilities of our subsidiaries, including trade
payables.
UPON A CHANGE OF CONTROL, ADEQUATE FUNDS MAY NOT BE AVAILABLE TO REPURCHASE THE
PREFERRED SECURITIES.
In the event of a Change of Control (as defined herein), each holder of
Preferred Securities has the right to require the Trust to repurchase the
Preferred Securities in whole or in part at a redemption price of $50 per
Preferred Security thereof, plus Accrued Distributions and liquidated damages
under the Registration Agreement, if any, to the repurchase date. If a Change of
Control were to occur, there can be no assurance that we would have the
financial resources or be able to arrange financing on acceptable terms to allow
the Trust to pay the repurchase price for all the Preferred Securities as to
which the repurchase right is exercised. The failure to repurchase Preferred
Securities when required will result in a Trust Agreement Event of Default
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(as defined herein) with respect to the Preferred Securities whether or not such
repurchase is permitted by the terms of Senior Indebtedness.
RIGHTS UNDER THE PREFERRED SECURITIES GUARANTEE ARE LIMITED.
If we were to default in our obligation to pay amounts payable on the
Convertible Subordinated Debentures, the Trust would lack available funds for
the payment of Distributions or amounts payable on redemption of the Preferred
Securities or otherwise, and in such event holders of the Preferred Securities
would not be able to rely upon the Preferred Securities Guarantee for payment of
such amounts. Instead, holders of the Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as registered holder of the
Convertible Subordinated Debentures against the Company pursuant to the terms of
the Convertible Subordinated Debentures and may also vote to appoint a Special
Administrative Trustee, who shall have the same rights, powers and privileges as
the other Administrative Trustees. In certain circumstances, holders of
Preferred Securities will be able to enforce their rights directly against the
Company. See "Description of the Preferred Securities Guarantee -- Events of
Default" and "Description of the Preferred Securities Guarantee -- Status of the
Preferred Securities Guarantee" and "Description of the Convertible Subordinated
Debentures -- Subordination." The Trust Agreement provides that each holder of
Preferred Securities by acceptance thereof agrees to the provisions of the Trust
Agreement, the Preferred Securities Guarantee and the Indenture.
DISTRIBUTIONS ON THE PREFERRED SECURITIES MAY BE DEFERRED.
The Company has the right under the Indenture to defer payments of interest
on the Convertible Subordinated Debentures by extending the interest payment
period at any time, and from time to time, on the Convertible Subordinated
Debentures. As a consequence of such an extension, quarterly distributions on
the Preferred Securities would be deferred (but despite such deferral would
continue to accrue with interest thereon compounded quarterly) by the Trust
during any such extended interest payment period. Each exercise of the right to
extend the interest payment period for the Convertible Subordinated Debentures
is limited to a period not exceeding 20 consecutive quarters. Prior to the
termination of any such Extension Period, the Company may further defer payments
of interest by extending the interest payment period, provided that such
Extension Period, together with all such previous and further extensions
thereof, may not exceed 20 consecutive quarters and provided further that no
Extension Period may extend beyond the maturity of the Convertible Subordinated
Debentures. Upon the termination of any Extension Period and the payment of all
amounts then due, the Company may select a new Extension Period, subject to the
above requirements. See "Description of the Preferred
Securities -- Distributions" and "Description of the Convertible Subordinated
Debentures -- Option to Extend Interest Payment Period."
Should the Company exercise its rights to defer payments of interest by
extending the interest payment period, each holder of Preferred Securities will
continue to accrue income (as original issue discount) for United States federal
income tax purposes in respect of the deferred interest allocable to its
Preferred Securities, which will be allocated but not distributed to holders of
record of Preferred Securities. As a result, holders of Preferred Securities
will recognize income for United States federal income tax purposes in advance
of the receipt of cash and will not receive the cash from the Trust related to
such income if such holder disposes of its Preferred Securities prior to the
record date for the date on which distributions of such amounts are made. The
Company has no current intention of exercising its right to defer payments of
interest by extending the interest payment period on the Convertible
Subordinated Debentures. Should the Company determine to exercise such right in
the future, however, the market price of the Preferred Securities is likely to
be adversely affected. A holder that disposes of its Preferred Securities during
an Extension Period, therefore, might not receive the same return on its
investment as a holder that continues to hold its Preferred Securities. In
addition, as a result of the existence of the Company's right to defer interest
payments, the market price of the Preferred Securities (which represent an
undivided beneficial interest in the Convertible Subordinated Debentures) may be
more volatile than other securities on which original issue discount accrues
that do not have such rights. See "Certain Federal Income Tax
Consequences -- Interest Income and Original Issue Discount."
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A SPECIAL EVENT MAY RESULT IN A REDEMPTION OF THE PREFERRED SECURITIES OR A
DISTRIBUTION OF THE CONVERTIBLE SUBORDINATED DEBENTURES.
Upon the occurrence of a Special Event (as defined under "Description of
the Preferred Securities -- Special Event Redemption or Distribution"), the
Trust will be dissolved, except in the limited circumstances described below,
with the result that, after satisfaction of the liabilities of the Trust to
creditors, the Convertible Subordinated Debentures would be distributed to the
holders of the Trust Securities in connection with the liquidation of the Trust.
In the case of a Special Event that is a Tax Event, in certain circumstances the
Company will have the right to redeem the Convertible Subordinated Debentures,
in whole or in part, in which event the Trust will redeem the Trust Securities
on a pro rata basis to the same extent as the Convertible Subordinated
Debentures are redeemed. See "Description of the Preferred Securities -- Special
Event Redemption or Distribution."
Under current United States federal income tax law, a distribution of
Convertible Subordinated Debentures upon the dissolution of the Trust would not
be a taxable event to holders of the Preferred Securities. Upon the occurrence
of a Tax Event, however, a dissolution of the Trust in which holders of the
Preferred Securities receive cash would be a taxable event to such holders. See
"Certain Federal Income Tax Consequences -- Receipt of Convertible Subordinated
Debentures Upon Liquidation of the Trust" and "-- Sale of Preferred Securities
and Redemption of Convertible Subordinated Debentures."
There can be no assurance as to the market prices for the Preferred
Securities or the Convertible Subordinated Debentures that may be distributed in
exchange for Preferred Securities if a dissolution or liquidation of the Trust
were to occur. Accordingly, the Preferred Securities that an investor may
purchase, or the Convertible Subordinated Debentures that the investor may
receive on dissolution and liquidation of the Trust, may trade at a discount to
the price that the investor paid to purchase the Preferred Securities offered
hereby. Because holders of Preferred Securities may receive Convertible
Subordinated Debentures upon the occurrence of a Special Event, prospective
purchasers of Preferred Securities are also making an investment decision with
regard to the Convertible Subordinated Debentures and should carefully review
all the information regarding the Convertible Subordinated Debentures contained
herein. See "Description of the Preferred Securities -- Special Event Redemption
or Distribution" and "Description of the Convertible Subordinated Debentures."
THERE IS A RISK THAT THE MATURITY OF THE CONVERTIBLE SUBORDINATED DEBENTURES
COULD BE SHORTENED.
If a Tax Event occurs, then the Company will have the right, prior to the
dissolution of the Trust, to advance the Stated Maturity of the Convertible
Subordinated Debentures to the minimum extent required in order to allow for the
payments of interest in respect of the Convertible Subordinated Debentures to
continue to be tax deductible, but in no event shall the resulting maturity of
the Convertible Subordinated Debentures be less than 15 years from the date of
original issuance thereof. The Stated Maturity shall be advanced only if, in the
opinion of counsel to the Company experienced in such matters, (1) after
advancing the Stated Maturity, interest paid on the Convertible Subordinated
Debentures will be deductible for United States federal income tax purposes and
(2) advancing the Stated Maturity will not result in a taxable event to holders
of the Preferred Securities. See "Description of the Convertible Subordinated
Debentures -- General."
HOLDERS OF PREFERRED SECURITIES WILL HAVE LIMITED VOTING RIGHTS.
Holders of Preferred Securities will have limited voting rights. Except in
the case of a Trust Agreement Event of Default, with respect to the Property
Trustee, and for the rights of holders of Preferred Securities to appoint a
Special Administrative Trustee upon the occurrence of certain events described
herein, holders of Preferred Securities will not be entitled to vote to appoint,
remove or replace, or to increase or decrease the number of, trustees, which
voting rights are vested exclusively in the holder of the Common Securities. See
"Description of the Preferred Securities -- Voting Rights."
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THERE ARE RISKS RELATED TO THE TRADING PRICE OF PREFERRED SECURITIES AND TAX
CONSEQUENCES UPON DISPOSITION.
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Convertible Subordinated Debentures. A U.S. Holder (as defined under "Certain
Federal Income Tax Consequences") that disposes of its Preferred Securities
between record dates for payments of distributions thereon will be required to
include original issue discount on the Convertible Subordinated Debentures
through the date of disposition in income as ordinary income, and to add such
amount to its adjusted basis in the Preferred Securities. To the extent the
selling price is less than the U.S. Holder's adjusted tax basis (which basis
will include original issue discount previously included in income, less
interest payments actually received), a U.S. Holder will recognize capital loss.
Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes. See
"Certain Federal Income Tax Consequences -- Sale of Preferred Securities and
Redemption of Convertible Subordinated Debentures."
INDUSTRY RISKS
IF GOVERNMENT REGULATIONS ARE INTERPRETED AND ENFORCED IN A MANNER ADVERSE TO
OUR BUSINESS, THEN WE MAY BE SUBJECT TO ENFORCEMENT ACTIONS AND MATERIAL
LIMITATIONS ON OUR BUSINESS OPERATIONS.
The health care industry is subject to extensive laws and regulations. We
and other companies in our industry are subject to the interpretation and
enforcement of these laws and regulations. Because the interpretation and
enforcement of these regulations is uncertain, our compliance efforts may be
inadequate, which may subject us to enforcement actions and materially limit our
business operations. Compliance with such laws and regulations imposes
significant operational requirements on us. The regulatory requirements we must
comply with in conducting our business vary from state to state, and are not
always clear as to meaning or consistently enforced. Although we believe that we
substantially comply with all existing statutes and regulations material to the
operation of our business, regulatory authorities may disagree and take
enforcement or other actions against us. These actions may result in fines or
other penalties, or suspend, restrict or preclude us from engaging in certain
business practices in the relevant jurisdiction.
In addition, we cannot predict the impact of future legislation and
regulatory changes on our business or assure you that we will be able to obtain
or maintain the regulatory approvals required to operate our business. For
example, formulary concessions, discounts and rebates are currently a topic of
discussion and debate in federal and state legislatures. Changes in existing
laws or regulations, changes in interpretations of laws or regulations, or
adoption of new laws or regulations relating to these discounts, rebates and
concessions may have material adverse effects on our ability to obtain formulary
concessions, discounts and rebates in the future.
For additional information regarding regulatory matters, please refer to
"Business -- Government Regulation."
IF THERE ARE CHANGES IN THE FINANCING AND REIMBURSEMENT PRACTICES IN THE HEALTH
CARE INDUSTRY, THEN ACCEPTANCE OF OUR PRODUCTS MAY BE DELAYED OR PREVENTED.
We have designed our services and products to compete within the current
payment and reimbursement structure of the U.S. health care system. However,
changing political, economic and regulatory influences may affect health care
financing and reimbursement practices. We and other companies in our industry
could be adversely affected by changes in the financing and reimbursement
practices in the health care industry. If the current health care financing and
reimbursement system changes significantly, then our products and services could
be less competitive. As a result, our business, financial condition and results
of operations could be materially and adversely affected. Congress is currently
considering proposals to reform the U.S. health care system, such as the
proposal to overhaul Medicare. These proposals may increase governmental
involvement in health care and pharmacy benefit management services and
otherwise change the way our customers do business. Health care organizations
may react to these proposals and the uncertainty surrounding such proposals by
cutting back or delaying investments in the health care cost control tools and
related technology which we provide. We cannot predict what effect, if any,
these proposals might have on our business, financial
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condition or results of operations. Other legislative or market-driven reforms
that we cannot anticipate could adversely affect our business, financial
condition and results of operations in unpredictable ways.
IF REGULATORY INITIATIVES RESTRICT OUR ABILITY TO USE CONFIDENTIAL PATIENT
MEDICAL INFORMATION, THEN OUR HEALTH INFORMATION TECHNOLOGY PRODUCTS AND
SERVICES AND OUR BUSINESS GROWTH STRATEGY BASED ON THESE PRODUCTS AND SERVICES
COULD BE ADVERSELY AFFECTED.
Most of our activities involve the receipt or use by us of confidential
patient medical information which is generated through the provision of our
services and which our customers provide to us. In addition, we use aggregated
(anonymous) data for research and analysis purposes. Our inability to use
patient medical information could render our health information technology
products and services, and our business growth strategy based on these products
and services, obsolete. State law currently restricts the use and disclosure of
certain medical information. In addition, federal legislation has been proposed
to restrict the use and disclosure of individually identifiable health
information. Because Congress did not enact such legislation by August 21, 1999,
under the federal Health Insurance Portability and Accountability Act of 1996,
the Secretary of the Department of Health and Human Services is required to pass
federal regulations to address health information privacy by February 21, 2000.
Congress may extend the deadline for enacting legislation or pass legislation
prior to the February 2000 deadline. To our knowledge, no state or federal
legislation or regulation has been enacted that adversely impacts our ability to
use patient medical information to provide our current services. Even if such
legislation or regulations are not enacted, however, individual customers could
prohibit us from including their patients' medical information in our various
databases of medical data, or from using such information in providing services
to our other customers. Any such legislation, regulations or customer-based
restrictions could have a material adverse effect on our business, financial
condition and results of operations.
IF THE HEALTH CARE INDUSTRY CONTINUES TO CONSOLIDATE, THEN WE MAY LOSE EXISTING
AND POTENTIAL CUSTOMERS AND OUR BARGAINING POWER.
Consolidation in the health care industry may cause us to lose existing and
potential customers and suffer a reduction in our bargaining power. Over the
past several years, the overall number of insurance companies, health
maintenance organizations, managed care companies and other customers and
potential customers of ours has decreased as a result of mergers, acquisitions
and similar transactions. Our customers have been and may continue to be subject
to these consolidation pressures. We may lose existing and potential customers
due to consolidation in the health care industry. Consolidation could create
larger customers capable of exerting greater bargaining power than our
traditional clients. Consolidation could also create larger competitors which
have greater resources than we have, which would place us at a competitive
disadvantage and prevent us from fully executing our strategy. As we implement
our business strategy of marketing to these larger customers in response to this
consolidation and other competitive pressures, the prices we are able to charge
for our products and services may decline. The loss of existing and potential
customers and/or price declines due to consolidation could have a material
adverse effect on our business, financial condition and results of operations.
LITIGATION CURRENTLY PENDING AGAINST PBM COMPANIES MAY FORCE US TO ALTER OUR
PRICING PRACTICES.
Numerous lawsuits have been filed throughout the U.S. by retail pharmacies
against drug manufacturers and certain PBM companies challenging certain brand
drug pricing practices under various state and federal antitrust laws. The suits
allege, among other things, that the manufacturers have offered, and certain PBM
companies have knowingly accepted, discounts and rebates on drug purchases that
violate the federal Robinson-Patman Act. One of our subsidiaries is a party to
these proceedings. If certain pricing practices now prevalent in the
pharmaceutical industry are determined to have violated the Robinson-Patman Act,
then the availability to us of certain discounts, rebates and fees that we
presently receive in connection with our drug purchasing programs could be
adversely affected.
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RISKS INVOLVING MARKET TRADING OF THE PREFERRED SECURITIES AND OUR COMMON STOCK
THE VOLATILITY OF OUR STOCK PRICE MAY AFFECT THE PRICE OF THE PREFERRED
SECURITIES.
Because the Preferred Securities are convertible into shares of our Common
Stock, fluctuations in the Common Stock price may affect the price of the
Preferred Securities. The market prices for our Common Stock and for securities
of other companies engaged primarily in pharmacy benefit management are highly
volatile. For example, the market price of our Common Stock has fluctuated
between $2.88 per share and $9.00 per share during 1999. The market price of our
Common Stock will likely continue to fluctuate due to a variety of factors,
including:
- material public announcements;
- developments relating to the disposition of our discontinued
operations;
- the announcement and timing of new product introductions by us or
others;
- technological innovations or changes in business strategy by us or our
competitors;
- regulatory approvals or regulatory issues;
- political developments or proposed legislation in the pharmaceutical
or health care industry;
- developments in, and the effect of, the litigation to which we are
subject;
- period to period fluctuations in our financial results; and
- market trends relating to our industry.
AN ACTIVE TRADING MARKET FOR THE PREFERRED SECURITIES MAY NOT DEVELOP.
There is no existing public trading market for the Preferred Securities and
there can be no assurance as to the liquidity of any such market that may
develop, the ability of holders to sell such securities, the price at which the
holders of Preferred Securities would be able to sell such securities or whether
a trading market, if it develops, will continue. If such market were to exist,
the Preferred Securities could trade at prices higher or lower than their
original offering price, depending on many factors, including prevailing
interest rates, the market for similar securities, our operating results, and
the trading price of the Common Stock. The Initial Purchaser currently makes a
market for the Convertible Preferred Securities offered hereby; however, the
Initial Purchaser is not obligated to do so and such market making activity is
subject to the limits imposed by applicable law and may be discontinued at any
time without notice.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Company's ratio of earnings to fixed
charges on a historical basis for each of the five years ended December 31,
1998:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996 1997 1998
----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges..................... 11.0x 2.8x 5.9x 2.9x 1.6x
</TABLE>
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with the
Company's consolidated financial statements, with the Preferred Securities shown
as a separate line item in the Company's balance sheet outside of the
stockholders' equity section as "Convertible preferred securities." Disclosures
concerning the Preferred Securities, the Preferred Securities Guarantee and the
Convertible Subordinated Debentures will be included in the notes to the
Company's consolidated financial statements.
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<PAGE> 19
USE OF PROCEEDS
The Selling Holders will receive all of the proceeds from the sale of the
Offered Securities. Neither the Company nor the Trust will receive any of the
proceeds from the sale of the Offered Securities.
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<PAGE> 20
CAREMARK RX CAPITAL TRUST I
Caremark Rx Capital Trust I (the "Trust") is a statutory business trust
formed under Delaware law pursuant to the filing of a certificate of trust with
the Delaware Secretary of State on September 10, 1999. The Trust's business is
defined in a Trust Agreement (the "Trust Agreement"), executed by the Company,
the Administrative Trustees and the Delaware Trustee (each as defined herein).
The Preferred Securities comprise all of the Trust's preferred securities. The
Company owns all of the Trust's common securities (the "Common Securities") in
an aggregate liquidation amount equal to 3% of the total capital of the Trust.
The Trust exists for the exclusive purposes of (1) issuing the Preferred
Securities and the Common Securities (together, the "Trust Securities")
representing undivided beneficial interests in the assets of the Trust, (2)
investing the gross proceeds of the Preferred Securities in the Convertible
Subordinated Debentures and (3) engaging in only those other activities
necessary or incidental thereto.
The Trust's business and affairs are conducted by trustees appointed by the
Company, as holder of the Common Securities. The duties and obligations of the
trustees are governed by the Trust Agreement. Pursuant to the Trust Agreement,
there are three individual trustees (the "Administrative Trustees"), and one
property trustee (the "Property Trustee") having its principal place of business
or residence in the State of Delaware and that also acts as Delaware Trustee.
The three Administrative Trustees are persons who are officers of the Company.
The Property Trustee is a financial institution which is unaffiliated with the
Company and serves as property trustee under the Trust Agreement and as
indenture trustee with respect to the Convertible Subordinated Debentures (the
"Indenture Trustee"). Wilmington Trust Company acts as the Property Trustee and
Indenture Trustee and also acts as trustee under the Preferred Securities
Guarantee (the "Preferred Guarantee Trustee"). See "Description of the Preferred
Securities Guarantee." In certain circumstances, the holders of a majority of
the Preferred Securities are entitled to appoint one Administrative Trustee (a
"Special Administrative Trustee"), who need not be an officer or employee of, or
otherwise affiliated with, the Company. See "Description of the Preferred
Securities -- Voting Rights."
The Property Trustee holds title to the Convertible Subordinated Debentures
for the benefit of the holders of the Trust Securities and has the power to
exercise all rights, powers and privileges under the Indenture (as defined
herein) as the holder of the Convertible Subordinated Debentures. In addition,
the Property Trustee maintains exclusive control of a segregated non-interest
bearing bank account (the "Property Account") to hold all payments made in
respect of the Convertible Subordinated Debentures for the benefit of the
holders of Trust Securities. The Property Trustee makes payments of
Distributions and payments on liquidation, redemption and otherwise to the
holders of the Trust Securities out of funds from the Property Account. The
Preferred Guarantee Trustee holds the Preferred Securities Guarantee for the
benefit of the holders of the Preferred Securities. Subject to the right of the
holders of the Preferred Securities to appoint a Special Administrative Trustee,
the Company, as the holder of all the Common Securities, has the right to
appoint, remove or replace any Administrative Trustee and to increase the number
of Administrative Trustees, provided that the number of Administrative Trustees
shall be at least three. The Company pays all fees and expenses related to the
organization, maintenance and dissolution of the Trust and the offering of the
Trust Securities. See "Description of the Convertible Subordinated
Debentures -- Miscellaneous."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are as set forth in the Trust
Agreement and the Delaware Business Trust Act (the "Trust Act"). See
"Description of the Preferred Securities."
The address of the principal office of the Trust is c/o Caremark Rx, Inc.,
3000 Galleria Tower, Suite 1000, Birmingham, Alabama 35244.
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<PAGE> 21
DESCRIPTION OF THE PREFERRED SECURITIES
GENERAL
The Preferred Securities are issued pursuant to the terms of the Trust
Agreement. The following summary of the principal terms and provisions of the
Preferred Securities does not purport to be complete and is subject in all
respects to, and qualified in its entirety by reference to, the Trust Agreement,
a copy of which are available from us upon request.
The Trust Agreement authorizes the Administrative Trustees, on behalf of
the Trust, to issue the Preferred Securities, which represent preferred
undivided beneficial interests in the assets of the Trust, and the Common
Securities, which represent common undivided beneficial interests in the assets
of the Trust. All of the Common Securities are owned by the Company. The Common
Securities rank pari passu, and payments made thereon on a pro rata basis with,
the Preferred Securities except that, upon the occurrence of a Trust Agreement
Event of Default, the rights of the holders of the Common Securities to receive
payment of periodic Distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the Preferred
Securities. The Trust Agreement does not permit the Trust to issue any
securities other than the Trust Securities or to incur any indebtedness.
Pursuant to the Trust Agreement, the Property Trustee owns and holds the
Convertible Subordinated Debentures for the benefit of the holders of the Trust
Securities. The payment of Distributions out of funds held by the Trust, and
payments upon redemption of the Preferred Securities or liquidation of the
Trust, are guaranteed by the Company on a subordinated basis as and to the
extent described under "Description of the Preferred Securities Guarantee." The
Preferred Guarantee Trustee holds the Preferred Securities Guarantee for the
benefit of the holders of the Preferred Securities. The Preferred Securities
Guarantee does not cover payment of Distributions on the Preferred Securities
when the Trust does not have sufficient available funds in the Property Account
to make such Distributions. In such event, the remedy of a holder of Preferred
Securities is to (i) vote to appoint a Special Administrative Trustee, (ii)
direct the Property Trustee to enforce its rights under the Convertible
Subordinated Debentures or (iii) if the failure of the Trust to pay
Distributions is attributable to the failure of the Company to pay interest or
principal on the Convertible Subordinated Debentures (taking into account any
Extension Period), institute a proceeding directly against the Company for
enforcement of payment to such holder of the principal or interest on the
Convertible Subordinated Debentures having a principal amount equal to the
aggregate liquidation amount of the Preferred Securities of such holder. See
"Description of the Preferred Securities -- Voting Rights."
DISTRIBUTIONS
Distributions on the Preferred Securities are fixed at an annual rate of 7%
of the stated liquidation amount of $50 per Preferred Security. Distributions in
arrears for more than one quarter will bear interest thereon at the annual rate
of 7% thereof. The term "Distributions" as used herein includes any such
interest payable unless otherwise stated. The amount of Distributions payable
for any period will be computed on the basis of a 360-day year of twelve 30-day
months.
Distributions on the Preferred Securities is cumulative, accruing from
September 29, 1999 and payable quarterly in arrears on January 1, April 1, July
1 and October 1 of each year to the holders of record on the applicable record
date, commencing January 1, 2000 when, as and if available for payment by the
Property Trustee, except as otherwise described below. The Distribution on
January 1, 2000 will include the period from September 29, 1999 to January 1,
2000.
The Company has the right at any time, so long as no Indenture Event of
Default has occurred and is continuing, to defer payments of interest on the
Convertible Subordinated Debentures by extending the interest payment period
from time to time on the Convertible Subordinated Debentures (each, an
"Extension Period"). If interest payments on the Convertible Subordinated
Debentures are so deferred, Distributions on the Preferred Securities also will
be deferred (although such Distributions would continue to accrue interest)
during any such extended interest payment period (to the extent permitted by
law). In the event that the Company exercises this right, then the Company will
not and shall not permit any subsidiary to, (i) declare or
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<PAGE> 22
pay any dividends or distributions on or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's capital stock, (ii)
make any payment of principal of, premium, if any, or interest on or repay,
repurchase or redeem any debt security of the Company that ranks pari passu with
or junior in interest to the Convertible Subordinated Debentures or (iii) make
any guarantee payments with respect to any guarantee by the Company of the debt
securities of any subsidiary if such guarantee ranks pari passu with or junior
in interest to the Convertible Subordinated Debentures (other than (a) dividends
or distributions comprised of the Company's capital stock, (b) any declaration
of a dividend in connection with the implementation of a Rights Plan or the
redemption or repurchase of any rights distributed pursuant to a Rights Plan,
(c) payments under the Preferred Securities Guarantee and (d) purchases of
Common Stock related to any of the Company's benefit plans for its directors,
officers or employees, any dividend reinvestment or stock purchase plan or
related to the issuance of Common Stock (or securities convertible or
exchangeable for Common Stock) as consideration in an acquisition transaction
that was entered into prior to the commencement of such Extension Period). Prior
to the termination of any such Extension Period, the Company may further extend
the interest payment period, provided that (1) such Extension Period together
with all such previous and further extensions thereof may not exceed 20
consecutive quarters and (2) no Extension Period may extend beyond the maturity
of the Convertible Subordinated Debentures. Upon the termination of any
Extension Period and the payment of all amounts then due, the Company may elect
a new Extension Period as if no Extension Period had previously been declared,
subject to the above requirements. See "Description of the Convertible
Subordinated Debentures -- Interest" and "Description of the Convertible
Subordinated Debentures -- Option to Extend Interest Payment Period." If
Distributions are deferred, the deferred Distributions and accrued interest
thereon will be paid to holders of record of the Preferred Securities, if funds
are available therefor, as they appear on the books and records of the Trust on
the record date next following the termination of such Extension Period.
Distributions on the Preferred Securities will be paid on the dates payable
to the extent that the Trust has funds available for the payment of such
Distributions in the Property Account. The Trust's funds available for
distribution to the holders of the Preferred Securities will be limited to
payments received under the Convertible Subordinated Debentures. See
"Description of the Convertible Subordinated Debentures." The payment of
distributions out of funds held by the Trust is guaranteed by the Company to the
extent set forth under "Description of the Preferred Securities Guarantee."
Distributions on the Preferred Securities are payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which is the 15th day of the month preceding the month in which
the relevant payment date occurs. In the event that any date on which
Distributions are to be made on the Preferred Securities is not a Business Day,
payment of the Distributions payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), in each case with the same force and effect as if
made on such date. A "Business Day" is any day other than Saturday, Sunday or
day on which banking institutions in The City of New York or the State of
Delaware are authorized or required by law to close.
CONVERSION RIGHTS
Each Preferred Security is convertible, at the option of the holder, at any
time prior to 5:00 p.m. (New York City time) on the second Business Day
immediately preceding the date of repayment of the Preferred Securities, whether
at maturity or redemption, into shares of Common Stock. A holder of Preferred
Securities wishing to exercise conversion rights shall deliver any or all of its
Preferred Securities to the Conversion Agent, which shall exchange such
Preferred Securities for a portion of the Convertible Subordinated Debentures
held by the Trust (with a principal amount equal to the aggregate liquidation
preference of the Preferred Securities being converted) and immediately convert
such Convertible Subordinated Debentures into Common Stock. See "Description of
Convertible Subordinated Debentures -- Conversion Rights."
Accrued Distributions will not be paid on Preferred Securities that are
converted, nor will any payment, allowance or adjustment be made for accumulated
and unpaid Distributions, whether or not in arrears, on converted Preferred
Securities, except that if any Preferred Security is converted (i) on or after a
record date for payment of Distributions thereon, the amount of the
Distributions payable on the related payment date
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<PAGE> 23
with respect to such Preferred Security will be paid by the converting holder to
the Trust and the Distributions payable on the related payment date with respect
to such Preferred Security will be distributed to the holder on such payment
date, despite such conversion, and (ii) during an Extension Period and after the
Property Trustee mails a notice of redemption with respect to the Preferred
Securities that are converted, accrued and unpaid Distributions through the date
of conversion on such Preferred Securities called for redemption will be
distributed to the holder who converts such Preferred Securities, which
Distribution shall be made on the redemption date fixed for redemption. Except
as provided above, neither the Trust nor the Company is required to make any
payment, allowance or adjustment upon any conversion on account of any
accumulated and unpaid Distribution accrued on the Preferred Securities
surrendered for conversion, or on account of any accumulated and unpaid
dividends, if any, on the shares of Common Stock issued upon such conversion.
Trust Securities will be deemed to have been converted immediately prior to 5:00
p.m. (New York City time) on the day on which a conversion request relating to
such Trust Securities is received by the Trust (the "Conversion Date").
Notwithstanding the foregoing, no holder of Preferred Securities that is
subject to the restrictions of Section 4 of the Bank Holding Company Act of
1956, as amended (the "BHCA") (a "BHCA Person"), has the right to convert any
Preferred Securities if, after giving effect to such conversion, the BHCA
Person, its affiliates and transferees would own or be deemed to own shares of
Common Stock in excess of either the maximum number of shares of Common Stock
which the BHCA Person is permitted to own under the BHCA and the regulations of
the Board of Governors of the Federal Reserve thereunder or such lower number as
the relevant BHCA Person may have requested in writing to the conversion agent.
No BHCA Person has the right to assign or transfer its Preferred Securities
(other than to an affiliate) unless such Preferred Securities are assigned or
transferred (i) to the public in an offering registered under the Securities
Act, (ii) in a transaction pursuant to Rule 144 or 144A under the Securities Act
in which no person acquires Preferred Securities convertible into more than 2%
of the outstanding Common Stock, (iii) in a single transaction to a third party
who acquires a majority of the Common Stock without regard to the conversion of
any Preferred Securities so transferred or (iv) in any other manner permitted
under the BHCA. The conversion agent may rely on the representation of the
relevant BHCA Person that a transfer has been made in the foregoing manner.
MANDATORY REDEMPTION
The Convertible Subordinated Debentures will mature on October 1, 2029, and
may be redeemed at the redemption prices set forth herein, in whole or in part,
from time to time on or after October 15, 2002, or at any time, in whole or in
part, in certain circumstances upon the occurrence of a Tax Event. Upon the
repayment of the Convertible Subordinated Debentures, whether at maturity or
upon redemption, the proceeds from such repayment or payment simultaneously will
be applied to redeem Preferred Securities having an aggregate liquidation amount
equal to the aggregate principal amount of the Convertible Subordinated
Debentures so repaid or redeemed at the Redemption Price; provided that holders
of Preferred Securities will be given not less than 30 nor more than 60 days
notice of such redemption. See "Description of the Convertible Subordinated
Debentures." In the event that fewer than all of the outstanding Preferred
Securities are to be redeemed, the Preferred Securities will be redeemed as
described under "Form, Denomination and Registration -- Global Preferred
Security; Book Entry Form."
SPECIAL EVENT REDEMPTION OR DISTRIBUTION
"Tax Event" means that the Administrative Trustees received an opinion from
independent tax counsel experienced in such matters to the effect that, as a
result of (a) any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein or (b) any
amendment to, or change in, an interpretation or application of such laws or
regulations, there is more than an insubstantial risk that (i) the Trust would
be subject to United States federal income tax with respect to income accrued or
received on the Convertible Subordinated Debentures, (ii) interest payable to
the Trust on the Convertible Subordinated Debentures would not be deductible, in
whole or in part, by the Company for United States federal income tax
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<PAGE> 24
purposes or (iii) the Trust would be subject to more than a de minimis amount of
other taxes, duties or other governmental charges, which change or amendment are
effective on or after the date of the Offering Memorandum.
"Investment Company Event" means that the Administrative Trustees received
an opinion from independent counsel to the effect that, as a result of the
occurrence of a change in law or regulation or a written change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than an insubstantial risk that the Trust is or will be considered
an "investment company" which is required to be registered under the Investment
Company Act of 1940, as amended (the "1940 Act"), which Change in 1940 Act Law
became effective on or after the date of the Offering Memorandum.
If, at any time, a Tax Event or an Investment Company Event (each, as
defined above, a "Special Event") occurs and continues, the Trust, except in the
circumstances described below, will be dissolved with the result that, after
satisfaction of the liabilities of the Trust to creditors, Convertible
Subordinated Debentures with an aggregate principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid Distributions on, the Preferred Securities would be distributed to the
holders of the Preferred Securities, in liquidation of such holders' interests
in the Trust on a pro rata basis, within 90 days following the occurrence of
such Special Event; provided, however, that in the case of the occurrence of a
Tax Event, as a condition of such dissolution and distribution, the
Administrative Trustees received an opinion from independent tax counsel
experienced in such matters (a "No Recognition Opinion"), which opinion relies
on published revenue rulings of the Internal Revenue Service, to the effect that
the holders of the Preferred Securities will not recognize any gain or loss for
United States federal income tax purposes as a result of such dissolution and
distribution of Convertible Subordinated Debentures; and, provided, further,
that, if at the time there is available to the Trust the opportunity to
eliminate, within such 90 day period, the Tax Event by taking some ministerial
action, such as filing a form or making an election, or pursuing some other
similar reasonable measure which has no adverse effect on the Trust, the Company
or the holders of the Preferred Securities, the Trust will pursue such measure
in lieu of dissolution. Furthermore, if in the case of the occurrence of a Tax
Event, (i) the Company has received an opinion from independent tax counsel
experienced in such matters that, as a result of a Tax Event, there is more than
an insubstantial risk that the Company would be precluded from deducting the
interest on the Convertible Subordinated Debentures for United States federal
income tax purposes even after the Convertible Subordinated Debentures were
distributed to the holders of Preferred Securities in liquidation of such
holders' interests in the Trust as described above or (ii) the Administrative
Trustees shall have been informed by such tax counsel that a No Recognition
Opinion cannot be delivered, the Company shall have the right, upon not less
than 30 nor more than 60 days notice, to redeem the Convertible Subordinated
Debentures in whole or in part for cash within 90 days following the occurrence
of such Tax Event, and, following such redemption, Preferred Securities with an
aggregate liquidation amount equal to the aggregate principal amount of the
Convertible Subordinated Debentures so redeemed shall be redeemed by the Trust
at the Redemption Price on a pro rata basis; provided, however, that, if at the
time there is available to the Company or the Trust the opportunity to
eliminate, within such 90 day period, the Tax Event by taking some ministerial
action, such as filing a form or making an election, or pursuing some other
similar reasonable measure which has no adverse effect on the Trust, the holders
of the Preferred Securities or the Company, the Trust will pursue such measure
in lieu of redemption.
After the date for any distribution of Convertible Subordinated Debentures
upon dissolution of the Trust, (i) the Preferred Securities and Preferred
Securities Guarantee will no longer be deemed to be outstanding, (ii) the
depositary or its nominee, as the record holder of the Preferred Securities,
will receive a registered global certificate or certificates representing the
Convertible Subordinated Debentures to be delivered upon such distribution and
(iii) any certificates representing Preferred Securities and the Preferred
Securities Guarantee not held by the depositary or its nominee will be deemed to
represent Convertible Subordinated Debentures having an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and accrued and unpaid interest
equal to accrued and unpaid
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<PAGE> 25
Distributions on, such Preferred Securities, until such certificates are
presented to the Company or its agent for transfer or reissuance.
There can be no assurance as to the market prices for the Preferred
Securities or the Convertible Subordinated Debentures that may be distributed in
exchange for the Preferred Securities if a dissolution and liquidation of the
Trust were to occur. Accordingly, the Preferred Securities that an investor may
purchase, or the Convertible Subordinated Debentures that the investor may
receive on dissolution and liquidation of the Trust, may trade at a discount to
the price that the investor paid to purchase the Preferred Securities offered
hereby.
REDEMPTION PROCEDURES
The Trust may not redeem fewer than all of the outstanding Preferred
Securities unless all accrued and unpaid Distributions have been paid on all
Preferred Securities for all quarterly distribution periods terminating on or
prior to the date of redemption.
If the Trust gives a notice of redemption in respect of Preferred
Securities, then, by 12:00 noon, New York City time, on the redemption date,
provided that the Company has paid to the Property Trustee a sufficient amount
of cash in connection with the related redemption or maturity of the Convertible
Subordinated Debentures, the Property Trustee will irrevocably deposit with the
depositary funds sufficient to pay the applicable Redemption Price and will give
the depositary irrevocable instructions and authority to pay the Redemption
Price to the holders of the Preferred Securities. If notice of redemption shall
have been given and funds deposited as required, then immediately prior to the
close of business on the date of such deposit, Distributions will cease to
accrue and all rights of holders of such Preferred Securities so called for
redemption will cease, except the right of the holders of such Preferred
Securities to receive the Redemption Price, but without interest on such
Redemption Price. In the event that any date fixed for redemption of Preferred
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of any such delay), except
that, if such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day. In the event that payment of the
Redemption Price in respect of Preferred Securities is improperly withheld or
refused and not paid either by the Trust or by the Company pursuant to the
Preferred Securities Guarantee, Distributions on such Preferred Securities will
continue to accrue from the original redemption date to the actual date of
payment, in which case the actual payment date will be considered the date fixed
for redemption for purposes of calculating the Redemption Price.
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed pro rata.
Subject to the foregoing and to applicable law, the Company or its
affiliates, at any time and from time to time, may purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined below), the Company
will be required to cause the Trust to make an offer (a "Change of Control
Offer") to repurchase all or any part of each holder's Preferred Securities at
an offer price in cash equal to $50 per Preferred Security, plus accumulated and
unpaid Distributions and liquidated damages pursuant to the Registration
Agreement, if any, thereon to the date of repurchase. Within 30 days following a
Change of Control, the Company will mail a notice to each holder of Preferred
Securities describing the transaction that constitutes the Change of Control and
the terms of the offer to repurchase the Preferred Securities. The Company and
the Trust will comply with the requirements of the Securities Exchange Act of
1934, as amended (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 Preferred Securities as a result of a
Change of Control. The Company will be required to redeem a like amount of
Convertible Subordinated Debentures concurrently with any repurchase by the
Trust of Preferred Securities in connection with a Change of Control at a
redemption price equal to the repurchase price with respect to the Preferred
Securities.
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<PAGE> 26
A "Change of Control" will be deemed to have occurred upon the occurrence
of any of the following: (a) the sale, lease, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a series
of related transactions, of all or substantially all of the assets of the
Company and its subsidiaries, taken as a whole, (b) the adoption of a plan
relating to the liquidation or dissolution of the Company, (c) the consummation
of any transaction (including, without limitation, any merger or consolidation)
the result of which is that any "person" or "group" (as such terms are used in
Section 13(d)(3) of the Exchange Act) becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly
or indirectly through one or more intermediaries, of more than 50% of the voting
power of the outstanding voting stock of the Company, (d) the Company
consolidates with, or merges with or into, any person, or any person
consolidates with, or merges with or into, the Company, other than any such
transaction where the beneficial owners of the outstanding common stock of the
Company immediately prior to such transaction beneficially own a majority of the
outstanding shares of voting stock of the surviving person immediately after
such transaction, or (e) the first day on which more than a majority of the
members of the Board of Directors of the Company are not Continuing Directors;
provided, however, that a Change of Control shall not be deemed to have occurred
if the last reported sale price per share of the Common Stock for any ten
Trading Days (as defined) within the period of twenty consecutive Trading Days
(x) ending immediately after the later of the Change of Control and the public
announcement of the Change in Control (in the case of a Change in Control under
clause (a), (b), (c) or (e) above) or (y) ending immediately before the Change
in Control (in the case of a Change in Control under clause (d) above) shall
equal or exceed 105% of the Conversion Price in effect on each such Trading Day.
"Continuing Directors" means, as of any date of determination, any member
of the board of directors of the Company who (a) was a member of the board of
directors on the date of original issuance of the Preferred Securities or (b)
was nominated for election to the board of directors with the approval of, or
whose election was ratified by, at least two-thirds of the Continuing Directors
who were members of the board of directors at the time of such nomination or
election.
Except as described above with respect to a Change of Control, the Trust
Agreement and the Indenture do not contain provisions that permit the holders of
the Preferred Securities to require the repurchase or redemption of the
Preferred Securities in the event of a takeover, recapitalization or similar
transaction. In addition, the Company could enter into certain transactions,
including acquisitions, refinancings or other recapitalizations, that could
affect the Company's capital structure or the value of the Preferred Securities
or its Common Stock, but that would not constitute a Change of Control.
The Company will not be required to cause the Trust to make an offer to
repurchase Preferred Securities upon a Change of Control if a third party makes
the Change of Control offer described above in the manner, at the times and
otherwise in compliance with the requirements set forth in the Trust Agreement
and Indenture applicable to a Change of Control offer made by the Company and
purchases all Preferred Securities validly tendered and not withdrawn under such
Change of Control offer.
In the event Convertible Subordinated Debentures are distributed to holders
of Preferred Securities, the Company will be required to make an offer to
repurchase Convertible Subordinated Debentures in the event of a Change of
Control in the same manner as described above with respect to the Preferred
Securities.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust, the holders of the Preferred Securities
at that time will be entitled to receive out of the assets of the Trust, after
satisfaction of liabilities to creditors but prior to payments to holders of
Common Securities, distributions in an amount equal to the aggregate of the
stated liquidation amount of $50 per Preferred Security plus accrued and unpaid
Distributions thereon to the date of payment (the "Liquidation Distribution"),
unless, in connection with such liquidation, dissolution, winding-up or
termination, Convertible Subordinated Debentures in an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and accrued and unpaid interest
equal to accrued
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and unpaid Distributions on, the Preferred Securities have been distributed on a
pro rata basis to the holders of Preferred Securities.
If, upon any such dissolution, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities shall be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any such
dissolution pro rata with the holders of the Preferred Securities, except that
if an Indenture Event of Default has occurred and is continuing, the Preferred
Securities shall have a preference over the Common Securities with respect to
such distributions.
Pursuant to the Trust Agreement, the Trust shall dissolve (i) on January 1,
2030, the expiration of the term of the Trust, (ii) upon the bankruptcy of the
Company, (iii) upon the filing of a certificate of dissolution or its equivalent
with respect to the Company (except for permitted mergers, consolidations or
reorganizations of the Company) or the revocation of the charter of the Company
and the expiration of 90 days after the date of revocation without a
reinstatement thereof, (iv) upon the distribution of the Convertible
Subordinated Debentures upon the occurrence of a Special Event, (v) upon the
redemption of all of the Trust Securities in connection with the redemption of
all of the Convertible Subordinated Debentures, (vi) upon the distribution of
Common Stock to all holders of Preferred Securities upon conversion of all
outstanding Preferred Securities or (vii) upon the entry of a decree of a
judicial dissolution of the Trust.
TRUST AGREEMENT EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Trust Agreement with respect to the
Trust Securities (a "Trust Agreement Event of Default"), provided that pursuant
to the Trust Agreement the holder of the Common Securities is deemed to have
waived any Trust Agreement Event of Default with respect to the Common
Securities until all Trust Agreement Events of Default with respect to the
Preferred Securities have been cured, waived or otherwise eliminated. Until such
Trust Agreement Events of Default with respect to the Preferred Securities have
been so cured, waived or otherwise eliminated, the Property Trustee is deemed to
be acting solely on behalf of the holders of the Preferred Securities and only
the holders of the Preferred Securities have the right to direct the Property
Trustee with respect to certain matters under the Trust Agreement and therefore
under the Indenture. In the event that any Trust Agreement Event of Default with
respect to the Preferred Securities is waived by the holders of the Preferred
Securities as provided in the Trust Agreement, the holders of Common Securities
pursuant to the Trust Agreement have agreed that such waiver also would
constitute a waiver of such Trust Agreement Event of Default with respect to the
Common Securities for all purposes under the Trust Agreement without any further
act, vote or consent of the holders of Common Securities. See "Description of
the Preferred Securities -- Voting Rights."
If the Property Trustee fails to enforce its rights under the Convertible
Subordinated Debentures, any holder of Preferred Securities may directly
institute a legal proceeding against the Company to enforce the Property
Trustee's rights under the Convertible Subordinated Debentures, without first
instituting any legal proceeding against the Property Trustee or any other
person or entity. Notwithstanding the foregoing, if a Trust Agreement Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Convertible
Subordinated Debentures when due (taking into account any Extension Period or,
in the case of redemption, the redemption date), then a holder of Preferred
Securities may directly institute a proceeding for enforcement of payment to
such holder of the principal of or interest on the Convertible Subordinated
Debentures having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities of such holder. In connection with such action, the
Company is subrogated to the rights of such holder of Preferred Securities under
the Trust Agreement to the extent of any payment made by the Company to such
holder of Preferred Securities in such action. The holders of Preferred
Securities will not be able to exercise directly any other remedy available to
the holders of the Convertible Subordinated Debentures.
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Upon the occurrence of a Trust Agreement Event of Default, the Property
Trustee, as the sole holder of the Convertible Subordinated Debentures, will
have the right under the Indenture to declare the principal of and interest on
the Convertible Subordinated Debentures to be immediately due and payable.
VOTING RIGHTS
Except as provided below, under "Description of the Preferred Securities
Guarantee -- Amendments and Assignment" and as otherwise required by law and the
Trust Agreement, the holders of the Preferred Securities have no voting rights.
If (i) the Trust fails to pay Distributions in full on the Preferred
Securities for six consecutive quarterly distribution periods, or (ii) a Trust
Agreement Event of Default occurs and is continuing (each, an "Appointment
Event"), then the holders of the Preferred Securities, acting as a single class,
will be entitled by the majority vote of such holders to appoint a Special
Administrative Trustee. For purposes of determining whether the Trust has failed
to pay Distributions in full for six consecutive quarterly distribution periods,
Distributions shall be deemed to remain in arrears, notwithstanding any payments
in respect thereof, until full cumulative Distributions have been or
contemporaneously are paid with respect to all quarterly distribution periods
terminating on or prior to the date of payment of such cumulative Distributions.
Any holder of Preferred Securities (other than the Company or any of its
affiliates) shall be entitled to nominate any person to be appointed a Special
Administrative Trustee. Not later than 30 days after such right to appoint a
Special Administrative Trustee arises, the Administrative Trustees shall convene
a meeting of the holders of Preferred Securities for the purpose of appointing a
Special Administrative Trustee. If the Administrative Trustees fail to convene
such meeting within such 30-day period, the holders of not less then 10% of the
aggregate stated liquidation amount of the outstanding Preferred Securities will
be entitled to convene such meeting. The provisions of the Trust Agreement
relating to the convening and conduct of the meetings of the holders will apply
with respect to any such meeting. Any Special Administrative Trustee so
appointed shall cease to be a Special Administrative Trustee if the Appointment
Event pursuant to which the Special Administrative Trustee was appointed and all
other Appointment Events cease to be continuing. Notwithstanding the appointment
of any Special Administrative Trustee, the Company shall retain all rights under
the Indenture, including the right to declare an Extension Period as provided
under "Description of the Convertible Subordinated Debentures -- Option to
Extend Interest Payment Period." If such an Extension Period occurs, there will
be no Indenture Event of Default, and therefore no Trust Agreement Event of
Default, for failure to make any scheduled interest payment during the Extension
Period on the date originally scheduled.
The holders of a majority in aggregate liquidation amount of the
outstanding Preferred Securities have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Property
Trustee, or to direct the exercise of any trust or power conferred upon the
Property Trustee under the Trust Agreement, including the right to direct the
Property Trustee, as the holder of the Convertible Subordinated Debentures, to
(i) direct the time, method or place of conducting any proceeding for any remedy
available to the Indenture Trustee or exercise any trust or power conferred on
the Indenture Trustee with respect to the Convertible Subordinated Debentures,
(ii) waive any past Indenture Event of Default which is waivable under the
Indenture, (iii) exercise any right to rescind or annul a declaration that the
principal of all the Convertible Subordinated Debentures shall be due and
payable or (iv) consent to any amendment, modification or termination of the
Indenture or the Convertible Subordinated Debentures where such consent shall be
required. If the Property Trustee fails to enforce its rights under the
Convertible Subordinated Debentures, a holder of Preferred Securities may
institute a legal proceeding directly against the Company to enforce the
Property Trustee's rights under the Convertible Subordinated Debentures without
first instituting any legal proceeding against the Property Trustee or any other
person or entity. The Property Trustee will notify all holders of the Preferred
Securities of any notice of default received from the Indenture Trustee with
respect to the Convertible Subordinated Debentures. Such notice will state that
such Indenture Event of Default also constitutes a Trust Agreement Event of
Default. Except with respect to directing the time, method and place of
conducting a proceeding for a remedy, the Property Trustee will not take any
action described in clauses (i), (ii), (iii) or (iv) above unless the Property
Trustee has obtained an opinion of
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independent tax counsel to the effect that, as a result of such action, the
Trust will not be classified as other than a grantor trust for United States
federal income tax purposes.
In the event the consent of the Property Trustee, as the holder of the
Convertible Subordinated Debentures, is required under the Indenture with
respect to any amendment, modification or termination of the Indenture, the
Property Trustee will request the direction of the holders of the Preferred
Securities with respect to such amendment, modification or termination and will
vote with respect to such amendment, modification or termination as directed by
a majority in liquidation amount of the Preferred Securities voting together as
a single class. The Property Trustee will not take any such action in accordance
with the directions of the holders of the Preferred Securities unless the
Property Trustee has obtained an opinion of independent tax counsel to the
effect that, as a result of such action, the Trust will not be classified as
other than a grantor trust for United States federal income tax purposes.
A waiver of an Indenture Event of Default by the Property Trustee at the
direction of the holders of the Preferred Securities constitutes a waiver of the
corresponding Trust Agreement Event of Default.
Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or pursuant
to written consent. The Administrative Trustees will cause a notice of any
meeting at which holders of Preferred Securities are entitled to vote, or of any
matter upon which action by written consent of such holders is to be taken, to
be mailed to each holder of record of Preferred Securities. Each such notice
will include a statement setting forth (i) the date of such meeting or the date
by which such action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such holders are entitled to vote
or of such matter upon which written consent is sought and (iii) instructions
for the delivery of proxies or consents. No vote or consent of the holders of
Preferred Securities will be required for the Trust to redeem and cancel
Preferred Securities or distribute Convertible Subordinated Debentures in
accordance with the Trust Agreement.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities at such time that are owned by the Company or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with the Company, will not be entitled to vote or consent and, for
purposes of such vote or consent, will be treated as if they were not
outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "Form, Denomination and
Registration -- Global Preferred Security; Book-Entry Form."
Except in the limited circumstances described above in connection with the
appointment of a Special Administrative Trustee, holders of the Preferred
Securities will have no rights to appoint or remove the trustees, who may be
appointed, removed or replaced solely by the Company, as the direct or indirect
holder of all the Common Securities.
MODIFICATION OF THE TRUST AGREEMENT
The Trust Agreement may be amended from time to time by the Property
Trustee, the Administrative Trustees and the Company, without the consent of any
holders of Preferred Securities, (i) to cure any ambiguity, correct or
supplement any provision therein which may be inconsistent with any other
provision therein, or to make any other provisions with respect to matters or
questions arising under the Trust Agreement, which shall not be inconsistent
with the other provisions of this Trust Agreement, (ii) to modify, eliminate or
add to any provisions of the Trust Agreement to such extent as shall be
necessary to ensure that the Trust will be classified for United States federal
income tax purposes as a grantor trust at all times that any Preferred
Securities are outstanding or to ensure that the Trust will not be required to
register as an investment company under the 1940 Act or (iii) to cause the Trust
Agreement to be qualified under the Trust Indenture Act of 1939, as amended,
provided, however, that in the case of clause (i), (ii) or (iii), such action
shall not adversely affect in any material respect the interests of any holder
of Preferred Securities. Any such
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amendments of the Trust Agreement shall become effective when notice thereof is
given to the holders of Preferred Securities.
Any provision of the Trust Agreement may be amended by the Trustee and the
Company with (i) the consent of holders of Preferred Securities representing not
less than a majority (based upon liquidation amounts) of the Preferred
Securities then outstanding and (ii) receipt by the Trustees of an opinion of
counsel to the effect that such amendment or the exercise of any power granted
to the Trustees in accordance with such amendment will not affect the Trust's
status as a grantor trust for United States federal income tax purposes or the
Trust's exemption from status of an investment company under the 1940 Act;
provided that, without the consent of each affected holder, the Trust Agreement
may not be amended to (a) change the amount or timing of any Distribution on the
Preferred Securities or otherwise adversely affect the amount of any
Distribution required to be made in respect of the Preferred Securities as of a
specified date or (b) restrict the right of a holder to institute suit for the
enforcement of any such payment on or after such date.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety to, any corporation or other body, except as
described below. The Trust, with the consent of the Administrative Trustees and
without the consent of the holders of the Preferred Securities, may consolidate,
amalgamate, merge with or into, or be replaced by, or convey, transfer or lease
its properties and assets substantially as an entirety to a trust organized as
such under the laws of any State, provided, that (i) such successor entity
either (x) expressly assumes all of the obligations of the Trust with respect to
the Preferred Securities or (y) substitutes for the Preferred Securities other
securities having substantially the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor Securities rank the same as the
Preferred Securities rank in priority with respect to distributions and payments
upon liquidation, redemption and otherwise, (ii) the Company expressly appoints
a trustee of such successor entity possessing the same powers and duties as the
Property Trustee as the holder of the Convertible Subordinated Debentures, (iii)
the Successor Securities are listed or traded, or any Successor Securities will
be listed upon notification of issuance, on any national securities exchange or
other organization on which the Preferred Securities are then listed or traded,
(iv) such merger, consolidation, amalgamation, replacement, conveyance, transfer
or lease does not cause the Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, (v) such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease does not adversely affect the rights, preferences
and privileges of the holders of the Preferred Securities (including any
Successor Securities) in any material respect (other than with respect to any
dilution of the holders' interest in the new entity), (vi) such successor entity
has a purpose substantially identical to that of the Trust, (vii) prior to such
merger, consolidation, amalgamation, replacement, conveyance, transfer or lease,
the Company has received an opinion from independent counsel to the Trust
experienced in such matters to the effect that (a) such merger, consolidation,
amalgamation, replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of the Preferred
Securities (including any Successor Securities) in any material respect (other
than with respect to any dilution of the holders' interest in the new entity)
and (b) following such merger, consolidation, amalgamation, replacement,
conveyance, transfer or lease, neither the Trust nor such successor entity will
be required to register as an investment company under the 1940 Act and (viii)
the Company owns all of the common securities of such successor entity and
guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Preferred Securities
Guarantee. Notwithstanding the foregoing, the Trust will not, except with the
consent of holders of 100% in liquidation amount of the Preferred Securities,
consolidate, amalgamate, merge with or into, or be replaced by or convey,
transfer or lease its properties and assets substantially as an entirety to any
other entity or permit any other entity to consolidate, amalgamate, merge with
or into, or replace it if such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Trust or the successor entity to
be classified for United States federal income tax purposes as other than a
grantor trust. In addition, so long as any Preferred Securities are outstanding
and are not held entirely by the Company, the Trust may not voluntarily
liquidate, dissolve, wind-up or terminate except as described above under
"-- Special Event Redemption or Distribution."
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FORM, DENOMINATION AND REGISTRATION
The Preferred Securities are issued in fully registered form, without
coupons.
Global Preferred Security; Book-Entry Form
The Preferred Securities were initially evidenced by one or more global
Preferred Securities (collectively, the "Global Security"), which were deposited
with, or on behalf of, DTC and registered in the name of Cede & Co. ("Cede") as
DTC's nominee. Except as set forth below, the Global Security may be
transferred, in whole or in part, only to another nominee of DTC or to a
successor of DTC or its nominee.
Investors may hold their interests in the Global Security directly through
DTC if such holders are participants in DTC, or indirectly through organizations
that are participants in DTC ("Participants"). Transfers between Participants
are effected in the ordinary way in accordance with DTC rules and will be
settled in immediately available funds. The laws of some jurisdictions may
require that certain persons take physical delivery of securities in definitive
form. Consequently, the ability to transfer beneficial interests in the Global
Security to such persons may be limited.
Investors who are not Participants may beneficially own interests in the
Global Security held by DTC only through Participants or certain banks, brokers,
dealers, trust companies and other parties that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
("Indirect Participants"). So long as Cede, as the nominee of DTC, is the
registered owner of the Global Security, Cede for all purposes will be
considered the sole holder of the Global Security. Except as provided below,
owners of beneficial interests in the Global Security are entitled to have
certificates registered in their names, are not entitled to receive physical
delivery of certificates in definitive registered form, and are not considered
the holders hereof.
Distributions on the Global Security made to Cede, the nominee for DTC, as
the registered owner of the Global Security by wire transfer of immediately
available funds. None of the Company, the Trust or any Regular Trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global
Security or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
The Company has been informed by DTC that DTC's practice is to credit
Participant's accounts on the relevant payment date with payments in amounts
proportionate to their respective beneficial interests in the Preferred
Securities represented by the Global Security as shown on the records of DTC
(adjusted as necessary so that such payments are made with respect to whole
Preferred Securities only), unless DTC has reason to believe that it will not
receive payment on such payment date. Payments by Participants to owners of
beneficial interests in Preferred Securities represented by the Global Security
held through such Participants will be the responsibility of such Participants,
as is now the case with securities held for the accounts of customers registered
in "street name."
Beneficial holders of Preferred Securities who desire to convert them into
Common Stock should contact their brokers or other Participants or Indirect
Participants to obtain information on procedures, including proper forms and
cut-off times, for submitting such request. Because DTC can only act on behalf
of Participants, who in turn act on behalf of Indirect Participants and certain
banks, the ability of a person having a beneficial interest in the Preferred
Securities represented by the Global Security to pledge such interest to persons
or entities that do not participate in the DTC system, or otherwise take actions
in respect of such interest, may be affected by the lack of a physical
certificate evidencing such interest.
None of the Company, the Trusts or any Administrative Trustee (or any
registrar, paying agent or conversion agent) has any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations. DTC has advised the Company that it will take any action permitted
to be taken by a holder of Preferred Securities (including, without limitation,
the presentation of Preferred Securities for conversion), only at the direction
of one or more Participants to whose account with DTC interests in the Global
Security are credited, and only in
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respect of the Preferred Securities represented by the Global Security as to
which such Participant or Participants has or have given such direction.
DTC has advised the Company and the Trust as follows: DTC is a limited
purpose trust company organized under the laws of the State of New York, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the Uniform Commercial Code and a "clearing agency" registered
pursuant to the provisions of Section 17A of the Exchange Act. DTC was created
to hold securities for its Participants and to facilitate the clearance and
settlement of securities transactions between Participants through electronic
book-entry changes to the accounts of its Participants, thereby eliminating the
need for physical movement of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations such as the Initial Purchaser. Certain of
such Participants (or their representatives), together with other entities, own
DTC. Indirect access to the DTC system is available to others such as banks,
brokers, dealers and trust companies that clear through, or maintain a custodial
relationship with, a Participant, either directly or indirectly.
Conveyance of notices and other communications by DTC to Participants, by
Participants to Indirect Participants and Indirect Participants to beneficial
owners are governed by arrangements among them, subject to any statutory or
regulatory requirements that may be in effect from time to time. Redemption
notices will be sent to Cede. If less than all of the Preferred Securities are
being redeemed, DTC will reduce the amount of the interest of each Participant
in such Preferred Securities in accordance with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede will itself consent
or vote with respect to Preferred Securities. Under its usual procedures, DTC
would mail an omnibus proxy to the Trust as soon as possible after the record
date. The omnibus proxy assigns Cede consenting or voting rights to those
Participants to whose accounts the Preferred Securities are credited on the
record date (identified in a listing attached to the omnibus proxy). The Company
and the Trust believe that the arrangements among DTC, the Participants and
Indirect Participants, and beneficial owners will enable the beneficial owners
to exercise rights equivalent in substance to the rights that can be directly
exercised by a holder of a beneficial interest in the Trust.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depositary is not obtained, certificates for the Preferred Securities are
required to be printed and delivered. Additionally, the Administrative Trustees
(with the consent of the Company) may decide to discontinue use of the system of
book-entry transfers through DTC (or any successor depositary) with respect to
the Preferred Securities. In that event, certificates for the Preferred
Securities will be printed and delivered.
The information set forth above concerning DTC and DTC's book-entry system
has been obtained from sources that the Company and the Trust believe to be
reliable, but neither the Company nor the Trust takes responsibility for the
accuracy thereof.
Certificated Preferred Securities
Certificated Preferred Securities may be issued in exchange for Preferred
Securities represented by the Global Security if a depositary is unwilling or
unable to continue as depositary for the Global Security as set forth above
under "-- Global Preferred Security; Book-Entry Form."
REPORTS
The Company will file all annual and quarterly reports and the information,
documents, and other reports that the Company is required to file with the
Securities and Exchange Commission (the "Commission") pursuant to Section 13(a)
or 15(d) of the Exchange Act ("SEC Reports") with the Indenture Trustee and the
Property Trustee within 15 days after it files them with the Commission. In the
event the Company is not required or shall cease to be required to file SEC
Reports, pursuant to the Exchange Act, the Company will nevertheless continue to
file such reports with the Commission (unless the Commission will not accept
such a
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filing). Whether or not required by the Exchange Act to file SEC Reports with
the Commission, so long as any Preferred Securities or Convertible Subordinated
Debentures are outstanding, the Company will furnish copies of the SEC Reports
to the holders of Preferred Securities and Convertible Subordinated Debentures
at the time the Company is required to make such information available to the
Indenture Trustee and the Property Trustee and to prospective investors who
request it in writing. In addition, the Company has agreed that, for so long as
any Preferred Securities or Convertible Subordinated Debentures remain
outstanding, it will furnish to the holders and prospective investors, upon
their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to a Registration Agreement (the "Registration Agreement") among
the Company, the Trust and the Initial Purchaser, the Company and the Trust have
agreed to file a shelf registration statement (the "Shelf Registration
Statement") with the Commission to cover resales of Transfer Restricted
Securities (as defined below) by holders thereof who satisfy certain conditions
relating to the provision of information in connection with the Shelf
Registration Statement, and to use their best efforts to cause the Shelf
Registration Statement to be declared effective as promptly as possible by the
Commission.
"Transfer Restricted Securities" for this purpose, means each Preferred
Security and each share of Common Stock issuable upon conversion of Preferred
Securities until (1) the date on which such security has been effectively
registered under the Securities Act and disposed of in accordance with the Shelf
Registration Statement or (2) the date on which such security is distributed to
the public pursuant to Rule 144 under the Securities Act or may be distributed
to the public pursuant to Rule 144(k) under the Securities Act.
The Registration Agreement provides that (a) the Company and the Trust will
file the Shelf Registration Statement with the Commission on or prior to 90 days
after the consummation of this offering, (b) the Company and the Trust will use
their reasonable best efforts to have the Shelf Registration Statement declared
effective by the Commission on or prior to 180 days after the consummation of
the offering and (c) the Company and the Trust will use their reasonable best
efforts to maintain the effectiveness of the Shelf Registration Statement for a
period ending on the earlier of the second anniversary of the original issuance
of the Preferred Securities and the date when all Transfer Restricted Securities
covered by the Shelf Registration Statement have been sold. If (i) the Company
and the Trust fail to file the Shelf Registration Statement on or prior to the
90th day after the consummation of the offering, (ii) the Shelf Registration
Statement is not declared effective by the Commission on or prior to the 180th
day after the consummation of the offering (the "Effectiveness Target Date") or
(iii) the Shelf Registration Statement is declared effective but thereafter
ceases to be effective or usable for any period (provided, that for purposes of
this clause (iii), the Company will have the option of suspending the
effectiveness of the Shelf Registration Statement, without becoming obligated to
pay Preferred Stock Liquidated Damages, for periods of up to a total of 60 days
in any calendar year if the board of directors of the Company determines that
compliance with the disclosure obligations necessary to maintain the
effectiveness of the Shelf Registration Statement at such time could reasonably
be expected to have an adverse effect on the Company or a pending corporate
transaction) (each such event referred to in clauses (i) through (iii), a
"Registration Default"), then the Company will cause the Trust to pay to each
holder of Transfer Restricted Securities liquidated damages ("Liquidated
Damages") at a per annum rate of .25% of the liquidation preference of the
Preferred Securities constituting Transfer Restricted Securities for the first
90 days during which one or more Registration Defaults exist and .50% of the
liquidation preference thereafter, which Liquidated Damages shall accrue from
the date of the Registration Default until such Registration Default is cured
and which shall be payable in cash. Following the cure of all Registration
Defaults, the accrual of Liquidated Damages will cease.
Holders of Transfer Restricted Securities will be required to deliver
certain information to the Company to be used in connection with the Shelf
Registration Statement in order to have their Transfer Restricted Securities
included in the Shelf Registration Statement and benefit from the provisions
regarding Liquidated Damages set forth above. The Company intends to distribute
a questionnaire to each holder of Preferred Securities with respect to such
information. Holders of the Preferred Securities must return the completed
questionnaire to the Company by the close of business on the date specified
therein.
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INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities, undertakes to perform only such duties as are specifically
set forth in the Trust Agreement and, after default, shall exercise the same
degree of care as a prudent individual would exercise in the conduct of his or
her own affairs. Subject to such provisions, the Property Trustee is under no
obligation to exercise any of the powers vested in it by the Trust Agreement at
the request of any holder of Preferred Securities, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby. The Property Trustee also serves as Preferred Guarantee
Trustee under the Preferred Securities Guarantee.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
The Property Trustee acts as paying agent with respect to the Preferred
Securities and may designate an additional or substitute paying agent at any
time. Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment (with the giving of such
indemnity as the Trust or the Company may require) in respect of any tax or
other government charges which may be imposed in relation to it. The Trust will
not be required to register or cause to be registered the transfer of Preferred
Securities after such Preferred Securities have been called for redemption.
GOVERNING LAW
The Trust Agreement and the Preferred Securities are governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Administrative Trustees are authorized and directed to operate the
Trust in such a way so that the Trust will not be deemed to be an "investment
company" required to be registered under the 1940 Act or characterized for
United States federal income tax purposes as other than a grantor trust. In this
connection, the Administrative Trustees and the Company are authorized to take
any action, not inconsistent with applicable law or the Trust Agreement, that
each of the Administrative Trustees and the Company determines in its discretion
to be necessary or desirable for such purposes, as long as such action does not
materially and adversely affect the interests of the holders of the Preferred
Securities.
DESCRIPTION OF THE PREFERRED SECURITIES GUARANTEE
Set forth below is a summary of information concerning the Preferred
Securities Guarantee that was executed and delivered by the Company for the
benefit of the holders from time to time of Preferred Securities. Wilmington
Trust Company acts as indenture trustee under the Preferred Securities Guarantee
(the "Preferred Guarantee Trustee"). The following summary does not purport to
be complete and is subject in all respects to the provisions of, and is
qualified in its entirety by reference to, the Preferred Securities Guarantee, a
copy of which will be available upon request from the Company. The Preferred
Securities Guarantee is held by the Preferred Guarantee Trustee for the benefit
of holders of the Preferred Securities.
GENERAL
Pursuant to the Preferred Securities Guarantee, the Company will
irrevocably agree, to the extent set forth therein, to pay in full to the
holders of the Preferred Securities, the Guarantee Payments (as defined below)
(without duplication of amounts theretofore paid by the Trust), to the extent
not paid by the Trust, as and when due, regardless of any defense, right of
set-off or counterclaim that the Trust may have or assert. The following
payments or distributions with respect to the Preferred Securities to the extent
not paid or made by the Trust (the "Guarantee Payments") will be subject to the
Preferred Securities Guarantee (without duplication): (i) any accrued and unpaid
Distributions on the Preferred Securities to the extent the Trust shall have
funds available therefor, (ii) the Redemption Price, including all accrued and
unpaid Distributions and liquidated damages pursuant to the Registration
Agreement, if any, to the date of the redemption, to the
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extent the Trust has funds available therefor with respect to the Preferred
Securities called for redemption by the Trust and (iii) upon a voluntary or
involuntary termination, winding up or liquidation of the Trust (other than in
connection with the distribution of Convertible Subordinated Debentures to the
holders of Preferred Securities or the redemption of all of the Preferred
Securities), the lesser of (a) the aggregate of the liquidation amount and all
accrued and unpaid Distributions on the Preferred Securities to the date of
payment, to the extent the Trust has funds available therefor and (b) the amount
of assets of the Trust remaining available for distribution to holders of
Preferred Securities in liquidation of the Trust. The Company's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Company to the holders of Preferred Securities or by causing the
Trust to pay such amounts to such holders.
If the Company does not make interest payments on the Convertible
Subordinated Debentures held by the Property Trustee, the Trust will not make
distributions on the Preferred Securities. The Preferred Securities Guarantee
will guarantee, on a subordinated basis, the Guarantee Payments with respect to
the Preferred Securities from the time of issuance of the Preferred Securities,
but will not apply to the payment of Distributions and other payments on the
Preferred Securities when the Property Trustee does not have sufficient funds in
the Property Account to make such Distributions or other payments. The Preferred
Securities Guarantee, when taken together with the Company's obligations under
the Convertible Subordinated Debentures, the Indenture and the Trust Agreement,
including its obligations to pay costs, expenses, debts and liabilities of the
Trust (other than with respect to the Common Securities), will provide a full
and unconditional guarantee on a subordinated basis by the Company of amounts
due on the Preferred Securities.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes that do not materially adversely affect
the rights of holders of Preferred Securities (in which case no consent will be
required), the Preferred Securities Guarantee may be amended only with the prior
approval of the holders of not less than 50% in aggregate liquidation amount of
the outstanding Preferred Securities. The manner of obtaining any such approval
of holders of the Preferred Securities is set forth under "Description of the
Preferred Securities -- Voting Rights." All guarantees and agreements contained
in the Preferred Securities Guarantee shall bind the successors, assigns,
receivers, trustees and representatives of the Company and shall inure to the
benefit of the holders of the Preferred Securities then outstanding.
TERMINATION OF THE PREFERRED SECURITIES GUARANTEE
The Preferred Securities Guarantee will terminate and be of no further
force and effect as to the Preferred Securities upon full payment of the
Redemption Price of all Preferred Securities, upon distribution of the
Convertible Subordinated Debentures to the holders of Preferred Securities, or
upon full payment of the amounts payable upon liquidation of the Trust. See
"Description of the Convertible Subordinated Debentures -- Indenture Events of
Default" for a description of the events of default and enforcement rights of
the holders of Convertible Subordinated Debentures. The Preferred Securities
Guarantee will continue to be effective or will be reinstated, as the case may
be, if at any time any holder of Preferred Securities must repay to the Trust or
the Company, or their respective successors, any sums paid to them under the
Preferred Securities or the Preferred Securities Guarantee.
EVENTS OF DEFAULT
An event of default under a Preferred Securities Guarantee will occur upon
the failure of the Company to perform any of its payment or other obligations
thereunder, provided however, that, except with respect to a payment default,
the Company shall have received a notice of default and shall not have cured
such default within 90 days after receipt of such notice.
The holders of a majority in aggregate liquidation amount of the Preferred
Securities relating to such Preferred Securities Guarantee have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Preferred Guarantee Trustee in respect of the Preferred
Securities
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Guarantee or to direct the exercise of any trust or power conferred upon the
Preferred Guarantee Trustee under the Preferred Securities Guarantee. Any holder
of Preferred Securities may institute a legal proceeding directly against the
Company to enforce such holder's rights under the Preferred Securities
Guarantee, without first instituting a legal proceeding against the Trust, the
Preferred Guarantee Trustee or any other person or entity. Notwithstanding the
foregoing, if a Trust Agreement Event of Default has occurred and is continuing
and such event is attributable to the failure of the Company to pay interest or
principal on the Convertible Subordinated Debentures on the date such interest
or principal is otherwise payable (or in the case of redemption, the redemption
date), then a holder of Preferred Securities may directly institute a proceeding
for enforcement of payment to such holder of the principal of or interest on the
Convertible Subordinated Debentures having a principal amount equal to the
aggregate liquidation amount of the Preferred Securities of such holder on or
after the respective due date specified in the Convertible Subordinated
Debentures. In connection with such action, the Company will be subrogated to
the rights of such holder of Preferred Securities under the Trust Agreement to
the extent of any payment made by the Company to such holder of Preferred
Securities in such action. The holders of Preferred Securities will not be able
to exercise directly any other remedy available to the holders of the
Convertible Subordinated Debentures. The holders of a majority in aggregate
liquidation amount of the Preferred Securities may, by vote, waive any past
event of default and its consequences under the Preferred Securities Guarantee.
STATUS OF THE PREFERRED SECURITIES GUARANTEE
The Company's obligations under the Preferred Securities Guarantee to make
the Guarantee Payments constitutes an unsecured obligation of the Company and
ranks (i) subordinate and junior in right of payment to all other liabilities of
the Company, including the Convertible Subordinated Debentures, except those
made pari passu or subordinate by their terms, and (ii) pari passu with the most
senior preferred stock now or hereafter issued by the Company and with any
guarantee now or hereafter entered into by the Company in respect of any
preferred security of any affiliate of the Company. The terms of the Preferred
Securities provide that each holder of Preferred Securities by acceptance
thereof agrees to the subordination provisions and other terms of the Preferred
Securities Guarantee. In addition, because the Company is a holding company, its
obligations under the Preferred Securities Guarantee are effectively
subordinated to all existing and future liabilities of its subsidiaries.
The Preferred Securities Guarantee constitutes a guarantee of payment and
not of collection (that is, the guaranteed party may institute a legal
proceeding directly against the guarantor to enforce its rights under the
guarantee without first instituting a legal proceeding against any other person
or entity). The Preferred Securities Guarantee is deposited with the Property
Trustee to be held for the benefit of the holders of the Preferred Securities.
Except as otherwise noted herein, the Property Trustee has the right to enforce
the Preferred Securities Guarantee on behalf of the holders of the Preferred
Securities. The Preferred Securities Guarantee will not be discharged except by
payment of the Guarantee Payments in full (without duplication of amounts
theretofore paid by the Trust).
INFORMATION CONCERNING THE PREFERRED GUARANTEE TRUSTEE
The Preferred Guarantee Trustee, prior to the occurrence of a default with
respect to a Preferred Securities Guarantee, undertakes to perform only such
duties as are specifically set forth in such Preferred Securities Guarantee and,
after default, shall exercise the same degree of care as a prudent individual
would exercise in the conduct of his or her own affairs. Subject to such
provisions, the Preferred Guarantee Trustee is under no obligation to exercise
any of the powers vested in it by the Preferred Securities Guarantee at the
request of any holder of Preferred Securities, unless offered reasonable
indemnity against the costs, expenses and liabilities which might be incurred
thereby. The Preferred Guarantee Trustee also serves as the Property Trustee.
GOVERNING LAW
The Preferred Securities Guarantee is governed by and construed in
accordance with the laws of the State of New York.
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DESCRIPTION OF THE CONVERTIBLE SUBORDINATED DEBENTURES
Set forth below is a description of the terms of the Convertible
Subordinated Debentures. The following summary description does not purport to
be complete and is subject in all respects to, and is qualified in its entirety
by reference to, the Indenture, a copy of which will be available from the
Company on request. Certain capitalized terms used herein are defined in the
Indenture.
Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Convertible Subordinated Debentures
may be distributed to the holders of Preferred Securities in liquidation of the
Trust. See "Description of the Preferred Securities -- Special Event Redemption
or Distribution."
If the Convertible Subordinated Debentures are distributed to the holders
of the Trust Securities, the Company will use its reasonable best efforts to
have the Convertible Subordinated Debentures listed on any securities exchange
as the Preferred Securities are then listed.
GENERAL
The Convertible Subordinated Debentures were issued as unsecured junior
subordinated debt securities under the Indenture. The Convertible Subordinated
Debentures were limited in aggregate principal amount to approximately
$206,186,000, such amount being the sum of the aggregate stated liquidation
amount of the Preferred Securities and the capital contributed by the Company in
exchange for the Common Securities (the "Payment").
The Convertible Subordinated Debentures are not subject to a sinking fund
provision. The Convertible Subordinated Debentures will mature on October 1,
2029 (such date, as it may be advanced as hereinafter described, the "Stated
Maturity"). If a Tax Event occurs, the Company will have the right, prior to the
termination of the Trust, to advance the Stated Maturity of the Convertible
Subordinated Debentures to the minimum extent required in order to allow for the
payments of interest in respect of the Convertible Subordinated Debentures to
continue to be tax deductible, but in no event shall the resulting maturity of
the Convertible Subordinated Debentures be less than 15 years from the date of
original issuance thereof. The Stated Maturity will be advanced only if, in the
opinion of counsel to the Company experienced in such matters, (i) after
advancing the Stated Maturity, interest paid on the Convertible Subordinated
Debentures will be deductible for United States federal income tax purposes and
(ii) advancing the Stated Maturity will not result in a taxable event to holders
of the Preferred Securities.
If the Company elects to advance the Stated Maturity of the Convertible
Subordinated Debentures, it will give notice to the Indenture Trustee, and the
Indenture Trustee will give notice of such change to the holders of the
Convertible Subordinated Debentures not less than 30 and not more than 60 days
prior to the effectiveness thereof.
If Convertible Subordinated Debentures are distributed to holders of the
Preferred Securities in liquidation of such holders' interests in the Trust,
such Convertible Subordinated Debentures will initially be issued as one or more
global securities, in respect of holders of Preferred Securities whose interests
therein are represented by a Global Security, and in the form of certificated
Convertible Subordinated Debentures, in respect of holders of Preferred
Securities whose interests therein are represented by a certificated Preferred
Security. Convertible Subordinated Debentures represented by a global security
may be issued in certificated form in exchange for a global security in the same
manner as described with respect to Preferred Securities represented by a Global
Security under "Description of the Preferred Securities -- Form, Denomination
and Registration." Convertible Subordinated Debentures issued in certificated
form will be in denominations of $50 and integral multiples thereof and may be
registered for transfer or exchanged at the offices described below. Payments on
Convertible Subordinated Debentures issued as global securities are made to the
depositary for the Convertible Subordinated Debentures. With respect to
Convertible Subordinated Debentures issued in certificated form, principal and
interest are payable, the transfer of the Convertible Subordinated Debentures is
registrable and Convertible Subordinated Debentures are exchangeable for
Convertible Subordinated Debentures of other denominations of a like aggregate
principal amount at the
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corporate trust office of the Indenture Trustee; provided, that payment of
interest may be made at the option of the Company by check mailed to the address
of the persons entitled thereto.
Except as described under "Description of the Preferred
Securities -- Change of Control," the Indenture does not contain provisions that
afford holders of Convertible Subordinated Debentures protection in the event of
a highly leveraged transaction, reorganization, restructuring, merger or similar
transaction involving the Company.
SUBORDINATION
The Indenture provides that the Convertible Subordinated Dentures are
subordinated and junior in right of payment to all Senior Indebtedness of the
Company. No payment of the principal of, premium, if any, or interest on the
Convertible Subordinated Debentures may be made: (i) during the pendency of any
receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding relative to the Company
unless the holders of Senior Indebtedness shall have received payment in full of
all amounts due or to become due on such Senior Indebtedness, or provision shall
have been made for such payment in cash or cash equivalents or otherwise in a
manner satisfactory to the holders of Senior Indebtedness; (ii) if any
Convertible Subordinated Debentures are declared due and payable before their
Stated Maturity unless the holders of the Senior Indebtedness outstanding at the
time such Convertible Subordinated Debentures so become due and payable shall
have received payment in full of all amounts due on or in respect of such Senior
Indebtedness (including any amounts due upon acceleration), or provision shall
have been made for such payment in cash or cash equivalents or otherwise in a
manner satisfactory to the holders of Senior Indebtedness; or (iii) during the
continuation of any default in the payment of principal of, premium, if any, or
interest on any Senior Indebtedness, or if any event of default with respect to
any Senior Indebtedness shall have occurred and be continuing and shall have
resulted in such Senior Indebtedness becoming or being declared due and payable
prior to the date on which it would otherwise have become due and payable,
unless and until such event of default shall have been cured or waived or shall
have ceased to exist and such acceleration shall have been rescinded or
annulled, or if any judicial proceeding shall be pending with respect to any
such default in payment or such event of default, unless all amounts due or to
become due on such Senior Indebtedness have been paid in full.
The term "Senior Indebtedness" means, with respect to the Company, whether
outstanding at the date of execution of the Indenture or thereafter incurred,
created or assumed the (i) principal, premium, if any, and interest (including
any interest accruing after the filing of any bankruptcy or insolvency
proceeding whether or not such interest constitutes an allowable claim in such
proceeding) of (A) indebtedness of such obligor for money borrowed under any
credit agreements, notes, guarantees or similar documents and (B) indebtedness
evidenced by securities, debentures, bonds or other similar instruments issued
by such obligor, (ii) all capital lease obligations of such obligor, (iii) all
obligations of such obligor issued or assumed as the deferred purchase price of
property, all conditional sale obligations of such obligor and all obligations
of such obligor under any title retention agreement (but excluding trade
accounts payable arising in the ordinary course of business), (iv) all
obligations of such obligor for the reimbursement on any letter of credit,
bankers' acceptance, security purchase facility or similar credit transaction,
(v) all obligations of such obligor (contingent or otherwise) with respect to an
interest rate or other swap, cap or collar agreements, commodity hedge
transactions or other similar instruments or agreements or foreign currency
hedge, exchange, purchase or similar instruments or agreements, (vi) all
obligations of the types referred to in clauses (i) through (v) above of other
persons for the payment of which such obligor is responsible or liable as
obligor, guarantor or otherwise and (vii) all obligations of the types referred
to in clauses (i) through (vi) above of other persons secured by any lien on any
property or asset of such obligor (whether or not such obligation is assumed by
such obligor), whether outstanding on the date of the Indenture or thereafter
created, incurred, assumed, guaranteed or in effect guaranteed by such obligor,
except for (1) any such indebtedness that is by its terms expressly subordinated
to or pari passu with the Convertible Subordinated Debentures and (2) any
indebtedness between or among such obligor or its affiliates, including all
other debt securities and guarantees in respect of those debt securities, issued
to any trust, or a trustee of such trust, partnership or other entity affiliated
with the Company that is a financing vehicle of the Company (a "financing
entity") in connection
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with the issuance by such financing entity of preferred securities or other
securities that rank pari passu with, or junior to, the Convertible Preferred
Securities. Such Senior Indebtedness shall continue to be Senior Indebtedness
and be entitled to the benefits of the subordination provisions irrespective of
any deferrals, renewals, extensions or refundings of, or amendments,
modifications, supplements or waivers of any term of such Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by the Company. As of June 30, 1999, Senior Indebtedness of
the Company aggregated approximately $1.4 billion. In addition, because the
Company is a holding company, its obligations under the Convertible Subordinated
Debentures will be effectively subordinated to all existing and future
liabilities of its subsidiaries.
CONVERSION RIGHTS
General
The Convertible Subordinated Debentures are convertible at any time, at the
option of the holders thereof and in the manner described below, into fully paid
and nonassessable shares of Common Stock at an initial conversion rate of 6.7125
shares of Common Stock for each $50 in aggregate principal amount of Convertible
Subordinated Debentures (equal to a conversion price (the "Conversion Price") of
7.4488 per share of Common Stock, subject to adjustment as described under
"-- Conversion Price Adjustments.") A holder of Convertible Subordinated
Debentures may convert any portion of the principal amount of the Convertible
Subordinated Debentures into that number of fully paid and nonassessable shares
of Common Stock (calculated as to each conversion to the nearest 1/100th of a
share) obtained by dividing the principal amount of the Convertible Subordinated
Debenture to be converted by the Conversion Price. In case a Convertible
Subordinated Debenture or portion thereof is called for redemption, such
conversion right in respect of the Convertible Subordinated Debenture or portion
so called shall expire at 5:00 p.m. (New York City time) on the second Business
Day immediately preceding the corresponding redemption date, unless the Company
defaults in making the payment due upon redemption. The Company's delivery upon
conversion of the fixed number of shares of Common Stock into which the
Convertible Subordinated Debentures are convertible (together with the cash
payment, if any, in lieu of any fractional share) shall be deemed to satisfy the
Company's obligation to pay the principal amount at maturity of the portion of
the Convertible Subordinated Debentures so converted, any unpaid interest
accrued on such Convertible Subordinated Debentures at the time of such
conversion and any interest payments thereon that would have otherwise accrued
after conversion.
Accrued interest will not be paid on Convertible Subordinated Debentures
that are converted, nor will any payment, allowance or adjustment be made for
accumulated and unpaid interest, whether or not in arrears, on converted
Convertible Subordinated Debentures, except that if any Convertible Subordinated
Debenture is converted (i) on or after a record date for payment of interest
thereon, the amount of the interest payable on the related payment date with
respect to such Convertible Subordinated Debenture will be paid by the
converting holder to the Trust and the interest payable on the related payment
date with respect to such Convertible Subordinated Debenture will be distributed
to the holder on such payment date, despite such conversion, and (ii) during an
Extension Period and after the Property Trustee mails a notice of redemption
with respect to the Convertible Subordinated Debentures that are converted,
accrued and unpaid interest through the date of conversion on such Convertible
Subordinated Debentures called for redemption will be distributed to the holder
who converts such Convertible Subordinated Debentures, which payment shall be
made on the redemption date. Except as provided above, the Company will not be
required to make any payment, allowance or adjustment upon any conversion on
account of any accumulated and unpaid interest accrued on the Convertible
Subordinated Debentures surrendered for conversion, or on account of any
accumulated and unpaid dividends, if any, on the shares of Common Stock issued
upon such conversion. Convertible Subordinated Debentures will be deemed to have
been converted immediately prior to 5:00 p.m. (New York City time) on the
Conversion Date.
Shares of Common Stock issued upon conversion of Convertible Subordinated
Debentures will be validly issued, fully paid and nonassessable. No fractional
shares of Common Stock will be issued as a result of
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conversion, but in lieu thereof such fractional interest will be paid in cash.
See "Certain Federal Income Tax Consequences -- Conversion of Preferred
Securities Into Common Stock."
Notwithstanding the foregoing, no holder of Convertible Subordinated
Debentures that is a BHCA Person has the right to convert any Convertible
Subordinated Debentures if, after giving effect to such conversion, the BHCA
Person, its affiliates and transferees would own or be deemed to own shares of
Common Stock in excess of either the maximum number of shares of Common Stock
which the BHCA Person is permitted to own under the BHCA and the regulations of
the Board of Governors of the Federal Reserve thereunder or such lower number as
the relevant BHCA Person may have requested in writing to the conversion agent.
No BHCA Person has the right to assign or transfer its Convertible Subordinated
Debentures (other than to an affiliate) unless such Convertible Subordinated
Debentures are assigned or transferred (i) to the public in an offering
registered under the Securities Act, (ii) in a transaction pursuant to Rule 144
or 144A under the Securities Act in which no person acquires Convertible
Subordinated Debentures convertible into more than 2% of the outstanding Common
Stock, (iii) in a single transaction to a third party who acquires a majority of
the Common Stock without regard to the conversion of any Convertible
Subordinated Debentures so transferred or (iv) in any other manner permitted
under the BHCA. The conversion agent may rely on the representation of the
relevant BHCA Person that a transfer has been made in the foregoing manner.
Conversion Price Adjustments
The Conversion Price is subject to adjustment (without duplication) from
time to time as follows:
Stock Dividends and Stock Splits. If the Company (i) pays a dividend
or makes a distribution with respect to the Common Stock in shares of
Common Stock, (ii) subdivides the outstanding shares of Common Stock, (iii)
combines the outstanding shares of Common Stock into a smaller number of
shares or (iv) issues by reclassification of the shares of Common Stock any
shares of capital stock of the Company, then the Conversion Price in effect
immediately prior to such action will be adjusted so that the holder of any
Convertible Subordinated Debentures thereafter surrendered for conversion
will be entitled to receive the number of shares of capital stock of the
Company which such holder would have owned immediately following such
action had such Convertible Subordinated Debentures been converted
immediately prior thereto. Any such adjustment will become effective
immediately after the record date in the case of a dividend or other
distribution and immediately after the effective date in case of a
subdivision, combination or reclassification (or immediately after the
record date if a record date shall have been established for such event).
Rights or Warrants. If the Company issues rights or warrants to all
holders of the Common Stock entitling them to subscribe for or purchase
shares of Common Stock at a price per share less than the Current Market
Price (as defined herein) per share of Common Stock, the Conversion Price
shall be adjusted to equal the price determined by multiplying the
Conversion Price in effect immediately prior to the date of issuance of
such rights or warrants by a fraction, the numerator of which will be the
number of shares of Common Stock outstanding on the date of issuance of
such rights or warrants plus the number of shares which the aggregate
offering price of the total number of shares so offered for subscription or
purchase would purchase at such Current Market Price, and the denominator
of which will be the number of shares of Common Stock outstanding on the
date of issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase. If any such
rights or warrants in respect of which an adjustment shall have been, made
shall expire unexercised, the Conversion Price will be readjusted at the
time of such expiration to the Conversion Price that would have been in
effect if no such adjustment had been made on account of the distribution
or issuance of such expired rights or warrants.
Other Distributions. If the Company, by dividend or otherwise,
distributes to all holders of the Common Stock evidences of its
indebtedness, shares of any class or series of capital stock, cash or
assets (including securities, but excluding any rights or warrants referred
to above, any dividend or distribution paid exclusively in cash and any
dividend or distribution referred to above), the Conversion Price will be
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reduced to the price determined by multiplying the Conversion Price in
effect immediately prior to such distribution by a fraction, the numerator
of which will be the Current Market Price per share of the Common Stock on
the date fixed for the payment of such distribution (the "Reference Date")
less the fair market value (as determined in good faith by the Board of
Directors) on the Reference Date of the portion of the evidences of
indebtedness, shares of capital stock, cash and assets so distributed
applicable to one share of Common Stock and the denominator of which will
be the Current Market Price per share of Common Stock. In the event that
such distribution is not so paid or made, the Conversion Price will be
adjusted to be the Conversion Price that would then be in effect if such
distribution had not occurred.
Liquidating Dividends. If the Company pays or makes a dividend or
other distribution on the Common Stock exclusively in cash (excluding all
cash dividends paid out of the retained earnings of the Company), the
Conversion Price shall be reduced to the price determined by multiplying
the Conversion Price in effect immediately prior to such dividend or
distribution by a fraction, the numerator of which will be the Current
Market Price per share of Common Stock on the date fixed for the payment of
such dividend or distribution less the amount of cash so distributed (and
not excluded as provided in the above parenthetical phrase) applicable to
one share of Common Stock and the denominator of which will be such Current
Market Price per share of the Common Stock. Such reduction will become
effective immediately prior to the opening of business on the day following
the date fixed for the payment of such distribution; provided, however,
that in the event the portion of the cash so distributed applicable to one
share of Common Stock is equal to or greater than the Current Market Price
per share of the Common Stock on the record date for the distribution of
the cash, in lieu of the foregoing adjustment, adequate provision shall be
made so that each holder of Convertible Subordinated Debentures will have
the right to receive upon conversion the amount of cash such holder would
have received had such holder converted each Convertible Subordinated
Debenture immediately prior to such record date. In the event that such
dividend or distribution is not so paid or made, the Conversion Price will
be adjusted to be the Conversion Price which would then be in effect if
such record date had not been fixed.
Tender or Exchange Offers. If the Company or any of its subsidiaries
makes a tender or exchange offer (other than an odd-lot offer) for all or
any portion of the Common Stock and such tender or exchange offer involves
the payment by the Company or such subsidiary of consideration per share of
Common Stock having a fair market value (as determined in good faith by the
Board of Directors) at the last time (the "Expiration Time") tenders or
exchanges may be made pursuant to such tender or exchange offer that
exceeds 110% of the Current Market Price per share of Common Stock on the
Trading Day next succeeding the Expiration Time, the Conversion Price shall
be reduced to the price determined by multiplying the Conversion Price in
effect immediately prior such Expiration Time by a fraction, the numerator
of which shall be the number of outstanding shares of Common Stock
(including any tendered or exchanged shares) at the Expiration Time
multiplied by the Current Market Price per share of Common Stock on the
Trading Day next succeeding the Expiration Time and the denominator of
which will be the sum of (x) the fair market value of the aggregate
consideration payable to stockholders based on the acceptance of all shares
validly tendered or exchanged and not withdrawn as of the Expiration Time
(the shares deemed so accepted, up to any such maximum, being referred to
as the "Purchased Shares") and (y) the product of the number of shares of
Common Stock outstanding (less any Purchased Shares) at the Expiration Time
and the Current Market Price per share of Common Stock on the Trading Day
next succeeding the Expiration Time, such reduction to become effective
immediately prior to the opening of business on the day following the
Expiration Time.
Definitions. The "Current Market Price" per share of Common Stock on
any date in question is the average of the daily Closing Prices (as defined
in the Indenture) for the five consecutive Trading Days (as defined in the
Indenture) selected by the Company commencing not more than 20 Trading Days
before, and ending not later than the earlier of the day in question or, if
applicable, the day before the "ex" date with respect to the issuance or
distribution requiring such computation. The term "ex" date, (i) when used
with respect to any issuance or distribution, means the first date on which
the Common Stock trades regular way on the NYSE or on such successor
securities exchange as the Common Stock may be listed or in the relevant
market from which the Closing Prices were obtained
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<PAGE> 42
without the right to receive such issuance or distribution and (ii) when
used with respect to any tender or exchange offer, means the first date on
which the Common Stock trades regular way on such securities exchange or in
such market after the Expiration Time of such offer.
No adjustment in the Conversion Price is required unless such adjustment
would require an increase or decrease of at least 1% in the Conversion Price;
provided, however, that any adjustments which are not required to be made shall
be carried forward and taken into account in determining whether any subsequent
adjustment shall be required.
No adjustment of the Conversion Price will be made upon the issuance of any
shares of Common Stock pursuant to any present or future plan providing for the
reinvestment of dividends or interest payable on securities of the Company and
the investment of additional optional amounts in shares of Common Stock under
any such plan, or the issuance of any shares of Common Stock or options or
rights to purchase such shares pursuant to any present or future employee
benefit plan or program of the Company or pursuant to any option, warrant,
right, or exercisable, exchangeable or convertible security which does not
constitute an issuance to all holders of Common Stock of rights or warrants
entitling holders of such rights or warrants to subscribe for or purchase Common
Stock at less than the Current Market Price. If any action would require
adjustment of the Conversion Price pursuant to more than one of the
anti-dilution provisions, only one adjustment shall be made and such adjustment
shall be the amount of adjustment that has the highest absolute value to holders
of the Convertible Subordinated Debentures.
CERTAIN COVENANTS
If (i) there shall have occurred any event that would constitute an Event
of Default under the Indenture, (ii) the Company shall be in default with
respect to its payment of any obligations under the Preferred Securities
Guarantee or (iii) the Company shall have given notice of its election of an
Extension Period as provided in the Indenture and such period, or any extension
thereof, shall be continuing, then the Company shall not and shall not permit
any subsidiary to, (i) declare or pay any dividends or distributions on or
redeem, purchase, acquire or make a liquidation payment with respect to, any of
the Company's capital stock, (ii) make any payment of principal of, premium, if
any, or interest on or repay, repurchase or redeem any debt security of the
Company that ranks pari passu with or junior in interest to the Convertible
Subordinated Debentures or (iii) make any guarantee payments with respect to any
guarantee by the Company of the debt securities of any subsidiary if such
guarantee ranks pari passu with or junior in interest to the Convertible
Subordinated Debentures (other than (a) dividends or distributions comprised of
the Company's capital stock, (b) any declaration of a dividend in connection
with the implementation of a Rights Plan or the redemption or repurchase of any
rights distributed pursuant to a Rights Plan, (c) payments under the Preferred
Securities Guarantee and (d) purchases of Common Stock related to any of the
Company's benefit plan for its directors, officers or employees, any dividend
reinvestment or stock purchase plan or related to the issuance of Common Stock
(or securities convertible are exchangeable for Common Stock) as consideration
in an acquisition transaction that was entered into prior to the commencement of
such Extension Period).
For so long as the Preferred Securities remain outstanding, the Company
will (i) directly or indirectly maintain 100% ownership of the Common Securities
of the Trust; provided, however, that any permitted successor of the Company
under the Indenture may succeed to the Company's ownership of such Common
Securities and (ii) use its reasonable efforts to cause the Trust (a) to remain
a statutory business trust, except in connection with the distribution of
Convertible Subordinated Debentures to the holders of Preferred Securities in
liquidation of the Trust, the redemption of all of the Preferred Securities of
the Trust, or certain mergers, consolidations or amalgamations, each as
permitted by the Trust Agreement, and (b) otherwise to continue to be classified
as a grantor trust for United States federal income tax purposes.
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<PAGE> 43
OPTIONAL REDEMPTION
The Company may redeem the Convertible Subordinated Debentures, in whole or
in part, from time to time, on or after October 15, 2002, at the redemption
prices specified below, in each case, together with accumulated and unpaid
interest (including Additional Interest, as defined below) and liquidated
damages pursuant to the Registration Agreement, if any, to the date of
redemption, upon not less than 30 nor more than 60 days' prior written notice,
if redeemed during the 12-month period commencing on October 1 (October 15 in
the case of 2002) of each of the years set forth below:
<TABLE>
<CAPTION>
PRICE PER
YEAR $50 PRINCIPAL AMOUNT
---- --------------------
<S> <C>
2002........................................................ $52.00
2003........................................................ 51.50
2004........................................................ 51.00
2005........................................................ 50.50
2006 and thereafter......................................... 50.00
</TABLE>
In addition, the Company may redeem the Convertible Securities, in whole or
in part, at any time in certain circumstances upon the occurrence of a Tax Event
as described under "Description of the Preferred Securities -- Special Event
Redemption or Distribution," upon not less than 30 nor more than 60 days'
notice, at a redemption price equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest (including Additional Interest)
and liquidated damages pursuant to the Registration Agreement, if any, to the
redemption date.
If a partial redemption of the Preferred Securities resulting from a
partial redemption of the Convertible Subordinated Debentures would result in
the delisting of the Preferred Securities from any securities exchange on which
the Preferred Securities are then listed, the Company may redeem the Convertible
Subordinated Debentures only in whole.
MANDATORY REDEMPTION
The Company is required to redeem Convertible Subordinated Debentures under
the circumstances described under "Description of the Preferred
Securities -- Change of Control."
INTEREST
Each Convertible Subordinated Debenture bears interest at the annual rate
of 7% from the original date of issuance, payable quarterly in arrears on
January 1, April 1, July 1, and October 1 of each year (each, an "Interest
Payment Date"), commencing January 1, 2000, to the person in whose name such
Convertible Subordinated Debenture is registered on the 15th day of the month
next preceding the applicable Interest Payment Date.
Interest on the Convertible Subordinated Debentures payable for any full
quarterly period is computed on the basis of a 360-day year of twelve 30-day
months and interest on the Convertible Subordinated Debentures for any partial
period shall be computed on the basis of the number of days elapsed in a 360-day
year of twelve 30-day months. In the event that any date on which interest is
payable on the Convertible Subordinated Debentures is not a Business Day, then
payment of the interest payable on such date will be made on the next succeeding
day that is a Business Day (and without any interest or other payment in respect
of any such delay), except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately preceding Business
Day, in each case with the same force and effect as if made on such date.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
So long as no Indenture Event of Default has occurred and is continuing,
the Company has the right at any time, and from time to time, during the term of
the Convertible Subordinated Debentures to defer payments of interest by
extending the interest payment period for a period not exceeding 20 consecutive
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<PAGE> 44
quarters, provided that no Extension Period may extend beyond the maturity of
the Convertible Subordinated Debentures. At the end of an Extension Period, the
Company will pay all interest then accrued and unpaid (including any Additional
Interest) (together with interest thereon at the rate specified for the
Convertible Subordinated Debentures to the extent permitted by applicable law).
During any such Extension Period, the Company will not and shall not permit any
subsidiary to, (i) declare or pay any dividends or distributions on or redeem,
purchase, acquire or make a liquidation payment with respect to, any of the
Company's capital stock, (ii) make any payment of principal of, premium, if any,
or interest on or repay, repurchase or redeem any debt security of the Company
that ranks pari passu with or junior in interest to the Convertible Subordinated
Debentures or (iii) make any guarantee payments with respect to any guarantee by
the Company of the debt securities of any subsidiary if such guarantee ranks
pari passu with or junior in interest to the Convertible Subordinated Debentures
(other than (a) dividends or distributions comprised of the Company's capital
stock, (b) any declaration of a dividend in connection with the implementation
of a Rights Plan or the redemption or repurchase of any rights distributed
pursuant to a Rights Plan, (c) payments under the Preferred Securities Guarantee
and (d) purchases of Common Stock related to any of the Company's benefit plans
for its directors, officers or employees, any dividend reinvestment or stock
purchase plan or related to the issuance of Common Stock (or securities
convertible or exchangeable for Common Stock) as consideration in an acquisition
transaction that was entered into prior to the commencement of such Extension
Period). Prior to the termination of any such Extension Period, the Company may
further defer payments of interest by extending the interest payment period,
provided that such Extension Period together with all such previous and further
extensions thereof may not exceed 20 consecutive quarters and no Extension
Period may extend beyond the maturity of the Convertible Subordinated
Debentures. Upon the termination of an Extension Period and the payment of all
amounts then due, the Company may elect a new Extension Period, as if no
Extension Period had previously been declared, subject to the above
requirements. No interest during an Extension Period, except at the end thereof,
shall be due and payable. The Company has no current intention of exercising its
rights to defer payments of interest by extending the interest payment period on
the Convertible Subordinated Debentures. If the Property Trustee shall be the
sole holder of the Convertible Subordinated Debentures, the Company shall give
the Administrative Trustees and the Property Trustee notice of its selection of
such Extension Period one Business Day prior to the earlier of (i) the date
distributions on the Preferred Securities are payable or (ii) the date the
Administrative Trustees are required to give notice to any securities exchange
or applicable self-regulatory organization or to holders of the Preferred
Securities of the record date or the date such distribution is payable, but in
any event not less than one Business Day prior to such record date. The
Administrative Trustees will give notice of the Company's election of such
Extension Period to the holders of the Preferred Securities. If the Property
Trustee shall not be the sole holder of the Convertible Subordinated Debentures,
the Company will give the holders of the Convertible Subordinated Debentures
notice of its selection of such Extension Period ten Business Days prior to the
earlier of (i) the next Interest Payment Date or (ii) the date the Company is
required to give notice to any applicable securities exchange or self-regulatory
organization or to holders of the Convertible Subordinated Debentures of the
record or payment date of such related interest payment.
ADDITIONAL INTEREST
If at any time the Trust is required to pay any taxes, duties, assessments
or governmental charges of whatever nature (other than withholding taxes)
imposed by the United States, or any other taxing authority, then, in any such
case, the Company will pay as additional interest ("Additional Interest") such
additional amounts as shall be required so that the net amounts received and
retained by the Trust after paying such taxes, duties, assessments or other
governmental charges will be not less than the amounts the Trust would have
received had no such taxes, duties, assessments or other governmental changes
been imposed.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Property Trustee, as the holder of the Convertible Subordinated Debentures, will
have the right to declare the principal of and the interest on the Convertible
Subordinated Debentures (including Additional Interest, if any) and any other
amounts payable
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<PAGE> 45
under the Indenture to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Convertible Subordinated Debentures.
The Indenture provides that any one or more of the following described
events, which has occurred and is continuing, constitutes an "Event of Default"
with respect to the Convertible Subordinated Debentures:
(a) failure for 30 days to pay interest on the Convertible
Subordinated Debentures, including any Additional Interest in respect
thereof, when due; provided, however, that a valid extension of the
interest payment period by the Company shall not constitute a default in
the payment of interest for this purpose;
(b) failure to pay principal or premium, if any, on the Convertible
Subordinated Debentures when due whether at maturity or upon earlier
redemption;
(c) failure to observe or perform any other covenant contained in the
Indenture for 90 days after written notice to the Company from the
Indenture Trustee or the holders of at least 25% in principal amount of the
outstanding Convertible Subordinated Debentures;
(d) certain events of bankruptcy, insolvency, or reorganization of the
Company; or
(e) the voluntary or involuntary dissolution, winding-up or
termination of the Trust, except in connection with the distribution of
Convertible Subordinated Debentures to the holders of Preferred Securities
in liquidation of the Trust and in connection with certain mergers,
consolidations or amalgamation permitted by the Trust Agreement.
The holders of a majority in aggregate outstanding principal amount of the
Convertible Subordinated Debentures have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Indenture
Trustee. The Indenture Trustee or the holders of not less than 25% in aggregate
outstanding principal amount of the Convertible Subordinated Debentures may
declare the principal due and payable immediately upon and during the
continuation of an Indenture Event of Default, but the holders of a majority in
aggregate outstanding principal amount may annul such declaration and waive the
default if the default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration and
any applicable premium has been deposited with the Indenture Trustee.
The holders of a majority in aggregate outstanding principal amount of the
Convertible Subordinated Debentures affected thereby, on behalf of the holders
of all the Convertible Subordinated Debentures, may waive any past default,
except (i) a default in the payment of principal, premium, if any, or interest
(unless such default has been cured and a sum sufficient to pay all matured
installments of interest and principal due otherwise than by acceleration and
any applicable premium has been deposited with the Indenture Trustee) or (ii) a
default in the covenant of the Company not to declare or pay dividends on, or
redeem, purchase or acquire any of its capital stock during an Extension Period.
An Indenture Event of Default also constitutes a Trust Agreement Event of
Default. The holders of Preferred Securities in certain circumstances have the
right to direct the Property Trustee to exercise its rights as the holder of the
Convertible Subordinated Debentures. See "Description of the Preferred
Securities -- Trust Agreement Events of Default" and "Description of the
Preferred Securities -- Voting Rights."
Notwithstanding the foregoing, if a Trust Agreement Event of Default has
occurred and is continuing and such event is attributable to the failure of the
Company to pay interest or principal on the Convertible Subordinated Debentures
on the date such interest or principal is otherwise payable, a holder of
Preferred Securities may institute a direct action for payment on or after the
respective due date specified in the Convertible Subordinated Debentures. The
Company may not amend the Indenture to remove the foregoing right to bring a
direct action without the prior written consent of the holders of all of the
Preferred Securities. Notwithstanding any payment made to such holder of
Preferred Securities by the Company in connection with such a direct action, the
Company will remain obligated to pay the principal of or interest on the
Convertible Subordinated Debentures held by the Trust or Property Trustee, and
the Company shall be subrogated to the rights of the holder of such Preferred
Securities with respect to payments on the Preferred Securities to the extent of
any payments made by the Company to such holder in any such direct action. The
holders of
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<PAGE> 46
Preferred Securities may not exercise directly any other remedy available to the
holders of the Convertible Subordinated Debentures.
PAYMENT AND PAYING AGENTS
Payment of principal of and premium (if any) on the Convertible
Subordinated Debentures will be made only against surrender to the Paying Agent
of the Convertible Subordinated Debentures. Principal of and any premium and
interest, if any, on Convertible Subordinated Debentures will be payable,
subject to any applicable laws and regulations, at the office of such Paying
Agent or Paying Agents as the Company may designate from time to time, except
that at the option of the Company payment of any interest may be made by check
mailed to the address of the person entitled thereto as such address shall
appear in the Securities Register with respect to the Convertible Subordinated
Debentures (provided, however, that payments of interest in respect of any
Convertible Subordinated Debentures represented by a global security shall be
paid to the record holder thereof by wire transfer). Payment of interest on
Convertible Subordinated Debentures on any Interest Payment Date will be made to
the person in whose name the Convertible Subordinated Debentures (or predecessor
security) is registered at the close of business on the Regular Record Date for
such interest payment.
The Indenture Trustee will act as Paying Agent with respect to the
Convertible Subordinated Debentures. The Company may at any time designate
additional Paying Agents or rescind the designation of any Paying Agents or
approve a change in the office through which any Paying Agent acts, except that
the Company is required to maintain a Paying Agent at the place of payment.
All amounts paid by the Company to a Paying Agent for the payment of the
principal of or premium or interest, if any, on the Convertible Subordinated
Debentures which remain unclaimed at the end of two years after such principal,
premium, if any, or interest shall have become due and payable will be repaid to
the Company and the holder of such Convertible Subordinated Debentures will
thereafter look only to the Company for payment thereof.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Company and the Indenture
Trustee, with the consent of the holders of not less than a majority in
principal amount of the Convertible Subordinated Debentures, to modify the
Indenture or any supplemental indenture affecting that series or the rights of
the holders of the Convertible Subordinated Debentures; provided, that no such
modification may, without the consent of the holder of each outstanding
Convertible Subordinated Debenture affected thereby, (i) extend the fixed
maturity of the Convertible Subordinated Debentures, or reduce the principal
amount thereof, or reduce the rate or extend the time of payment of interest
thereon, or reduce any premium payable upon the redemption thereof, without the
consent of the holder of Convertible Subordinated Debentures so affected or (ii)
reduce the percentage of Convertible Subordinated Debentures, the holders of
which are required to consent to any such supplemental indenture.
In addition, the Company and the Indenture Trustee may execute, without the
consent of holders of the Convertible Subordinated Debentures, any supplemental
indenture for certain other usual purposes including the creation of any new
series of convertible subordinated debentures.
CONSOLIDATION, MERGER AND SALE
The Indenture provides that the Company will not consolidate with or merge
into any other corporation or convey, transfer or lease its assets substantially
as an entirety unless (i) the successor is a corporation organized in the United
States and expressly assumes the due and punctual payment of the principal of,
premium, if any, and interest on all Convertible Subordinated Debentures issued
thereunder and the performance of every other covenant of the Indenture on the
part of the Company and (ii) immediately thereafter no Event of Default and no
event that, after notice or lapse of time, or both, would become an Event of
Default, shall have happened and be continuing. Upon any such consolidation,
merger, conveyance or transfer, the successor corporation shall succeed to and
be substituted for the Company under the Indenture
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<PAGE> 47
and thereafter the predecessor corporation shall be relieved of all obligations
and covenants under the Indenture and the Convertible Subordinated Debentures.
GOVERNING LAW
The Indenture and the Convertible Subordinated Debentures are governed by,
and construed in accordance with, the internal laws of the State of New York.
INFORMATION CONCERNING THE INDENTURE TRUSTEE
The Indenture Trustee, prior to default, undertakes to perform only such
duties as are specifically set forth in the Indenture and, after default, shall
exercise the same degree of care as a prudent individual would exercise in the
conduct of his or her own affairs. Subject to such provision, the Indenture
Trustee is under no obligation to exercise any of the powers vested in it by the
Indenture at the request of any holder of Convertible Subordinated Debentures,
unless offered reasonable indemnity by such holder against the costs, expenses
and liabilities which might be incurred thereby. The Indenture Trustee is not
required to expend or risk its own funds or otherwise incur personal financial
liability in the performance of its duties if the Indenture Trustee reasonable
believes that repayment or adequate indemnity is not reasonably assured to it.
MISCELLANEOUS
The Indenture provides that the Company will pay all fees and expenses
related to (i) the offering of the Trust Securities and the Convertible
Subordinated Debentures, (ii) the organization, maintenance and dissolution of
the Trust, (iii) the retention of the Administrative Trustees and (iv) the
enforcement by the Property Trustee of the rights of holders of Preferred
Securities.
EFFECT OF OBLIGATIONS UNDER THE CONVERTIBLE SUBORDINATED DEBENTURES
AND THE PREFERRED SECURITIES GUARANTEE
As set forth in the Trust Agreement, the sole purpose of the Trust is to
issue Trust Securities and invest the proceeds thereof in the Convertible
Subordinated Debentures.
As long as payments of interest and other payments are made when due on the
Convertible Subordinated Debentures, such payments will be sufficient to cover
Distributions and payments due on the Preferred Securities primarily because (1)
the aggregate principal amount of Convertible Subordinated Debentures will be
equal to the sum of the aggregate stated liquidation amount of the Preferred
Securities; (2) the interest rate and interest and other payment dates on the
Convertible Subordinated Debentures will match the distribution rate and
distribution and other payment dates for the Preferred Securities; (3) the
Company will pay all costs and expenses of the Trust; and (4) the Trust
Agreement provides that the Trustees will not cause or permit the Trust to,
among other things, engage in any activity that is not consistent with the
purposes of the Trust.
Payments of Distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by the Company as and to the extent set forth under
"Description of the Preferred Securities Guarantee." If the Company does not
make interest payments on the Convertible Subordinated Debentures purchased by
the Trust, it is expected that the Trust will not have sufficient funds to pay
Distributions on the Preferred Securities. The Preferred Securities Guarantee is
a guarantee on a subordinated basis from the time of its issuance, but does not
apply to any payment of Distributions unless and until the Trust has sufficient
funds for the payment of such distributions.
If the Company fails to make interest or other payments on the Convertible
Subordinated Debentures when due (taking into account any Extension Period), the
Trust Agreement provides a mechanism whereby the holders of the Preferred
Securities, using the procedures described in "Description of the Preferred
Securities -- Voting Rights," may (1) appoint a Special Administrative Trustee
and (2) direct the Property Trustee to enforce its rights under the Convertible
Subordinated Debentures, including proceeding directly against the Company to
enforce the Convertible Subordinated Debentures. If the Property Trustee fails
to
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<PAGE> 48
enforce its rights under the Convertible Subordinated Debentures, a holder of
Preferred Securities may institute a legal proceeding directly against the
Company to enforce the Property Trustee's rights under the Convertible
Subordinated Debentures without first instituting any legal proceeding against
the Property Trustee or any other person or entity. Notwithstanding the
foregoing, if a Trust Agreement Event of Default has occurred and is continuing
and such event is attributable to the failure of the Company to pay interest or
principal on the Convertible Subordinated Debentures when due (taking into
account any Extension Period or in the case of redemption, on the redemption
date), then a holder of Preferred Securities may institute an action for
payment. The Company will be subrogated to the rights of such holder of
Preferred Securities under the Trust Agreement to the extent of any payment made
by the Company to such holder of Preferred Securities in such action. The
Company, under the Preferred Securities Guarantee, acknowledges that the
Preferred Guarantee Trustee will enforce the Preferred Securities Guarantee on
behalf of the holders of the Preferred Securities.
If the Company fails to make payments under the Preferred Securities
Guarantee, the Preferred Securities Guarantee provides a mechanism whereby the
holders of the Preferred Securities may direct the Preferred Guarantee Trustee
to enforce its rights thereunder. If the Preferred Guarantee Trustee fails to
enforce the Preferred Securities Guarantee, any holder of Preferred Securities
may institute a legal proceeding directly against the Company to enforce the
Preferred Guarantee Trustee's rights under the Preferred Securities Guarantee,
without first instituting a legal proceeding against the Trust, the Preferred
Guarantee Trustee or any other person or entity.
The Preferred Securities Guarantee, when taken together with the Company's
obligations under the Convertible Subordinated Debentures, the Indenture and the
Trust Agreement, including its obligations under the Indenture to pay costs,
expenses, debts and liabilities of the Trust (other than with respect to the
Trust Securities), provides a full and unconditional guarantee of amounts due on
the Preferred Securities. See "Description of the Preferred Securities
Guarantee -- General."
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Our authorized capital stock consists of 410,000,000 shares of capital
stock, of which 400,000,000 shares of Common Stock, par value $.001 per share,
500,000 shares of Series C Junior Participating Preferred Stock, par value $.001
per share ("Series C Preferred Stock") and 9,500,000 shares of other Preferred
Stock, par value $.001 per share, are authorized for issuance. As of September
17, 1999, 199,494,807 shares of common stock were outstanding and no shares of
any preferred stock are outstanding. Our common stock is listed on the New York
Stock Exchange under the symbol "MDM."
COMMON STOCK
Holders of our Common Stock are entitled to one vote for each share held of
record on all matters to be submitted to a vote of the stockholders and do not
have preemptive rights. Subject to the rights of holders of any outstanding
shares of our Preferred Stock, holders of our Common Stock are entitled to
receive ratably dividends, if any, as from time to time may be declared by our
board of directors out of legally available funds. All outstanding shares of our
Common Stock are fully paid and nonassessable. In the event of a liquidation,
dissolution or winding-up of our affairs, holders of our Common Stock will be
entitled to share ratably in our assets remaining after payment or provision for
payment of all of our debts and obligations and liquidation payments to holders
of any outstanding shares of our Preferred Stock.
PREFERRED STOCK
The board of directors has the authority without further stockholder
authorization, to issue Preferred Stock in one or more series and to fix the
rights, designation, preferences, qualifications and limitations thereof,
including dividend rights and preferences over dividends on our Common Stock and
one or more series of our Preferred Stock, conversion rights, voting rights,
redemption rights and the terms of any sinking
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<PAGE> 49
fund therefor, and rights upon liquidation, dissolution or winding up, including
preferences over our Common Stock and one or more series of our Preferred Stock.
Although we have no present plans to issue any shares of our Preferred Stock,
the issuance of shares of our Preferred Stock, or the issuance of rights to
purchase such shares, may have the effect of delaying, deferring or preventing a
change in control of our company or an unsolicited acquisition proposal.
For a further description on the Series C Junior Participating Preferred
Stock see "-- Stockholder Rights Plan."
CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND THE DGCL
Classified Board of Directors. Our Certificate of Incorporation and Bylaws
provide for our board of directors to be divided into three classes of
directors, with one-third of the total number of directors serving staggered
terms so that directors' terms expire either at the 2000, 2001 or 2002 annual
meeting of stockholders.
The classified board of directors will help to assure the continuity and
stability of our board of directors and our business strategies and policies as
determined by our board of directors, since a majority of the directors at any
given time will have had prior experience on our board. We believe that this, in
turn, will permit our board of directors to more effectively represent the
interests of stockholders.
With a classified board of directors, it would normally take at least two
annual meetings of stockholders to effect a change in the majority of our board
of directors. As a result, a provision relating to a classified board of
directors may discourage proxy contests for the election of directors or
purchases of a substantial block of our Common Stock because its provisions
could operate to prevent obtaining control of our board of directors in a
relatively short period of time. The classification provision could also have
the effect of discouraging a third party from making a tender offer or otherwise
attempting to obtain control of us. Under the DGCL, unless the certificate of
incorporation otherwise provides, a director on a classified board may be
removed by the stockholders of the corporation only for cause. Our Certificate
of Incorporation does not provide otherwise.
Advance Notice Provisions for Stockholder Proposals and Stockholder
Nominations of Directors. Our fourth amended and restated bylaws establish an
advance notice procedure with regard to the nomination, other than by or at the
direction of our board of directors or a nominating committee of candidates, for
election of directors or other matters to be brought by stockholders before an
annual meeting of our stockholders.
To nominate a candidate for election to the board of directors, a
stockholder is required to give prior written notice of the nomination to our
corporate secretary. Our bylaws specify the requirements as to the form and
timing of the notice. The nomination will be disregarded if the Chairman of our
board of directors determines that a person was not nominated in accordance with
these requirements.
To properly bring business before an annual meeting of stockholders, a
stockholder must give prior written notice, in proper form, to our corporate
secretary. Our bylaws specify the requirements as to the form and timing of the
notice required. The business will not be conducted at the meeting if the
Chairman of our board of directors determines that the other business was not
properly brought before such meeting in accordance with these requirements.
Although our bylaws do not give our board of directors any power to approve
or disapprove stockholder nominations for the election of directors or of any
other business desired by stockholders to be conducted at an annual or any other
meeting, the failure of a stockholder to follow the proper procedure required in
the bylaws may have the effect of precluding a nomination for the election of
directors, the conduct of business at a particular annual meeting or
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of us, even if the conduct of such solicitation or such attempt might be
beneficial to us and our stockholders.
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Delaware Takeover Statute. We are subject to Section 203 of the DGCL
which, generally prohibits a Delaware corporation from engaging in "business
combinations" with any "interested stockholder" for a period of three years
following the time that such stockholder became an interested stockholder,
unless:
- prior to such time, the board of directors of the corporation approved
either the business combination or the transaction which resulted in
the stockholder becoming an interested stockholder, or
- upon consummation of the transaction which resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned
at least 85% of the voting stock of the corporation outstanding at the
time the transaction commenced, excluding for purposes of determining
the number of shares outstanding those shares owned:
- by persons who are directors and also officers, and
- employee stock plans in which employee participants do not have the
right to determine confidentially whether shares held subject to
the plan will be tendered in a tender or exchange offer, or
- at or subsequent to that time, the business combination is approved by
the board of directors and authorized at an annual or special meeting
of stockholders, and not by written consent, by the affirmative vote
of at least 66 2/3% of the outstanding voting stock which is not owned
by the interested stockholder.
For purposes of Section 203, an "interested stockholder" is defined as any
person (other than the corporation and any direct or indirect majority owned
subsidiary of the corporation) who, together with affiliates and associates,
owns (or within the three prior years, did own) 15% or more of the corporation's
voting stock. A "business combination" is defined broadly to include a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder.
STOCKHOLDER RIGHTS PLAN
In 1995, the board of directors authorized a Rights Agreement pursuant to
which one preferred stock purchase right will be issued with each share of our
Common Stock (whether originally issued or from our treasury) on the
Distribution Date (as defined in the Rights Agreement). The rights are not
exercisable until after the Distribution Date and will expire at the close of
business on February 28, 2005 or at the time the rights are redeemed unless
previously redeemed by us as described below. When exercisable, each right will
entitle the owner to purchase one one-hundredth of a share of our Series C
Preferred Stock at a purchase price of $52.00 per share. Our Series C Preferred
Stock may be issued in fractional shares.
Except as described below, the rights will be evidenced by the certificates
for our Common Stock and will be transferred in connection with the underlying
shares of Common Stock. No separate rights certificates will be distributed. The
rights will separate from our Common Stock and a "Distribution Date" will occur
upon the earlier of:
- 10 days following a public announcement that a person with all
affiliates and associates of such person shall be the beneficial owner
of 10% or more of the shares of Common Stock outstanding, referred to
as an "Acquiring Person" in the Rights Agreement, but does not include
us, any of our subsidiaries, any person or entity organized,
appointed, or established by us or any exempted person; or
- 10 business days following the commencement of a tender offer or
exchange offer that would result in a person or group becoming the
beneficial owner of 10% or more of the outstanding shares of Common
Stock.
After the Distribution Date, rights certificates will be mailed to holders
of record of shares of our Common Stock as of the close of business on the
Distribution Date and as of and after the Distribution Date separate rights
certificates alone will represent the rights.
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The Series C Preferred Stock issuable upon exercise of the rights will be
entitled to a minimum preferential quarterly dividend payment of $.001 per
share, or subject to a provision for adjustment provided for in the Rights
Agreement, 100 times the aggregate per share amount of all cash dividends, and
100 times the aggregate per share amount of all non-cash dividends or other
distributions, except for dividends payable in shares of Common Stock or
subdivision of the outstanding shares of Common Stock, declared for each share
of our common stock. In the event of liquidation, the holders of our Series C
Preferred Stock will be entitled to a minimum preferential liquidation payment
of $52.00 per share and will be entitled to an aggregate payment of 100 times
the exercise price of our Common Stock. Each share of our Series C Preferred
Stock will have 100 votes on all matters submitted to a vote of our stockholders
and will vote together as one class with the holders of shares of our Common
Stock. In the event of any merger, consolidation or other transaction in which
shares of our common stock are changed or exchanged into other stock or
securities, cash, and/or other property, each share of our Series C Preferred
Stock will be similarly exchanged or changed in an amount per share equal to 100
times the amount received. These rights are protected by customary anti-
dilution provisions. Our Series C Preferred Stock will not be redeemable. Once
the shares of our Series C Preferred Stock are issued, our Certificate of
Incorporation may not be amended to materially alter or change the powers,
preferences or special rights of our Series C Preferred Stock, so as to affect
them adversely, without the affirmative vote of the holders of two-thirds or
more of the outstanding shares of our Series C Preferred Stock, voting
separately as a class. Because of the nature of our Series C Preferred Stock
dividend, liquidation and voting rights, the value of a share of our Series C
Preferred Stock purchasable upon exercise of each right should approximate the
value of one share of our Common Stock.
If (a) any person becomes the beneficial owner of 10% or more of the
outstanding Common Stock; (b) an acquiring person and its affiliates or
associates engages in the following activities:
- merges with us, and we are the surviving company and our Common Stock
remains outstanding,
- transfers assets to us in exchange for our securities, or acquires
securities from us other than on the same basis as from all other
stockholders,
- transfers assets to or from us on terms less favorable than arm's length,
- transfers to, from or with us assets having an aggregate fair market
value in excess of $5,000,000,
- receives unusual compensation, or
- receives any other financial benefit not provided to all other
stockholders; or
(c) during a period when there is an acquiring person, there is a
reclassification of securities, recapitalization or merger or consolidation of
our Company which effectively increases by more than 1% the proportionate shares
of the outstanding shares of any class of our equity securities, which is
directly or indirectly beneficially owned by an acquiring person, its associates
or affiliates, each holder of a right will have the right to receive at the
current purchase price shares of Common Stock valuing the current purchase price
multiplied by the number of one one-hundredths of a share of preferred stock for
which a right was immediately exercisable prior to the above events, divided by
50% of the current market price per share of Common Stock on the date of the
first occurrence.
Notwithstanding any of the foregoing, following the occurrence of any such
events, all rights that are, or (under certain circumstances specified in the
Rights Agreement) were, beneficially owned by any Acquiring Person (or certain
related parties), will be null and void. However, rights are not exercisable
following the occurrence of the events set forth above until such time as the
rights are no longer redeemable by us as set forth below.
In the event that, at any time following the Stock Acquisition Date, we are
acquired in a merger or other business combination transaction in which we are
not the surviving corporation or our Common Stock is changed or exchanged (other
than a merger which follows a Qualifying Offer and satisfies certain other
requirements), or 50% or more of our assets or earning power is sold or
transferred, each holder of a right (except rights which previously have been
voided as set forth above) shall thereafter have the right to receive upon the
exercise thereof at the then current purchase price, shares of Common Stock of
the acquiring
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company multiplied by the number of one one-hundredths of a share of preferred
stock for which a right was immediately exercisable prior to the above events
divided by 50% of the current market price per share of Common Stock on the date
of the first occurrence.
At any time until ten days following the Stock Acquisition Date, we may
redeem the rights in whole, but not in part, at a price of $.001 per right.
Immediately upon the action of our board of directors ordering redemption of the
rights, the rights will terminate, and the only right of the holders of the
rights will be to receive the $.001 redemption price.
Until a right is exercised, the holder thereof, in its capacity as a
holder, will have no rights as one of our stockholders, including without
limitation, the right to vote or to receive dividends. While the distribution of
the rights will not be taxable to our stockholders or to us, stockholders may,
depending upon the circumstances, recognize taxable income in the event that the
rights become exercisable for shares of our common stock (or other
consideration) or for common stock of the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of the
rights, any of the provisions of the Rights Agreement may be amended by our
board of directors prior to the Distribution Date. After the Distribution Date,
the provisions of the Rights Agreement may be amended by our board of directors
in order to cure any ambiguity, to make changes which do not adversely affect
the interests of holders of rights (excluding the interests of any Acquiring
Person) or to shorten or lengthen any time period under the Rights Agreement,
provided that no amendment to adjust the time period governing redemption shall
be made at such time as the rights are not redeemable.
The rights have certain anti-takeover effects as they will cause
substantial dilution to a person or group that acquires a substantial interest
in us without the prior approval of the our board of directors. The effect of
the rights may be to inhibit a change in control of us (including through a
third party tender offer at a price which reflects a premium to then prevailing
trading prices) that may be beneficial to our stockholders.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the principal United States
federal income tax consequences of the purchase, ownership and disposition of
the Preferred Securities to a person that acquires the Preferred Securities
pursuant to the initial offering and that is a citizen or resident of the United
States, a corporation, partnership or other entity created or organized under
the laws of the United States or any state thereof or the District of Columbia
or an estate or trust described in Section 7701(a)(30) of the Code (a "U.S.
Holder"). This summary represents the views of King & Spalding, special tax
counsel to the Company and the Trust. Except as set forth below, this summary
does not address the United States federal income tax consequences to persons
other than U.S. Holders.
This summary is based on the United States federal income tax laws,
regulations and rulings and decisions now in effect, all of which are subject to
change, possibly on a retroactive basis. This summary does not address the tax
consequences applicable to investors that may be subject to special tax rules
such as banks, thrifts, real estate investment trusts, regulated investment
companies, insurance companies, dealers in securities or currencies, tax-exempt
investors or persons that will hold the Preferred Securities as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment or as other than a
capital asset. This summary also does not address the tax consequences to
persons that have a functional currency other than the U.S. dollar or the tax
consequences to shareholders, partners or beneficiaries of a U.S. Holder.
Further, it does not include any description of any alternative minimum tax
consequences or the tax laws of any state or local government or of any foreign
government that may be applicable to a U.S. Holder. Investors should be aware
that the opinions of King & Spalding described in this summary are limited to
the specific matters addressed therein and are not binding on the Internal
Revenue Service (the "Service") or the courts.
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CLASSIFICATION OF CAREMARK RX CAPITAL TRUST I
In connection with the issuance of the Preferred Securities, King &
Spalding, special tax counsel to the Company and the Trust, delivered its
opinion that, under current law and assuming full compliance with the terms of
the Indenture and the Trust Agreement (and certain other documents), Caremark Rx
Capital Trust I will be classified as a "grantor trust" for federal income tax
purposes and will not be classified as an association taxable as a corporation
or a partnership. Each U.S. Holder will be treated as owning an undivided
beneficial interest in the Convertible Subordinated Debentures. Accordingly,
each U.S. Holder will be required to include in its gross income any interest or
accrued original issue discount ("OID") with respect to its allocable share of
Convertible Subordinated Debentures.
CLASSIFICATION OF CONVERTIBLE SUBORDINATED DEBENTURES
The Company, the Trust and the holders of the Preferred Securities (by
acceptance of a beneficial interest in the Convertible Subordinated Debentures)
have agreed to treat the Convertible Subordinated Debentures as indebtedness for
all United States federal income tax purposes. In connection with the issuance
of the Convertible Subordinated Debentures, King & Spalding delivered its
opinion that, under current law and based on certain representations, facts and
assumptions set forth in such opinion, the Convertible Subordinated Debentures
should be classified as indebtedness for United States federal income tax
purposes.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Because the Company has the option, under the terms of the Convertible
Subordinated Debentures, to defer payments of interest by extending interest
payment periods for up to 20 consecutive quarters, the Company will treat the
Convertible Subordinated Debentures as having been issued with OID. As a result,
U.S. Holders of Preferred Securities will be required to include in income their
allocable share of the OID accrued by the Trust with respect to the Convertible
Subordinated Debentures on an economic accrual basis over the period of time
that the Preferred Securities (and underlying allocable share of the Convertible
Subordinated Debentures) are held, regardless of their regular methods of tax
accounting and regardless of whether interest has been paid on the Convertible
Subordinated Debentures or distributions are made on the Preferred Securities.
For accrual method U.S. Holders, treating the Convertible Subordinated
Debentures as having been issued with OID generally will not alter the timing or
amount of interest included in income.
Actual distributions of stated interest will not be separately reported as
taxable income. Any OID included in income will increase the U.S. Holder's tax
basis in the Preferred Securities and the U.S. Holder's actual receipt of
interest payments will reduce such basis. If the Company were to exercise its
option to defer payments of stated interest on the Convertible Subordinated
Debentures, U.S. Holders of Preferred Securities would continue to accrue OID
income even though the Company would not be making any actual cash payments
during the Deferral Period.
Because the income underlying the Preferred Securities will not be
characterized as dividends for federal income tax purposes, corporate holders of
the Preferred Securities will not be entitled to a dividends received deduction
for any income recognized with respect to the Preferred Securities.
ACQUISITION PREMIUM; PREMIUM
A U.S. Holder that purchases a Preferred Security will be considered to
have purchased the underlying Convertible Subordinated Debenture at an
"acquisition premium" if such U.S. Holder's adjusted basis in the Preferred
Security immediately after the purchase is (i) greater than the adjusted issue
price of the underlying Convertible Subordinated Debenture as of the purchase
date and (ii) less than or equal to the sum of all amounts payable on the
underlying Convertible Subordinated Debenture after the purchase date. Under the
acquisition premium rules, the amount of OID which such U.S. Holder must include
in its gross income for any taxable year (or portion thereof in which the U.S.
Holder holds the Preferred Securities) will be reduced (but not below zero) by
the portion of the acquisition premium properly allocable to the period.
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A U.S. Holder who purchases a Preferred Security will be considered to have
purchased the underlying Convertible Subordinated Debenture at a "premium" if
such U.S. Holder's adjusted basis in the Preferred Security immediately after
the purchase is greater than the sum of all amounts payable on the underlying
Convertible Subordinated Debenture after the purchase date. A U.S. Holder that
purchases a Preferred Security at a "premium" will not include any OID in gross
income.
MARKET DISCOUNT
A U.S. Holder who purchases a Preferred Security will be considered to have
purchased the underlying Convertible Subordinated Debenture at a "market
discount" if such U.S. Holder's adjusted basis in the Preferred Security
immediately after the purchase is less than the adjusted issue price of the
underlying Convertible Subordinated Debenture as of the purchase date, unless
such market discount is less than a specified de minimis amount (generally 1/4
of 1 percent of the adjusted issue price of the Convertible Subordinated
Debenture as of the purchase date multiplied by its weighted average maturity as
of such date).
Under the market discount rules, a U.S. Holder will be required to treat
any gain realized on the sale, exchange, retirement or other disposition of the
Preferred Securities as ordinary income to the extent of the lesser of (i) the
amount of such realized gain or (ii) the market discount which has not
previously been included in income and is treated as having accrued on the
underlying Convertible Subordinated Debentures at the time of such disposition.
Market discount will be considered to accrue ratably, unless the U.S. Holder
elects to accrue market discount on a constant yield basis. Once made, such an
election is irrevocable.
A U.S. Holder may be required to defer the deduction of all or a portion of
the interest paid or accrued on any indebtedness incurred or maintained to
purchase or carry Preferred Securities with market discount until the maturity
of the Convertible Subordinated Debentures or certain earlier dispositions. A
current deduction is only allowed to the extent the interest expense exceeds the
portion of market discount allocable to the days during the taxable year in
which the Preferred Securities were held by the taxpayer. A U.S. Holder may
elect to include market discount in income currently as it accrues (on either a
ratable or constant yield basis), in which case the rules described above
regarding the treatment as ordinary income of gain upon the disposition of the
Preferred Securities and the deferral of interest deductions will not apply.
Generally, such currently included market discount is treated as ordinary
interest for federal income tax purposes. Such an election will apply to all
debt instruments with market discount acquired by the holder on or after the
first day of the taxable year to which such election applies and may be revoked
only with the consent of the IRS.
RECEIPT OF CONVERTIBLE SUBORDINATED DEBENTURES UPON LIQUIDATION OF THE TRUST
Under certain circumstances, as described under the caption "Description of
the Preferred Securities -- Special Event Redemption or Distribution,"
Convertible Subordinated Debentures may be distributed to U.S. Holders in
exchange for the Preferred Securities and in liquidation of the Trust. Under
current law, such a distribution would be treated as a non-taxable event to each
U.S. Holder, and each Holder would receive an aggregate tax basis in the
Convertible Subordinated Debentures equal to such U.S. Holder's aggregate tax
basis in its Preferred Securities. A U.S. Holder's holding period in the
Convertible Subordinated Debentures so received in liquidation of the Trust
would include the period for which the Preferred Securities were held by such
U.S. Holder.
SALE OF PREFERRED SECURITIES AND REDEMPTION OF CONVERTIBLE SUBORDINATED
DEBENTURES
A U.S. Holder that sells Preferred Securities, or whose Preferred
Securities or Convertible Subordinated Debentures (which shall have been
distributed to Holders upon liquidation of the Trust) are redeemed whether
pursuant to a Tax Event or otherwise, will recognize gain or loss equal to the
difference between its adjusted tax basis in the Preferred Securities or
Convertible Subordinated Debentures and the amount realized on the sale or
redemption. A U.S. Holder's adjusted tax basis in the Preferred Securities or
Convertible Subordinated Debentures generally will be its initial purchase price
increased by OID, if any, previously includable in such U.S. Holder's gross
income (and accrued market discount, if any, if the U.S. Holder has included
such market discount in income), and decreased by payments (other than payments
of
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interest not reflected in OID) received on the Preferred Securities and/or
Convertible Subordinated Debentures. Any such gain or loss generally will be
capital gain or loss.
The Preferred Securities may trade at prices that do not accurately reflect
the value of accrued but unpaid interest with respect to the underlying
Convertible Subordinated Debentures. A U.S. Holder that disposes of its
Preferred Securities between record dates for payments of distributions thereon
will be required to include OID on the Convertible Subordinated Debentures
through the date of disposition in income as ordinary income, and to add such
amount to its adjusted basis in the Preferred Securities. To the extent the
selling price is less than the U.S. Holder's adjusted tax basis, a U.S. Holder
will recognize a capital loss. Subject to certain limited exceptions, capital
losses cannot be applied to offset ordinary income for United States federal
income tax purposes.
CONVERSION OF PREFERRED SECURITIES INTO COMMON STOCK
A U.S. Holder of Preferred Securities generally will not recognize income,
gain or loss upon the conversion through the Conversion Agent, of its Preferred
Securities into shares of Common Stock (although the Holder will be required to
continue to accrue any OID through the date of conversion). A U.S. Holder will,
however, recognize gain upon the receipt of cash in lieu of a fractional share
of Common Stock equal to the amount of cash received less the U.S. Holder's tax
basis in the fractional share A U.S. Holder's tax basis in the Common Stock
received upon exchange and conversion should generally be equal to the U.S.
Holder's tax basis in the Preferred Securities delivered to the Conversion Agent
for exchange less the basis allocated to any fractional share for which cash is
received, and a U.S. Holder's holding period in the Common Stock received upon
exchange and conversion will generally begin on the date that the U.S. Holder
acquired the Preferred Securities delivered to the Conversion Agent for
exchange.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under Section 305 of the Code would treat
holders of Preferred Securities as having received a constructive distribution
from the Company in the event the Conversion Price of the Convertible
Subordinated Debentures were adjusted if (i) as a result of such adjustment, the
proportionate interest (measured by the amount of Common Stock into which the
Convertible Subordinated Debentures are convertible) of the holders of the
Preferred Securities in the assets or earnings and profits of Company were
increased, and (ii) the adjustment was not made pursuant to a bona fide,
reasonable antidilution formula. An adjustment in the Conversion Price would not
be considered made pursuant to such a formula if the adjustment was made to
compensate for certain taxable distributions with respect to the Common Stock.
Thus, under certain circumstances, a reduction in the conversion price for the
holders may result in deemed dividend income to holders to the extent of the
current or accumulated earnings and profits of the Company. Holders of the
Preferred Securities would be required to include their allocable share of such
deemed dividend income in gross income but will not receive any cash related
thereto.
DIVIDENDS
The amount of any distribution by the Company in respect of Common Stock
will be equal to the amount of cash and the fair market value, on the date of
distribution, of any property distributed. Generally, distributions will be
treated as a dividend, subject to tax as ordinary income, to the extent of the
Company's current or accumulated earnings and profits, then as a tax-free return
of capital to the extent of a U.S. Holder's tax basis in the Common Stock and
thereafter as gain from the sale or exchange of such stock.
In general, a dividend distribution to a corporate U.S. Holder will qualify
for the 70% dividends received deduction if the U.S. Holder owns less than 20%
of the voting power or value of the Company's stock (other than any non-voting,
non-convertible, non-participating preferred stock). A corporate U.S. Holder
that owns 20% or more of the voting power and value of the Company's stock
(other than any non-voting, non-convertible, non-participating preferred stock)
generally will qualify for an 80% dividends received deduction. The dividends
received deduction is subject to certain holding period, taxable income and
other limitations.
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SALE OF COMMON STOCK
Upon the sale or exchange of Common Stock, a U.S. Holder generally will
recognize capital gain or loss equal to the difference between (i) the amount of
cash and the fair market value of any property received upon the sale or
exchange and (ii) such U.S. Holder's adjusted tax basis in the Common Stock. In
the case of a U.S. Holder other than a corporation, the maximum marginal federal
income tax rate applicable to such gain will be lower than the maximum marginal
federal income tax rate applicable to ordinary income if such holder's holding
period for such Common Stock exceeds one year. A U.S. Holder's basis and holding
period in Common Stock received upon conversion of Preferred Securities are
determined as discussed above under "-- Conversion of Preferred Securities into
Common Stock."
NON-U.S. HOLDERS
The rules governing United States federal income taxation of a beneficial
owner of Preferred Securities or Common Stock that, for United States federal
income tax purposes, is a person other than a U.S. Holder (a "Non-U.S. Holder")
are complex and no attempt will be made herein to provide more than a summary of
such rules. NON-U.S. HOLDERS SHOULD CONSULT WITH THEIR OWN TAX ADVISORS TO
DETERMINE THE EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX LAWS, AS
WELL AS TREATIES, WITH REGARD TO AN INVESTMENT IN THE PREFERRED SECURITIES AND
COMMON STOCK, INCLUDING ANY REPORTING REQUIREMENTS.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Generally, interest income (or OID) of a Non-U.S. Holder that is not
effectively connected with a United States trade or business will be subject to
a withholding tax at a 30% rate (or, if applicable, a lower tax rate specified
by a treaty). However, OID earned on the Convertible Subordinated Debentures by
a Non-U.S. Holder will qualify for the "portfolio interest" exemption and
therefore will not be subject to United States federal income tax or withholding
tax, provided that such interest income is not effectively connected with a
United States trade or business of the Non-U.S. Holder and provided that (i) the
Non-U.S. Holder does not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of the Company entitled to vote
(ii) the Non-U.S. Holder is not a controlled foreign corporation that is related
to the Company through stock ownership, (iii) the Non-U.S. Holder is not a bank
receiving interest on the Preferred Securities pursuant to an extension of
credit made pursuant to a loan agreement entered into in the ordinary course of
business and (iv) either (A) the Non-U.S. Holder certifies to the Trust or its
agent, under penalties of perjury, that it is not a Holder and provides its name
and address or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its trade
or business (a "Financial Institution"), and holds Preferred Securities in such
capacity, certifies to the Trust or its agent, under penalties of perjury, that
such statement has been received from the beneficial owner by it or by a
Financial Institution between it and the beneficial owner and furnishes the
Trust or its agent with a copy thereof.
Recently finalized Treasury Regulations would modify the certification
requirements on payments of interest made to Non-U.S. Holders. Based on an IRS
Notice issued on April 29, 1999, the regulations will apply to payments made
after December 31, 2000, subject to certain transition rules. Prospective
investors should consult their own tax advisors as to the effect, if any, of the
final regulations and the IRS Notice on their purchase, ownership and
disposition of the Preferred Securities and Common Stock.
Except to the extent that an applicable treaty otherwise provides, a
Non-U.S. Holder generally will be taxed in the same manner as a U.S. Holder with
respect to interest (or OID) if the interest (or OID) income is effectively
connected with a United States trade or business of the Non-U.S. Holder. Such
Non-U.S. Holder will also be subject to the rules applicable to U.S. Holders
with respect to acquisition premium, premium or market discount, if applicable.
Effectively connected interest (or OID or market discount) received or accrued
by a corporate Non-U.S. Holder may also, under certain circumstances, be subject
to an additional "branch profits" tax at a 30% rate (or, if applicable, a lower
tax rate specified by a treaty). Even though such effectively connected interest
(or OID or market discount) is subject to income tax, and may be
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subject to the branch profits tax, it is not subject to withholding tax if the
holder delivers a properly executed IRS Form 4224 (or successor form) to the
payor.
SALE, EXCHANGE OR REDEMPTION OF PREFERRED SECURITIES
A Non-U.S. Holder of Preferred Securities generally will not be subject to
United States federal income tax or withholding tax on any gain realized on the
sale, exchange or redemption of the Preferred Securities (including the receipt
of cash in lieu of fractional shares upon conversion of Preferred Securities
into Common Stock) unless (i) the gain is effectively connected with a United
States trade or business of the Non-U.S. Holder, (ii) in the case of a Non-U.S.
Holder who is an individual, such holder is present in the United States for a
period or periods aggregating 183 days or more during the taxable year of the
disposition, and either such holder has a "tax home" in the United States or the
disposition is attributable to an office or other fixed place of business
maintained by such holder in the United States, or (iii) the Non-U.S. Holder is
subject to tax pursuant to the provisions of the Code applicable to certain
United States expatriates.
CONVERSION OF PREFERRED SECURITIES
In general, no United States federal income tax or withholding tax will be
imposed upon the conversion of Preferred Securities into Common Stock by a
Non-U.S. Holder except with respect to the Non-U.S. Holder's receipt of cash in
lieu of fractional shares where one of the conditions described above under
"-- Non-U.S. Holders -- Sale, Exchange or Redemption of Preferred Securities" is
satisfied.
SALE OR EXCHANGE OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to United States federal
income tax or withholding tax on the sale or exchange of Common Stock unless one
of the conditions described above under "-- Non-U.S. Holders -- Sale, Exchange
or Redemption of Preferred Securities" is satisfied.
DIVIDENDS
Distributions by the Company with respect to the Common Stock that are
treated as dividends paid (or deemed paid), as described above under
"-- Dividends" to a Non-U.S. Holder (excluding dividends that are effectively
connected with the conduct of a United States trade or business by such holder
and are taxable as described below), will be subject to United States federal
withholding tax at a 30% rate (or a lower rate provided under any applicable
income tax treaty). Except to the extent that an applicable tax treaty otherwise
provides, a Non-U.S. Holder will be taxed in the same manner as a U.S. Holder on
dividends paid (or deemed paid) that are effectively connected with the conduct
of a United States trade or business by the Non-U.S. Holder. If such Non-U.S.
Holder is a foreign corporation, it may also be subject to a United States
branch profits tax on such effectively connected income at a 30% rate or such
lower rate as may be specified by an applicable tax treaty. Even though such
effectively connected dividends are subject to income tax, and may be subject to
the branch profits tax, they will not be subject to U.S. withholding tax if the
holder delivers a properly executed IRS Form 4224 (or successor form) to the
payor.
Under current Treasury Regulations, dividends paid to an address in a
foreign country are presumed to be paid to a resident of that country (unless
the payor has knowledge to the contrary) for purposes of the 30% withholding
discussed above and for purposes of determining the applicability of a tax
treaty rate. Under recently issued Treasury Regulations, however, Non-U.S.
Holders of Common Stock who wish to claim the benefit of an applicable treaty
rate would be required to satisfy certain certification requirements. Under
recently finalized Treasury Regulations, however, Non-U.S. Holders of Common
Stock who wish to claim the benefit of an applicable treaty rate would be
required to satisfy certain certification requirements. Based on an IRS Notice
issued on April 29, 1999, the regulations will apply to payments made after
December 31, 2000, subject to certain transition rules. Prospective investors
should consult their own tax advisors as to the effect, if any, of the final
regulations and the IRS Notice on their purchase, ownership and disposition of
the Preferred Securities and Common Stock.
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<PAGE> 58
CERTAIN UNITED STATES FEDERAL ESTATE TAX CONSIDERATIONS APPLICABLE TO A NON-U.S.
HOLDER
Preferred Securities held by an individual who is not a citizen or resident
of the United States (as defined for federal estate tax purposes) at the time of
death will not be includable in the decedent's gross estate for United States
federal estate tax purposes, provided that such holder or beneficial owner did
not at the time of death actually or constructively (including by virtue of its
interest in the underlying Convertible Subordinated Debentures) own 10% or more
of the combined voting power of all classes of stock of the Company entitled to
vote, and provided that at the time of death, payments with respect to such
Preferred Securities would not have been effectively connected with the conduct
by such Non-U.S. Holder of a trade or business within the United States.
Common Stock actually or beneficially held (other than through a foreign
corporation) by a Non-U.S. Holder at the time of his or her death (or previously
transferred subject to certain retained rights or powers) will be subject to
United States federal estate tax unless otherwise provided by an applicable
estate tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
United States information reporting requirements and backup withholding tax
will not apply to payments on Preferred Securities to a Non-U.S. Holder if the
statement described in "-- Non-U.S. Holders -- Payment of Interest" is duly
provided by such holder, provided that the payor does not have actual knowledge
that the holder is a United States person.
Information reporting requirements and backup withholding tax will not
apply to any payment of the proceeds of the sale of Preferred Securities, or any
payment of the proceeds of the sale of Common Stock effected outside the United
States by a foreign office of a "broker" (as defined in applicable Treasury
Regulations), unless such broker (i) is a United States person, (ii) is a
foreign person that derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States or (iii) is a
controlled foreign corporation for United States federal income tax purposes.
Payment of the proceeds of any such sale effected outside the United States by a
foreign office of any broker that is described in (i), (ii) or (iii) of the
preceding sentence will not be subject to backup withholding tax, but will be
subject to information reporting requirements, unless such broker has
documentary evidence in its records that the beneficial owner is a Non-U.S.
Holder and certain other conditions are met, or the beneficial owner otherwise
establishes an exemption. Payment of the proceeds of any such sale to or through
the United States office of a broker is subject to information reporting and
backup withholding requirements unless the beneficial owner of the Preferred
Securities provides the statement described in "-- Non-U.S. Holders -- Payment
of Interest" or otherwise establishes an exemption.
If paid to an address outside the United States, dividends on Common Stock
held by a Non-U.S. Holder generally will not be subject to the information
reporting and backup withholding requirements described in this section.
However, under recently issued Treasury regulations, dividend payments will be
subject to information reporting and backup withholding unless certain
certification requirements are satisfied. Based on an IRS Notice issued on April
29, 1999, the new regulations generally will be effective for payments made
after December 31, 2000, subject to certain transition rules. Prospective
investors should consult their own tax advisors as to the effect, if any, of the
final regulations and the IRS Notice on their purchase, ownership and
disposition of the Preferred Securities and Common Stock.
FOREIGN INVESTMENT IN REAL PROPERTY TAX ACT
Under the Foreign Investment in Real Property Tax Act ("FIRPTA"), any
person who acquires a "United States real property interest" (as described
below) from a foreign person must deduct and withhold a tax equal to 10% of the
amount realized by the foreign transferor. In addition, a foreign person who
disposes of a United States real property interest generally is required to
recognize gain or loss that is subject to United States federal income tax. A
"United States real property interest" generally includes any interest (other
than an interest solely as a creditor) in a United States corporation unless it
is established under specific procedures that the corporation is not (and was
not for the prior five-year period) a "United States real property holding
corporation." The Company does not believe that it is a United States real
property holding corporation as of
53
<PAGE> 59
the date hereof or at any time within the past five years, although it has not
conducted or obtained an appraisal of its assets to determine whether it is a
United States real property holding corporation. If it is not established that
the Company is not a United States real property holding corporation, then,
unless an exemption applies, both the Preferred Securities and the Common Stock
would be treated as United States real property interests. In that event,
however, an exemption for regularly traded securities should apply to the
Preferred Securities and the Common Stock, except with respect to a Non-U.S.
Holder whose beneficial ownership of Preferred Securities or Common Stock
exceeds 5% of the total fair market value of the Common Stock.
INFORMATION REPORTING TO U.S. HOLDERS
Subject to the qualifications discussed below, income on the Preferred
Securities will be reported to U.S. Holders on Form 1099, which forms should be
mailed to U.S. Holders of Preferred Securities by January 31 following each
calendar year.
The Trust is obligated to report annually to Cede & Co., as holder of
record of the Preferred Securities, the interest (and OID, if any) with respect
to the Preferred Securities that accrued during that year. The Trust currently
intends to report such information on Form 1099 prior to January 31 following
each calendar year even though the Trust is not legally required to report to
record holders until April 15 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the U.S. Holder or
the Non-U.S. Holder complies with certain identification or certification
requirements. Any withheld amounts will be allowed as a credit against the
holder's United States federal income tax, if any, provided the required
information is provided to the Service.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE PREFERRED
SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
CERTAIN ERISA CONSIDERATIONS
Each fiduciary of a pension, profit-sharing or other employee benefit plan
subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (a "Plan"), should consider the fiduciary standards of ERISA in the
context of the Plan's particular circumstances before authorizing an investment
in the Preferred Securities. Accordingly, among other factors, the fiduciary
should consider whether the investment would satisfy the prudence and
diversification requirements of ERISA and would be consistent with the documents
and instruments governing the Plan.
Section 406 of ERISA and Section 4975 of the Code prohibit Plans, as well
as individual retirement accounts and Keogh plans subject to Section 4975 of the
Code (also "Plans"), from engaging in certain transactions involving "plan
assets" with persons who are "parties in interest" under ERISA or "disqualified
persons" under the Code ("Parties in Interest") with respect to such Plan. A
violation of these "prohibited transactions" rules may result in an excise tax
or other liabilities under ERISA and/or Section 4975 of the Code for such
persons, unless exemptive relief is available under an applicable statutory or
administrative exemption. Employee benefit plans that are governmental plans (as
described in Section 3(32) of ERISA), certain church plans (as defined in
Section 3(33) of ERISA) and foreign plans (as defined in Section 4(b)(5) of
ERISA) are not subject to the requirements of ERISA or Section 4975 of the Code
but may be subject to comparable requirements.
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<PAGE> 60
Under a regulation (the "Plan Assets Regulation") issued by the U.S.
Department of Labor (the "DOL"), the assets of an entity would be deemed to be
"plan assets" of a Plan for purposes of ERISA and Section 4975 of the Code if
"plan assets" of the Plan were used to acquire an equity interest in such entity
and no exception were applicable under the Plan Assets Regulation. An "equity
interest" is defined under the Plan Assets Regulation as any interest in an
entity other than an instrument which is treated as indebtedness under
applicable local law and which has no substantial equity features, and
specifically includes a beneficial interest in a trust.
Pursuant to an exception contained in the Plan Assets Regulation, the
assets of an entity would not be deemed to be "plan assets" of investing Plans
if, immediately after the most recent acquisition of any equity interest in such
entity, less than 25% of the value of each class of equity interests in such
entity were held by Plans, other employee benefit plans not subject to ERISA or
Section 4975 of the Code (such as governmental, church and foreign plans), and
entities holding assets deemed to be "plan assets" of any Plan (collectively,
"Benefit Plan Investors"). No assurance can be given by the Initial Purchaser
that the value of the Preferred Securities of each entity held by Benefit Plan
Investors will be less than 25% of the total value of such Trust Securities of
the Trust at the completion of the initial offering or thereafter, and no
monitoring or other measures will be taken with respect to the satisfaction of
the conditions to this exception. All of the Common Securities will be purchased
and held by the Company.
Certain transactions involving the Trust could be deemed to constitute
direct or indirect prohibited transactions under ERISA and Section 4975 of the
Code with respect to a Plan if the Preferred Securities of the Trust were
acquired with "plan assets" of such Plan and assets of the Trust were deemed to
be "plan assets" of Plans investing in the Trust. For example, if the Company is
a Party in Interest with respect to an investing Plan (either directly or by
reasons of its ownership of its subsidiaries), extensions of credit between the
Company and the Trust (as represented by the Convertible Subordinated Debentures
and the Preferred Securities Guarantees) would likely be prohibited by Section
406(a)(1)(B) of ERISA and Section 4975(c)(1)(B) of the Code, unless exemptive
relief were available under an applicable administrative exemption (see below).
The DOL has issued five prohibited transaction class exemptions ("PTCEs")
that may provide exemptive relief for direct or indirect prohibited transactions
resulting from the purchase or holding of the Preferred Securities, assuming
that assets of the Trust were deemed to be "plan assets" of Plans investing in
the Trust (see above). Those class exemptions are PTCE 96-23 (for certain
transactions determined by in-house asset managers), PTCE 95-60 (for certain
transactions involving insurance company general accounts), PTCE 91-38 (for
certain transactions involving bank collective investment funds), PTCE 90-1 (for
certain transactions involving insurance company separate accounts), and PTCE
84-14 (for certain transactions determined by independent qualified asset
managers).
Because the Preferred Securities may be deemed to be equity interests in
the Trust for purposes of applying ERISA and Section 4975 of the Code, the
Preferred Securities may not be purchased or held by any Plan, any entity whose
underlying assets include "plan assets" by reason of any Plan's investment in
the entity (a "Plan Asset Entity") or any person investing "plan assets" of any
Plan, unless such purchaser or holder is eligible for the exemptive relief
available under PTCE 96-23, 95-60, 91-38, 90-1 or 84-14. Any purchaser or holder
of the Preferred Securities or any interest therein will be deemed to have
represented by its purchase, holding or disposition thereof that it either (a)
is not a Plan or a Plan Asset Entity and is not purchasing such securities on
behalf of or with "plan assets" of any Plan or (b) is exempt under PTCE 96-23,
95-60, 91-38, 90-1 or 84-14 with respect to such purchase, holding or
disposition. See "Notice to Investors" herein. Such representation shall be
deemed made on each day from and including the date on which such purchaser or
holder acquires its interest in the Preferred Securities through and including
the date on which such purchaser or holder disposes of its interest in the
Preferred Securities. In addition, any purchaser or holder of the Preferred
Securities will be deemed to have approved the appointment of the Property
Trustee and the purchase and holding of the Convertible Subordinated Debentures
by the Trust.
Due to the complexity of these rules and the penalties that may be imposed
upon persons involved in a nonexempt prohibited transaction, it is particularly
important that fiduciaries or other persons considering
55
<PAGE> 61
purchasing Preferred Securities on behalf of or with "plan assets" of any Plan
consult with their counsel regarding the potential consequences if the assets of
the Trust were deemed to be "plan assets" and the availability of exemptive
relief under the PTCE 96-23, 95-60, 91-38, 90-1 or 84-14.
56
<PAGE> 62
SELLING HOLDERS
The Preferred Securities were originally issued by the Trust and sold to
Warburg Dillon Read, LLC (the "Initial Purchaser") in a transaction exempt from
the registration requirements of the Securities Act, for resale by the Initial
Purchaser inside the United States to persons reasonably believed by such
Initial Purchaser to be "qualified institutional buyers" (as defined in Rule
144A under the Securities Act) and outside the United States in reliance on
Regulation S. The Selling Holders may from time to time offer and sell pursuant
to this Prospectus any or all of the Preferred Securities, the Convertible
Subordinated Debentures, Common Stock issued upon conversion of the Preferred
Securities and the associated guarantee. The term "Selling Holder" includes the
holders listed below and the beneficial owners of the SPuRS and their
transferees, pledgees, donees and other successors.
The Offered Securities have been registered pursuant to the Registration
Agreement which provides that the Company file a Registration Statement with
respect to the Offered Securities by and use its best efforts to
keep such Registration Statement continuously effective in order to permit the
Prospectus which forms a part of the Registration Statement to be useable by
Selling Holders until resale of the Offered Securities is permitted pursuant to
Rule 144(k) under the Act after the date the Registration Statement is declared
effective or such earlier date as of which the Offered Securities have been sold
pursuant to the Registration Statement.
The following table sets forth information, as of , 1999, with
respect to the Selling Holders of the SPuRS and the respective number of
Preferred Securities and Common Stock beneficially owned by each Selling Holder
that may be offered pursuant to this Prospectus. Such information has been
obtained from the Selling Holders. Except as otherwise indicated, to the
knowledge of the Company, all persons listed below have sole voting and
investment power with respect to their securities.
<TABLE>
<CAPTION>
SPURS COMMON STOCK
BENEFICIALLY SPURS BENEFICIALLY COMMON STOCK
SELLING HOLDER OWNED % OF CLASS OFFERED HEREBY OWNED OFFERED HEREBY
- -------------- ------------ ---------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
</TABLE>
(INFORMATION TO BE PROVIDED BY AMENDMENT)
None of the Selling Holders has, or within the past three years has had,
any position, office or other material relationship with the Trust or the
Company or any of their predecessors or affiliates. Because the Selling Holders
may, pursuant to this Prospectus, offer all or some portion of the Preferred
Securities or the Common Stock issuable upon conversion of the Preferred
Securities, no estimate can be given as to the amount of the Preferred
Securities or Common Stock issuable upon conversion of Preferred Securities that
will be held by the Selling Holders upon termination of any such sales. In
addition, the Selling Holders identified above may have sold, transferred or
otherwise disposed of all or a portion of their Preferred Securities since the
date on which they provided the information regarding their Preferred Securities
included herein in transactions exempt from the registration requirements of the
Securities Act. See "Plan of Distribution."
Although none of the Selling Holders (other than those Selling Holders
listed above) have advised the Company that they currently intend to sell all or
any of the Offered Securities pursuant to this Prospectus, the
57
<PAGE> 63
Selling Holders may choose to sell the Offered Securities from time to time upon
notice to the Company and the Trust. See "Plan of Distribution."
Prior to any use of this Prospectus in connection with an offering of the
Offered Securities, this Prospectus will be supplemented to set forth the name
and number of shares beneficially owned by the Selling Holder intending to sell
such Offered Securities, and the number of Offered Securities to be offered. The
Prospectus Supplement will also disclose whether any Selling Holder selling in
connection with such Prospectus Supplement has held any position or office with,
been employed by or otherwise has a material relationship with, the Company or
any of its affiliates during the three (3) years prior to the date of the
Prospectus Supplement.
PLAN OF DISTRIBUTION
The Offered Securities may be sold from time to time to purchasers directly
by the Selling Holders. Alternatively, the Selling Holders may from time to time
offer the Offered Securities to or through underwriters, broker/dealers or
agents, who may receive compensation in the form of underwriting discounts,
concessions or commissions from the Selling Holders or the purchasers of such
securities for whom they may act as agents. The Selling Holders, and any
underwriters, broker/dealers or agents that participate in the distribution of
Offered Securities may be deemed to be "underwriters" within the meaning of the
Securities Act, and any profit on the sale of such securities and any discounts,
commissions, concessions or other compensation received by any such underwriter,
broker/dealer or agent may be deemed to be underwriting discounts and
commissions under the Securities Act.
The Offered Securities may be sold from time to time in one or more
transactions at fixed prices, at prevailing market prices at the time of sale,
at varying prices determined at the time of sale or at negotiated prices. The
sale of the Offered Securities may be effected in transactions (which may
involve crosses or block transactions) (i) on any national securities exchange
or quotation service on which the Offered Securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or in the over-the-counter market or (iv)
through the writing and exercise of options. At the time a particular offering
of the Offered Securities is made, a Prospectus Supplement, if required, will be
distributed, which will set forth the aggregate amount and type of Offered
Securities being offered and the terms of the offering, including the name or
names of any underwriters, broker/dealers or agents, any discounts, commissions
and other terms constituting compensation from the Selling Holders and any
discounts, commissions or concessions allowed or reallowed to paid
broker/dealers.
To comply with the securities laws of certain jurisdictions, if applicable,
the Offered Securities will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Offered Securities may not be offered or sold unless they have
been registered or qualified for sale in such jurisdictions or any exemption
from registration or qualification is available and is complied with.
The Selling Holders will be subject to applicable provisions of the
Exchange Act and rules and regulations thereunder, which provisions may limit
the timing of purchases and sales of any of the Offered Securities by the
Selling Holders. The foregoing may affect the marketability of such securities.
Pursuant to the Registration Agreement, the Company and the Trust shall pay
all expenses of the registration of the Offered Securities including, without
limitation, all registration and filing fees and expenses and fees and expenses
of compliance with federal securities or state blue sky laws; provided, however,
that the Selling Holders will pay all broker's commissions and underwriting
discounts and commissions, if any. The Selling Holders will be indemnified by
the Company and the Trust, jointly and severally against certain civil
liabilities, including certain liabilities under the Securities Act or the
Exchange Act or otherwise, or will be entitled to contribution in connection
therewith. The Company and the Trust will be indemnified by the Selling Holders
severally against certain civil liabilities, including certain liabilities under
the Securities Act or otherwise, or will be entitled to contribution in
connection therewith.
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<PAGE> 64
The validity of the Preferred Securities, the Convertible Subordinated
Debentures, the Preferred Securities Guarantee and the Common Stock issuable
upon conversion of the Convertible Preferred Securities has been passed upon for
the Company by King & Spalding.
Certain matters of Delaware law relating to the validity of the Preferred
Securities have been passed upon by Richards, Layton & Finger P.A.
In connection with the offering, certain matters relating to United States
Federal income tax considerations have been passed upon for the Company by King
& Spalding.
EXPERTS
The consolidated financial statements of Caremark Rx, Inc. (formerly
MedPartners, Inc.) appearing in Caremark Rx, Inc.'s Annual Report (Form 10-K)
for the year ended December 31, 1998, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included therein and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
59
<PAGE> 65
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
CAREMARK RX
CAPITAL TRUST I
SHARED PREFERENCE REDEEMABLE SECURITIES
(SPURS)(SM)
7% CONVERTIBLE PREFERRED SECURITIES
4,000,000 SPURS(SM)
guaranteed to the extent set forth herein by,
and convertible into Common Stock of,
[CAREMARK RX LOGO]
CAREMARK RX, INC.
--------------------
PROSPECTUS
--------------------
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 66
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder, all of
which are being paid by the Company. Except for the SEC registration fee, all
amounts are estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 55,600
Transfer agents' fees....................................... 7,000,000
Printing and engraving expenses............................. 320,000
Legal fees and expenses..................................... 500,000
Accounting fees and expenses................................ 75,000
Miscellaneous............................................... 105,000
-----------
Total............................................. $ 8,055,600*
===========
</TABLE>
- ---------------
* All fees, except the Securities and Exchange Commission registration fee, are
estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The following summary is qualified in its entirety by reference to the
complete statute, Third Restated Certificate of Incorporation, Fourth Amended
and Restated Bylaws and agreements referred to below.
Section 145 of the General Corporation Law of the State of Delaware
("DGCL") provides that a corporation has the power to indemnify any director or
officer, or former director or officer, who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the corporation) against the expenses (including
attorneys' fees), judgments, fines or amounts paid in settlement actually and
reasonably incurred by them in connection with the defense of any action by
reason of being or having been directors or officers, if such person shall have
acted in good faith and in a manner reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, provided that such person had no reasonable cause to
believe his conduct was unlawful, except that, if such action shall be in the
right of the corporation, no such indemnification shall be provided as to any
claim, issue or matter as to which such person shall have been judged to have
been liable to the corporation unless and to the extent that the Court of
Chancery of the State of Delaware, or any court in which such suit or action was
brought, shall determine upon application that, in view of all of the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses as such court shall deem proper.
As permitted by Section 102(b)(7) of the DGCL, the Third Restated
Certificate of Incorporation of the Registrant (the "Third Restated Certificate
of Incorporation") provides that no director shall be liable to the Registrant
or its stockholders for monetary damages for breach of fiduciary duty as a
director other than (i) for any breach of the director's duty of loyalty to the
Registrant and its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, and (iv) for any transaction from which the director
derived an improper personal benefit.
The Registrant's Fourth Amended and Restated Bylaws (the "Bylaws") provide
indemnification of the Registrant's directors and officers, both past and
present, to the fullest extent permitted by the DGCL, and allow the Registrant
to advance or reimburse litigation expenses upon submission by the director or
officer of an undertaking to repay such advances or reimbursements if it is
ultimately determined that indemnification is not available to such director or
officer pursuant to the Bylaws. The Registrant's Bylaws will also authorize the
Registrant to purchase and maintain insurance on behalf of an officer or
director, past or present, against any
II-1
<PAGE> 67
liability asserted against him in any such capacity whether or not the
Registrant would have the power to indemnify him against such liability under
the provisions of the Restated Certificate of Incorporation or Section 145 of
the DGCL. The Registrant has entered into indemnification agreements with each
of its directors and certain of its executive officers. The indemnification
agreements require the Registrant, among other things, to indemnify such
directors and officers against certain liabilities that may arise by reason of
their status or service as directors or officers (other than liabilities arising
from willful misconduct of a culpable nature), and to advance their expenses
incurred as a result of any proceeding against them as to which they could be
indemnified.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The Registrant agrees to furnish a copy of all agreements relating to
long-term debt upon request of the Commission. Exhibits identified in
parentheses below are on file with the Securities and Exchange Commission and
are incorporated herein by reference to such previous filings. All other
exhibits are either expressly incorporated by reference or are provided as part
of this filing.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<C> <C> <S>
1.1* -- Underwriting Agreement
4.1* -- Certificate of Trust of Caremark Rx Capital Trust I
4.2* -- Trust Agreement of Caremark Rx Capital Trust I dated as of
September 10, 1999, between Caremark Rx, Inc., the
Wilmington Trust Company and the Administrative Trustees
named therein.
4.3* -- Amended and Restated Trust Agreement dated as of September
29, 1999 between Caremark Rx, Inc., the Wilmington Trust
Company, and the Holders named therein.
4.4* -- Indenture for the Convertible Subordinated Debentures due
2029 dated as of September 29, 1999 between Caremark Rx,
Inc. and the Wilmington Trust Company.
4.5* -- Form of Caremark Rx, Inc. Common Stock
4.6* -- Form of SPuRS
4.7* -- Form of Convertible Subordinated Debentures due 2029
4.8* -- Guarantee Agreement dated as of September 29, 1999 between
Caremark Rx, Inc. and the Wilmington Trust Company
5.1* -- Opinion of King & Spalding
5.2* -- Opinion of Richards, Layton & Finger, P.A. as to certain
matters of Delaware law
8.1* -- Opinion of King & Spalding as to certain tax matters
10.1* -- Registration Rights Agreement dated as of September 29, 1999
between Caremark Rx Capital Trust I, Caremark Rx, Inc. and
Warburg Dillon Read LLC
12.1 -- Computation of Ratios of Earnings to Fixed Charges
23.1* -- Consent of King & Spalding
23.2* -- Consent of Richards, Layton & Fingers P.A.
23.3 -- Consent of Ernst & Young
24.1 -- Power of Attorney (included on Page II-5)
25.1* -- Statement of Eligibility of Indenture Trustee under the
Indenture
25.2* -- Statement of Eligibility of Property Trustee under the
Amended and Restated Trust Agreement
25.3* -- Statement of Eligibility of Guarantee Trustee under the
Guarantee Agreement
</TABLE>
* To be filed by amendment.
II-2
<PAGE> 68
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii)
above do not apply if the registration statement is on Form S-3, Form
S-8 or Form F-3, and the information required to be included in a
post-effective amendment by those paragraphs is contained in the
periodic reports filed with or furnished to the commission by the
registrant pursuant to Section 13 or Section 15(d) of the securities
Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities
Act of 1993, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the provisions in Item 15 above, or
II-3
<PAGE> 69
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-4
<PAGE> 70
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of Birmingham, State of Alabama on November 5, 1999.
CAREMARK Rx, INC.
By: /s/ E. MAC CRAWFORD
------------------------------------
E. Mac Crawford
Chairman of the Board, President
and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Caremark Rx, Inc., do hereby
constitute and appoint E. Mac Crawford and James H. Dickerson, Jr., and each or
any of them, our true and lawful attorneys-in-fact and agents, to do any and all
acts and things in our names and on our behalf in our capacities as directors
and officers and to execute any and all instruments for us and in our name in
the capacities as indicated below, which said attorneys and agents, or any of
them, may deem necessary or advisable to enable said Corporation to comply with
the Securities Act of 1933 and any rules, regulations and requirements of the
Securities and Exchange Commission, in connection with this registration
statement, or any registration statement for this offering that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
including specifically, but without limitation, power and authority to sign for
us or any of us in our names in the capacities indicated below, any and all
amendments (including post-effective amendments) hereto; and we do hereby ratify
and confirm all that said attorneys and agents, or any of them, shall do or
cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 5th day of November, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ E. MAC CRAWFORD Chairman of the Board, November 5, 1999
- ----------------------------------------------------- President, and Chief
E. Mac Crawford Executive Officer and
Director (Principal
Executive Officer)
/s/ JAMES H. DICKERSON, JR. Executive Vice President November 5, 1999
- ----------------------------------------------------- and Chief Financial
James H. Dickerson, Jr. Officer and Director
(Principal Financial
Officer)
/s/ HOWARD A. MCLURE Senior Vice President and November 5, 1999
- ----------------------------------------------------- Chief Accounting Officer
Howard A. McLure (Principal Accounting
Officer)
/s/ KRISTEN E. GIBNEY Director November 5, 1999
- -----------------------------------------------------
Kristen E. Gibney
</TABLE>
II-5
<PAGE> 71
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ C. A. LANCE PICCOLO Director November 5, 1999
- -----------------------------------------------------
C. A. Lance Piccolo
/s/ TED H. MCCOURTNEY Director November 5, 1999
- -----------------------------------------------------
Ted H. McCourtney
/s/ RICHARD M. SCRUSHY Director November 5, 1999
- -----------------------------------------------------
Richard M. Scrushy
/s/ ROGER L. HEADRICK Director November 5, 1999
- -----------------------------------------------------
Roger L. Headrick
/s/ MICHAEL D. MARTIN Director November 5, 1999
- -----------------------------------------------------
Michael D. Martin
/s/ CHARLES N. NEWHAU III Director November 5, 1999
- -----------------------------------------------------
Charles N. Newhau III
</TABLE>
II-6
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the city of Birmingham, Alabama on November 8, 1999.
CAREMARK RX CAPITAL TRUST I
By: /s/ HOWARD A. MCLURE
------------------------------------
Howard A. McLure,
as Administrative Trustee
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on this 8th day of November, 1999.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ SARAH J. FINLEY Administrative Trustee
- -----------------------------------------------------
Sarah J. Finley
/s/ HOWARD A. MCLURE Administrative Trustee
- -----------------------------------------------------
Howard A. McLure
</TABLE>
II-7
<PAGE> 1
EXHIBIT 12.1
STATEMENTS RE COMPUTATION OF RATIOS
CAREMARK RX, INC.
COMPUTATION OF RATIOS OF EARNINGS
FROM CONTINUING OPERATIONS TO FIXED CHARGES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1998 1997 1996 1995 1994
-------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Earnings from continuing operations:
Pre-tax income from continuing operations.... $ 49,612 $62,738 $60,014 $15,655 $107,972
Fixed charges (see computation below)........ 90,656 33,173 12,346 8,687 10,838
-------- ------- ------- ------- --------
Total earnings available for fixed
charges............................ $140,268 $95,911 $72,360 $24,342 $118,810
======== ======= ======= ======= ========
Fixed charges:
Gross interest expense....................... $ 85,009 $29,673 $ 8,555 $ 6,619 $ 8,700
Rents(a)..................................... 5,647 3,500 3,791 2,068 2,138
-------- ------- ------- ------- --------
$ 90,656 $33,173 $12,346 $ 8,687 $ 10,838
======== ======= ======= ======= ========
Ratio of Earnings to Fixed Charges............. 1.6 2.9 5.9 2.8 11.0
======== ======= ======= ======= ========
</TABLE>
- ---------------
(a) These amounts represent 1/3 of rentals which approximate the interest factor
applicable to such rentals of the Company.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement Form S-3 No. 333-_____ and related Prospectus of Caremark
Rx, Inc. (formerly MedPartners, Inc.) for the registration of 4,000,000 7%
Shared Preference Redeemable Securities and to the incorporation by reference
therein of our report dated March 12, 1998 (except for Notes 7 and 15 as to
which the date is April 15, 1999, and Note 16 and the first paragraph of Note
1, as to which the date is September 10, 1999) with respect to the consolidated
financial statements and schedule of Caremark Rx, Inc. included in its Annual
Report on Form 10-K for the year ended December 31, 1998, filed with the
Securities and Exchange Commission.
Ernst & Young LLP
Birmingham, Alabama
November 4, 1999
