<PAGE> 1
Filed Pursuant to Rule 424(b)(3)
Registration No. 333-35551
Prospectus Supplement
- ---------------------
(To Prospectus Dated October 14, 1997)
NCS HEALTHCARE, INC.
$100,000,000 Principal Amount of 5 3/4% Convertible
Subordinated Debentures due 2004
and
3,058,103 Shares of Class A Common Stock, par value $.01 per share,
Issuable Upon Conversion Thereof
This Prospectus Supplement (the "Supplement") supplements the
Prospectus dated October 14, 1997 contained in the Registration Statement on
Form S-3 (Commission File No. 333-35551) and relates to the resale by the
selling securityholders named herein under the heading "Selling Securityholders"
(the "Selling Securityholders"), of (i) up to $18,200,000 aggregate principal
amount of 5 3/4% Convertible Subordinated Debentures due 2004 (the "Debentures")
of NCS HealthCare, Inc., a Delaware corporation (the "Company"), originally
issued in a private placement consummated on August 13, 1997 and (ii) up to
556,572 shares of the Class A Common Stock, par value $.01 per share (the "Class
A Common Stock"), of the Company (and such indeterminate number of additional
shares as may be issued pursuant to anti-dilution adjustments). This Supplement
should be read in conjunction with the Prospectus, dated October 14, 1997 (the
"Prospectus"), to be delivered with this Supplement. All capitalized terms used
but not defined in this Supplement shall have the meanings given them in the
Prospectus.
The Class A Common Stock of the Company is traded on the
Nasdaq National Market under the symbol "NCSS." On June 19, 1998, the closing
price of the Class A Common Stock as reported by Nasdaq was $28.00 per share.
The Debentures are unsecured obligations of the Company and
are subordinate to all present and future Senior Indebtedness of the Company. At
June 22, 1998, Senior Indebtedness was approximately $147 million. The Indenture
contains no limitations on the incurrence of additional indebtedness or other
liabilities by the Company or its subsidiaries.
The Debentures are neither listed on a national securities
exchange nor quoted on an automated quotation system. However, the Debentures
are eligible for trading in the Private Offerings, Resales and Trading through
Automated Linkages ("PORTAL") Market. Debentures sold pursuant to the
Registration Statement will no longer be eligible for trading in the PORTAL
Market.
The date of this Prospectus Supplement is June 22, 1998.
<PAGE> 2
SELLING SECURITYHOLDERS
The following table sets forth information concerning the
aggregate principal amount of Debentures beneficially owned by each Selling
Securityholder, as of June 9, 1998, and the number of shares of Class A Common
Stock issuable upon conversion of Debentures held thereby, which may be offered
from time to time pursuant to this Supplement. Other than their ownership of the
Company's securities, none of the Selling Securityholders has had any material
relationship with the Company within the past three years other than Smith
Barney Inc. which, during such period, has acted as an Initial Purchaser,
financing advisor and underwriter for the Company. The table below has been
prepared on the basis of information furnished to the Company and/or by or on
behalf of the Selling Securityholders. The information below supplements the
information contained in the Prospectus under the caption "Selling
Securityholders." Because any or all of the Debentures or shares of Class A
Common Stock listed below may be offered for sale by the Selling Securityholders
from time to time, no estimate can be given as to the percentage of Debentures
or Class A Common Stock that will be held by the Selling Securityholders upon
termination of sales pursuant to this Supplement.
<TABLE>
<CAPTION>
UNDERLYING SHARES OF TOTAL UNDERLYING
TOTAL CLASS A COMMON STOCK SHARES OF CLASS A
PRINCIPAL AMOUNT OF PRINCIPAL AMOUNT OR ADDITIONAL SHARES COMMON STOCK OR
DEBENTURES BENEFICIALLY OF DEBENTURES OF CLASS A COMMON ADDITIONAL SHARES OF
OWNED THAT MAY BE SOLD BENEFICIALLY OWNED STOCK THAT MAY BE SOLD CLASS A COMMON STOCK
PURSUANT TO THIS BY SELLING PURSUANT TO THIS OWNED BY SELLING
NAME (1) SUPPLEMENT SECURITYHOLDER SUPPLEMENT (2) SECURITYHOLDER
-------------- -------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
BNP Arbitrage SNC $ 2,135,000 $ 2,135,000 65,290 65,290
Merrill Lynch
International Ltd. 8,600,000 8,600,000 262,996 262,996
OCM Convertible
Trust 480,000 2,600,000 14,678 79,510
Smith Barney Inc. 6,485,000 6,485,000 198,318 198,318
Societe Generale
Securities Corp. 500,000 3,500,000 15,290 107,033
- --------------
* Less than 1%
</TABLE>
(1) The information regarding the Selling Securityholders and the amount of
Debentures held by them as set forth herein is as of June 9, 1998, and
will be updated as required.
(2) Assumes conversion of the full amount of Debentures held by such holder at
the initial rate of $32.70 in principal amount of Debentures per share of
Class A Common Stock. The conversion rate and the number of shares of
Class A Common Stock issuable upon conversion of the Debentures is subject
to adjustment under certain circumstances. See "Description of Debentures
-- Conversion Rights." Accordingly, the number of shares of Common Stock
issuable upon conversion of the Debentures may increase or decrease from
time to time. Under the terms of the Indenture, fractional shares will not
be issued upon conversion of the Debentures; cash will be paid in lieu of
fractional shares, if any.
S-2
<PAGE> 3
[LOGO]
PROSPECTUS
NCS HEALTHCARE, INC.
$100,000,000 Principal Amount of 5 3/4% Convertible Subordinated Debentures due
2004
Interest Payable February 15 and August 15
3,058,103 Shares of Class A Common Stock, par value $.01 per share
------------------
This Prospectus relates to (i) the resale of $100,000,000 aggregate
principal amount of 5 3/4% Convertible Subordinated Debentures due 2004 (the
"Debentures") of NCS HealthCare, Inc., a Delaware corporation (the "Company"),
issued to the initial purchasers of the Debentures (the "Initial Purchasers") in
a private placement consummated on August 13, 1997 (the "Debt Offering") and
(ii) the resale of up to 3,058,103 shares of the Class A Common Stock, par value
$.01 per share ("Class A Common Stock"), of the Company (and such indeterminate
number of additional shares as may be issued to anti-dilution adjustments) which
are initially issuable upon conversion of the Debentures by any holders of
Debentures that did not purchase the Debentures under the Registration Statement
(of which this Prospectus is a part). The Debentures and such shares of Class A
Common Stock issued upon conversion of the Debentures may be offered from time
to time for the accounts of holders of Debentures named herein or in supplements
to this Prospectus (the "Selling Securityholders"). See "Plan of Distribution."
Information concerning the Selling Securityholders may change from time to time
and will be set forth in supplements to this Prospectus.
The Debentures are convertible into Class A Common Stock of the Company at
any time at or before maturity, unless previously redeemed, at a conversion
price of $32.70 per share, subject to adjustment in certain events. The Class A
Common Stock of the Company is traded on the Nasdaq Stock Market's National
Market System under the symbol "NCSS." On October 14, 1997, the closing price of
the Class A Common Stock as reported by Nasdaq was $26.00 per share.
The Debentures do not provide for a sinking fund. The Debentures are not
redeemable by the Company prior to August 18, 2000. Thereafter, the Debentures
are redeemable at the option of the Company, in whole or in part, at the
redemption prices set forth in this Prospectus, together with accrued interest.
Upon a Repurchase Event (as defined herein), each holder of Debentures shall
have the right, at the holder's option, to require the Company to repurchase
such holder's Debentures at a purchase price equal to 100% of the principal
amount thereof, plus accrued interest. See "Description of Debentures - Certain
Rights to Require Repurchase of Debentures."
The Debentures are unsecured obligations of the Company and are subordinate
to all present and future Senior Indebtedness (as defined herein) of the
Company. As of September 30, 1997, Senior Indebtedness of the Company was
approximately $1.2 million. The Indenture will not restrict the incurrence of
any other indebtedness or liabilities by the Company or its subsidiaries. Each
of the Company's wholly-owned subsidiaries has guaranteed, jointly and
severally, the Company's obligations under the Debentures. See "Description of
Debentures Subordination."
The Debentures have been designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") Market. For a
description of certain income tax consequences to holders of the Debentures, see
"Certain United States Federal Income Tax Consequences." All of the Debentures
were issued initially pursuant to an exemption from the registration
requirements of the Securities Act of 1933, as amended (the "Securities Act"),
provided by Section 4(2) thereof and to the Company's knowledge, were
transferred to the Selling Securityholders pursuant to Rule 144A or Regulation S
under the Securities Act. Debentures resold pursuant to the Registration
Statement (of which this Prospectus is a part) will no longer be eligible for
trading in the PORTAL Market.
The Selling Securityholders, acting as principals for their own account,
directly, through agents designated from time to time, or through brokers,
dealers, agents or underwriters also to be designated, may sell all or a portion
of the Debentures or shares of Class A Common Stock which may be offered hereby
by them from time to time on terms to be determined at the time of sale. The
aggregate proceeds to the Selling Securityholders from the sale of Debentures
and Class A Common Stock will be the purchase price of such Debentures or Class
A Common Stock less commissions, if any. For information concerning
indemnification agreements between the Company and the Selling Securityholders,
see "Plan of Distribution."
The Company will not receive any of the proceeds from the sales of the
Debentures or the shares of Class A Common Stock by the Selling Securityholders.
The Selling Securityholders may be deemed to be "underwriters" under the
Securities Act. If any broker-dealers are used by the Selling Securityholders,
any commissions paid to broker-dealers and, if broker-dealers purchase any
Debentures or shares of Class A Common Stock as principals, any profits received
by such broker-dealers on the resale of the Debentures or shares of Class A
Common Stock may be deemed to be underwriting discounts or commissions under the
Securities Act. In addition, any profits realized by the Selling Securityholders
may be deemed to be underwriting commissions.
SEE "RISK FACTORS" BEGINNING AT PAGE 3 HEREIN FOR CERTAIN INFORMATION THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
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<PAGE> 4
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER 14, 1997
<PAGE> 5
AVAILABLE INFORMATION
NCS HealthCare, Inc. ("NCS" or the "Company") is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission (the "Commission") which
may be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, NW, Washington, D.C. 20549. Such
reports, proxy statements and other information filed by the Company also are
available for inspection and copying at the Commission's Regional Offices
located at: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511; and at Seven World Trade Center, 13th Floor, New York, New
York 10048-1102. Such material may also be accessed electronically by means of
the Commission's home page on the Internet at http://www.sec.gov.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates the following documents in this
Prospectus by reference: (a) the Company's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997; (b) the description of the Class A Common Stock
contained in the Form 8-A Registration Statement. All documents subsequently
filed pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act prior
to the termination of this offering shall be deemed to be incorporated by
reference in this Prospectus and to be a part hereof from the date of filing of
such documents.
The Company will provide, without charge, to each person to whom this
Prospectus is delivered, upon the written or oral request of such person, a copy
of any and all of the information that has been incorporated by reference in
this Prospectus (not including exhibits to the information that is incorporated
by reference unless such exhibits are specifically incorporated by reference
into the information that the Prospectus incorporates). Such request should be
directed to Kristen H. Schulz, NCS HealthCare, Inc., 3201 Enterprise Parkway,
Suite 220, Beachwood, Ohio 44122, telephone (216) 514-3350.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for all purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
THE COMPANY
NCS is a leading independent provider of pharmacy services to long-term
care institutions including skilled nursing facilities, assisted living
facilities and other institutional health care settings. The Company purchases
and dispenses prescription and non-prescription pharmaceuticals and provides
client facilities with related management services, automated medical record
keeping, drug therapy evaluation and regulatory assistance. The Company also
provides a broad array of ancillary health care services to complement its core
pharmacy services, including infusion therapy, physical, speech and occupational
therapies, nutrition management and other services. As of June 30, 1997, NCS
provided pharmacy services to approximately 152,000 residents in 23 states.
Based on data from industry sources, the U.S. market for pharmacy
services in long-term care facilities exceeded $3.5 billion in 1994. The Company
believes that several factors are driving market growth, including the aging of
the U.S. population, the increasing number of patients receiving care in
non-hospital settings such as long-term care institutions and the increasing
acuity levels of and additional pharmaceutical therapies available for patients
receiving care in long-term care institutions.
The institutional pharmacy services market is highly fragmented and
consolidating. Prior to the 1970s, retail pharmacies fulfilled the pharmacy
needs of most long-term care institutions. Today, long-term care institutions
are typically served by one of three types of providers: retail pharmacies,
long-term care facility operators with captive pharmacy companies and
independent pharmacy companies like NCS. The Company believes that retail
pharmacies and, to a lesser extent, small independent pharmacy companies,
generally lack the sophistication, information technology, scale economies,
breadth of services and capital necessary to compete in an increasingly
competitive and regulated business environment. As a result, the Company
believes that the industry will continue to consolidate at the expense of these
providers.
2
<PAGE> 6
NCS's strategy is to capitalize on industry trends and Company
expertise to strengthen its position as a leading provider of high quality,
integrated pharmacy and related services to institutional clients. The Company
intends to implement this strategy by identifying and standardizing "best
practices," cross marketing its services across its customer base to generate
internal growth, utilizing its proprietary technology to deliver information,
providing a broad array of ancillary health care services to complement its core
pharmacy services and continuing its aggressive acquisition and development
program. From 1986 to June 30, 1997, NCS completed 37 acquisitions (other than
fold-in acquisitions), including 22 acquisitions since the beginning of fiscal
1997. As a result of its fiscal 1997 acquisitions, the Company expanded its
geographic presence into 16 new states. In addition, the Company completed 27
fold-in acquisitions in fiscal 1997. The Company intends to continue to expand
through acquisitions.
Prospective investors are cautioned that the statements included and
incorporated by reference in this Prospectus that are not descriptions of
historical facts may be forward-looking statements. Such statements reflect
management's current views, are based on many assumptions and are subject to
risks and uncertainties. Actual results could differ materially from those
currently anticipated due to a number of factors, including those described
under the caption "Risk Factors."
RISK FACTORS
In addition to the other information contained and incorporated by
reference in this Prospectus, prospective investors should carefully consider
the following factors in evaluating an investment in the Debentures or shares of
Class A Common Stock offered hereby. This Prospectus includes, in addition to
historical information, forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed below as well as those described elsewhere in this
Prospectus (including the documents incorporated by reference herein).
IMPACT OF ACQUISITIONS
In accordance with its strategy for growth, NCS presently is engaged in
an expansion program which incorporates an active acquisition program in the
long-term care pharmacy industry. For the years ended June 30, 1995 and 1996,
more than half, and for the year ended June 30, 1997, more than 66% of the
growth in the Company's revenues resulted from acquisitions. The success of the
Company's acquisition program and of its underlying growth strategy will depend,
among other things, on the continued availability of suitable acquisition
candidates. The Company is in various stages of discussion with potential
acquisition candidates, although no material acquisition has become the subject
of any definitive agreement, letter of intent or agreement in principle. One or
more of these potential acquisitions could be material to the Company if
completed. There can be no assurance that the Company will be able to complete
any acquisitions on favorable terms, or at all, in the future. As a consequence
of recent acquisitions, the Company has significantly grown in size and
broadened the geographic area in which it operates. Any acquisition involves
inherent uncertainties, such as the effect on the acquired businesses of
integration into a larger organization and the availability of management
resources to oversee the operations of the acquired business. The Company's
ability to integrate the operations of acquired companies is essential to its
future success. Even though an acquired business may have enjoyed excellent
profitability and growth as an independent company prior to the acquisition,
there can be no assurance that such profitability and growth would continue
thereafter. There can be no assurance that the Company will be able to integrate
new businesses successfully, that it will succeed in managing the significantly
larger operations resulting therefrom or that any acquisition will not have a
material adverse effect on the Company. In addition, the Company incurred
significant amounts of goodwill in connection with recent acquisitions. At June
30, 1997, goodwill represented approximately 56.3% of total assets. In the event
that the Company determines that the carrying value of goodwill is impaired, it
would write-down such carrying value, which would result in a charge to
earnings. Any such charge could have a material adverse effect on the Company's
financial results.
DECREASE IN NUMBER OF LONG-TERM CARE COMPANIES
There is an ongoing trend in the long-term care market to consolidate
facilities. Additionally, certain operators of long-term care facilities have
acquired their own companies to provide pharmacy products and services rather
than obtaining such products and services from independent providers like the
Company. Both of these factors may adversely affect NCS by decreasing the number
of customers for whom the Company can effectively compete.
3
<PAGE> 7
COMPETITION
Competition among providers of pharmacy services to the long-term care
industry is intense, both regionally and nationally. The Company competes with
numerous local retail pharmacies, local, regional and national institutional
pharmacies and pharmacies owned by long-term care facilities. In its program of
acquiring institutional pharmacy providers, the Company competes with several
other companies which have similar acquisition strategies. Competition for
certain acquisition targets is intense. Some of the Company's competitors have
significantly greater financial and other resources than the Company and are
often willing to pay higher prices for acquisitions. There can be no assurance
as to the Company's ability to compete or pay for acquisitions or that
competitive pressures will not have a material adverse effect on the Company.
CAPITAL REQUIREMENTS RELATING TO GROWTH STRATEGY
To take advantage of the consolidation trend in the institutional
pharmacy industry and to expand the geographic area in which it operates, the
Company's strategy includes growth through acquisitions. This strategy may
require significant capital resources. Capital is needed not only for
acquisitions, but also for the effective integration, operation and expansion of
such businesses. There can be no assurance that acceptable financing for future
acquisitions or for the integration, expansion and operation of existing
businesses can be obtained.
REGULATION AND REIMBURSEMENT
The Company's business is subject to federal, state and local
regulations, and its pharmacies are required to be licensed in the states in
which they are located. The failure to obtain or renew any required regulatory
approvals or licenses could adversely affect the continued operation of the
Company's business. In addition, the long-term care facilities that contract for
the services of NCS are also subject to federal, state and local regulations and
are required to be licensed in the states in which they are located. The failure
by these institutions to comply with such regulations or to obtain or renew any
required licenses could result in the loss of the Company's ability to provide
pharmacy services to their residents. The Company is also subject to federal and
state laws that prohibit certain direct and indirect payments between health
care providers that are intended, among other things, to induce or encourage the
referral of residents to, or the recommendation of, a particular provider of
items or services. In the ordinary course of its business, the Company is
subject to inspections, audits, inquiries and similar actions by governmental
authorities responsible for enforcing these laws and regulations. Violation of
these laws and regulations can result in loss of licensure, civil and criminal
penalties and exclusion from the Medicare and Medicaid programs. See "Business -
Government Regulation."
For the year ended June 30, 1997, approximately 40% of the Company's
pharmacy services billings were paid by Medicare and Medicaid and 11% were paid
by long-term care facilities which were, in turn, reimbursed by Medicare.
Medicare and Medicaid are highly regulated. The failure of NCS and/or its client
institutions to comply with applicable reimbursement regulations could adversely
affect the Company's business. Additionally, changes in such reimbursement
programs or in regulations related thereto, such as reductions in the allowable
reimbursement levels, modifications in the timing or processing of payments and
other changes intended to limit or decrease the growth of Medicare and Medicaid
expenditures, could adversely affect the Company's business. See "Business -
Reimbursement and Billing."
UNCERTAINTY DUE TO PROPOSED CHANGES IN NATIONAL AND STATE HEALTH CARE POLICIES
The Clinton administration and members of Congress have proposed
reforms to the system of health care delivery in the United States. None of
these proposals have been adopted. The process by which the administration or
Congress will pursue additional or modified proposals for national health care
reform and the precise nature of any such proposals are unclear at this time. In
addition, several states are considering or have implemented various health care
reforms, including reforms through Medicaid managed care demonstration projects.
Several states in which the Company operates have applied for, or received,
approval from the U.S. Department of Health and Human Services ("HHS") for
waivers from certain Medicaid requirements, which are generally required for
such managed care projects. Although these demonstration projects generally
exempt institutional care, including long-term care facilities and institutional
pharmacy services, no assurance can be given that these waiver projects
ultimately will not change the reimbursement system for long-term care,
including pharmacy services, from fee-for-service to managed care negotiated or
capitated rates. It is not possible to predict what reforms of the health care
system will be adopted and the effect, if any, such reforms may have on the
Company's business. See "Business - Reimbursement and Billing" and "- Government
Regulation."
4
<PAGE> 8
DEPENDENCE ON KEY EMPLOYEES
The Company's operations are substantially dependent on the abilities
of its executive officers to manage the Company's business and to identify
acquisition candidates. The Company has an employment agreement with only one of
these individuals. In addition, in connection with the Company's acquisition of
certain significant subsidiaries, the Company has entered into employment
agreements with certain other key personnel. The Company's ability to operate
these subsidiaries is substantially dependent on the contribution of these
personnel to the day-to-day operation of those businesses. The loss of any of
its executive officers or other key personnel could have a material adverse
effect on the Company's results of operations.
RISK OF PROFESSIONAL LIABILITY; AVAILABILITY OF INSURANCE
The Company's business exposes it to risks that are inherent in the
packaging and distribution of pharmaceuticals and the provision of ancillary
services. The Company currently maintains professional liability and errors and
omissions insurance. There can be no assurance that the coverage limits of such
insurance will be adequate to protect the Company against future claims. In
addition, there can be no assurance that the Company will be able to maintain
professional liability insurance in the future on acceptable terms or with
adequate coverage against potential liabilities.
CONTROL BY PRINCIPAL STOCKHOLDERS
As of September 25, 1997, the Directors and executive officers of the
Company and their affiliates collectively owned approximately 67.3% of the
outstanding voting power of the Company. As a result, these stockholders are
able to exercise significant influence over matters requiring stockholder
approval, including the election of Directors and the approval of significant
corporate transactions. Such concentration of ownership may have the effect of
delaying or preventing a change in control of the Company. See "Description of
Capital Stock."
POTENTIAL EFFECT OF ANTI-TAKEOVER PROVISIONS AND CERTAIN PROVISIONS OF DELAWARE
LAW
Certain provisions of Delaware law and the Company's Certificate of
Incorporation and By-Laws could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, control of the Company. The Company's By-Laws provide for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. Such classification of the Board of Directors lengthens the
time required to change the composition of a majority of directors and could
discourage a proxy contest or other takeover bid for the Company. The Company's
Certificate of Incorporation allows the Company to issue Preferred Stock with
rights senior to those of the Common Stock without any further vote or action by
the stockholders. The issuance of Preferred Stock could decrease the amount of
earnings and assets available for distribution to the holders of Common Stock or
could adversely affect the rights and powers, including voting rights, of the
holders of the Common Stock. In addition, the Company's Certificate of
Incorporation provides for Class B Common Stock, which has ten votes per share.
At September 25, 1997, the outstanding shares of Class B Common Stock
represented 37.3% of the shares of Common Stock outstanding, which shares
entitle the holders thereof to 85.6% of the total voting power of the Common
Stock. The existence of the Class B Common Stock and the issuance of Preferred
Stock could have the effect of making an unsolicited acquisition of the Company
more difficult and, consequently, cause a decrease in the market price of the
Class A Common Stock. In addition, the Company is subject to the anti-takeover
provisions of Section 203 of the Delaware General Corporation Law, which
prohibits the Company from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
business combination is approved in a prescribed manner. The application of
Section 203 also could have the effect of delaying or preventing a change in
control of the Company. See "Description of Capital Stock - Preferred Stock" and
"- The Delaware Business Combination Act."
SUBORDINATION OF DEBENTURES
The Debentures are subordinate in right of payment to all current and
future Senior Indebtedness of the Company. Senior Indebtedness includes all
secured indebtedness of the Company, whether existing on or created or incurred
after the date of the issuance of the Debentures, that is not made subordinate
to or pari passu with the Debentures by the instrument creating the
indebtedness. At September 30, 1997, the aggregate amount of the Company's
Senior Indebtedness was approximately $1.2 million. The Indenture does not limit
the amount of additional indebtedness,
5
<PAGE> 9
including Senior Indebtedness, which the Company can create, incur, assume or
guarantee. Additionally, pursuant to a credit agreement entered into as of
August 1, 1997, among the Company and certain lending institutions, KeyBank
National Association as administrative agent, the Company is entitled to borrow
up to $135 million of Senior Indebtedness under a credit facility. By reason of
such subordination of the Debentures, in the event of insolvency, bankruptcy,
liquidation, reorganization, dissolution or winding up of the business of the
Company or upon default in payment with respect to any Senior Indebtedness of
the Company or an event of default with respect to such indebtedness resulting
in the acceleration thereof, the assets of the Company will be available to pay
the amounts due on the Debentures only after all Senior Indebtedness of the
Company has been paid in full.
RISKS RELATING TO ENFORCEABILITY OF SUBSIDIARY GUARANTEES
The Company's payment obligations under the Debentures are jointly and
severally guaranteed by all of its wholly-owned subsidiaries. To the extent that
a court were to find that (i) a guarantee was incurred by a subsidiary guarantor
with the intent to hinder, delay or defraud any present or future creditor, (ii)
the subsidiary guarantor contemplated insolvency with a design to prefer one or
more creditors to the exclusion in whole or in part of others or (iii) such
subsidiary guarantor did not receive fair consideration or reasonably equivalent
value for issuing its guarantee and such subsidiary guarantor (w) was insolvent,
(x) was rendered insolvent by reason of the issuance of such guarantee, (y) was
engaged or about to engage in a business or transaction for which the remaining
assets of such subsidiary guarantor constituted unreasonably small capital to
carry on its business or (z) intended to incur, or believed that it would incur,
debts beyond its ability to pay such debts as they matured, the court, subject
to applicable statutes of limitations, could avoid or subordinate such guarantee
in favor of a subsidiary guarantor's creditors or take other action detrimental
to the holders of the Debentures. Among other things, a legal challenge of a
guarantee on fraudulent conveyance grounds may focus on the benefits, if any,
realized by a subsidiary guarantor as a result of the issuance by the Company of
the Debentures.
To the extent any guarantees were avoided as a fraudulent conveyance or
held unenforceable for any other reason, holders of the Debentures would cease
to have any claim in respect of such subsidiary guarantor and would be creditors
solely of the Company and any subsidiary guarantor whose guarantee was not
avoided or held unenforceable. In such event, the claims of holders of the
Debentures against the issuer of an invalid guarantee would be subject to the
prior payment of all liabilities of such subsidiary guarantor. There can be no
assurance that, after providing for all prior claims, there would be sufficient
assets remaining to satisfy the claims of the holders of the Debentures relating
to any avoided portions of any of the guarantees. In addition, if a court were
to avoid the guarantees under fraudulent conveyance laws or other legal
principles or, by the terms of such guarantees, the obligations thereunder were
reduced as necessary to prevent such avoidance, or the guarantees were released,
the claims of other creditors of the subsidiary guarantors, including trade
creditors, would to such extent have priority as to the assets of such
subsidiary guarantors over the claims of holders of the Debentures. The
guarantees of the Debentures by any subsidiary guarantor will be released at
such time as the subsidiary guarantor is no longer a member of an affiliated
group (within the meaning of Section 279(g) of the Internal Revenue Code of
1986, as amended) which includes the Company, including, without limitation,
upon the sale or disposition (whether by merger, stock purchase, asset sale or
otherwise) of such subsidiary guarantor. The Indenture does not impose any
limitations on the Company's ability to sell or dispose of any subsidiary
guarantor. See "Description of Debentures - Subsidiary Guarantees."
LIMITATIONS ON REPURCHASE UPON A REPURCHASE EVENT
In the event of a Repurchase Event, which includes a Change in Control
and a Termination of Trading (each as defined herein), each holder of Debentures
will have the right, at the holder's option, to require the Company to
repurchase all or a portion of such holder's Debentures at a purchase price
equal to 100% of the principal amount thereof plus accrued interest thereon to
the repurchase date. The Company's ability to repurchase the Debentures upon a
Repurchase Event may be limited by the terms of the Company's Senior
Indebtedness and the subordination provisions of the Indenture. Further, the
ability of the Company to repurchase Debentures upon a Repurchase Event will be
dependent on the availability of sufficient funds and compliance with applicable
securities laws. Accordingly, there can be no assurance that the Company will be
able to repurchase the Debentures upon a Repurchase Event. The term "Repurchase
Event" is limited to certain specified transactions and may not include other
events that might adversely affect the financial condition of the Company or
result in a downgrade of the credit rating (if any) of the Debentures nor would
the requirement that the Company offer to repurchase the Debentures upon a
Repurchase Event necessarily afford holders of the Debentures protection in the
event of a highly leveraged reorganization, merger or similar transaction
involving the Company. See "Description of Debentures."
6
<PAGE> 10
ABSENCE OF PUBLIC MARKET; TRANSFER RESTRICTIONS
There is no existing public market for the Debentures and there can be
no assurance as to the liquidity of any market that may develop for the
Debentures, the ability of the holders to sell their Debentures or the price at
which holders of the Debentures may be able to sell their Debentures. Future
trading prices of the Debentures will depend on many factors, including, among
other things, prevailing interest rates, the Company's operating results, the
price of the Class A Common Stock and the market for similar securities. The
Initial Purchasers have informed the Company that the Initial Purchasers intend
to make a market in the Debentures offered hereby; however, the Initial
Purchasers are not obligated to do so, and any such market making activity may
be terminated at any time without notice to the holders of the Debentures. See
"Description of Debentures Registration Rights; Liquidated Damages." The
Debentures have been designated for trading in the PORTAL Market; however, the
Company does not intend to apply for listing of the Debentures on any securities
exchange. Debentures resold pursuant to the Registration Statement (of which
this Prospectus is a part) will no longer be eligible for trading in the PORTAL
Market.
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced extreme price and
volume fluctuations which in some circumstances have been unrelated to the
operating performance of particular companies. The market price for shares of
the Class A Common Stock may be highly volatile depending on various factors,
including, but not limited to, the state of the national economy, stock market
conditions, industry research reports, actions by governmental agencies,
litigation involving the Company, earnings and other announcements by the
Company or its competitors and general conditions in the institutional pharmacy
business.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the
Debentures or the shares of Class A Common Stock offered hereby.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for each of the
periods indicated is as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------------------------
1993 1994 1995 1996 1997
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
3.4x 5.2x 3.6x 2.6x 11.1x
</TABLE>
For purposes of computing the ratio of earnings to fixed charges,
earnings represent income before income taxes plus fixed charges. Fixed charges
include interest (expensed and capitalized), amortization of debt issuance costs
and the estimated interest component of rental expense.
7
<PAGE> 11
DESCRIPTION OF DEBENTURES
The Debentures were issued under an indenture dated as of August 13,
1997 (the "Indenture") between the Company and National City Bank, as trustee
(the "Trustee"). The following summaries of certain provisions of the Indenture
do not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Indenture, including the
definition therein of certain terms. Wherever particular sections or defined
terms of the Indenture are referred to, such sections or defined terms are
incorporated herein by reference. For purposes of the following discussion,
"Common Stock" includes any stock of any class of the Company which has no
preference in respect of dividends or of amounts payable in the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the Company
and which is not subject to redemption by the Company, including, without
limitation, the Company's Class B Common Stock. Copies of the Indenture are
available from the Company or the Initial Purchasers upon request.
GENERAL
The Debentures are unsecured obligations of the Company, limited to
$100 million in aggregate principal amount and mature on August 15, 2004. The
Debentures bear interest at a rate of 5 3/4% per annum from the date of original
issuance of Debentures pursuant to the Indenture, or from the most recent
Interest Payment Date to which interest has been paid or provided for, payable
semi-annually on February 15 and August 15 of each year, commencing February 15,
1998, to the Person in whose name the Debenture (or any predecessor Debenture)
is registered at the close of business on the preceding February 1 or August 1,
as the case may be. Interest on the Debentures will be paid on the basis of a
360-day year of twelve 30-day months.
Principal of, and premium, if any, and interest on the Debentures is
payable (i) in respect of Debentures held of record by the Depository Trust
Company ("DTC") or its nominee in same day funds on or prior to the payment
dates with respect to such amounts and (ii) in respect of Debentures held of
record by Holders other than DTC or its nominee at the corporate trust office of
the Trustee, and the Debentures may be surrendered for transfer, exchange or
conversion at the corporate trust office of the Trustee. In addition, with
respect to Debentures held of record by Holders other than DTC or its nominee,
payment of interest may be made at the option of the Company by check mailed to
the address of the persons entitled thereto as it appears in the Register for
the Debentures on the Regular Record Date for such interest.
The Debentures have been issued only in registered form, without
coupons and in denominations of $1,000 or any integral multiple thereof. No
service charge will be made for any transfer or exchange of the Debentures, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge and any other expenses (including the fees and expenses of
the Trustee) payable in connection therewith. The Company is not required (i) to
issue, register the transfer of or exchange any Debentures during a period
beginning at the opening of business 15 days before the day of the mailing of a
notice of redemption and ending at the close of business on the day of such
mailing or (ii) to register the transfer of or exchange any Debenture selected
for redemption in whole or in part, except the unredeemed portion of Debentures
being redeemed in part.
All monies paid by the Company to the Trustee or any Paying Agent for
the payment of principal of and premium and interest on any Debenture which
remain unclaimed for two years after such principal, premium or interest become
due and payable may be repaid to the Company. Thereafter, the Holder of such
Debenture may, as an unsecured general creditor, look only to the Company for
payment thereof.
The Indenture does not contain any provisions that would provide
protection to Holders of the Debentures against a sudden and dramatic decline in
credit quality of the Company resulting from any takeover, recapitalization or
similar restructuring, except as described below under "Certain Rights to
Require Repurchase of Debentures."
CONVERSION RIGHTS
The Debentures are convertible into Class A Common Stock at any time
prior to redemption or final maturity, initially at the conversion price of
$32.70 per share. The right to convert Debentures which have been called for
redemption will terminate at the close of business on the second business day
preceding the Redemption Date. See "Optional Redemption" below.
The conversion price is subject to adjustment upon the occurrence of
any of the following events: (i) the subdivision, combination or
reclassification of outstanding shares of Common Stock; (ii) the payment in
shares of
8
<PAGE> 12
Common Stock of a dividend or distribution on any class of capital stock of the
Company; (iii) the issuance of rights or warrants to all holders of Class A
Common Stock or Class B Common Stock or both entitling them to acquire shares of
Common Stock at a price per share less than the Current Market Price; (iv) the
distribution to holders of Class A Common Stock or Class B Common Stock or both
of shares of capital stock other than Common Stock, evidences of indebtedness,
cash or assets (including securities, but excluding dividends or distributions
paid exclusively in cash and dividends, distributions, rights and warrants
referred to above); (v) a distribution consisting exclusively of cash (excluding
any cash distributions referred to in (iv) above) to all holders of Class A
Common Stock or Class B Common Stock or both in an aggregate amount that,
together with (A) all other cash distributions (excluding any cash distributions
referred to in (iv) above) made within the 12 months preceding such distribution
and (B) any cash and the fair market value of other consideration payable in
respect of any tender offer by the Company or a subsidiary of the Company for
Common Stock consummated within the 12 months preceding such distribution,
exceeds 12.5% of the Company's market capitalization (determined as provided in
the Indenture) on the date fixed for determining the stockholders entitled to
such distribution; and (vi) the consummation of a tender offer made by the
Company or any subsidiary of the Company for Common Stock which involves an
aggregate consideration that, together with (X) any cash and other consideration
payable in respect of any tender offer by the Company or a subsidiary of the
Company for Common Stock consummated within the 12 months preceding the
consummation of such tender offer and (Y) the aggregate amount of all cash
distributions (excluding any cash distributions referred to in (iv) above) to
all holders of the Class A Common Stock or Class B Common Stock or both within
the 12 months preceding the consummation of such tender offer, exceeds 12.5% of
the Company's market capitalization at the date of consummation of such tender
offer. No adjustment of the conversion price will be required to be made until
cumulative adjustments amount to at least one percent of the conversion price,
as last adjusted. Any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment.
In addition to the foregoing adjustments, the Company from time to time
may, to the extent permitted by law, reduce the conversion price of the
Debentures by any amount for any period of at least 20 days, in which case the
Company shall give at least 15 days' notice of such decrease. The Company also
is permitted to reduce the conversion price as it considers to be advisable in
order that any event treated for federal income tax purposes as a dividend of
stock or stock rights will not be taxable to the holders of the Class A Common
Stock or, if that is not possible, to diminish any income taxes that are
otherwise payable because of such event. In the case of any consolidation or
merger of the Company with any other corporation (other than one in which no
change is made in the Common Stock), or any sale or transfer of all or
substantially all of the assets of the Company, the Holder of any Debenture then
outstanding will, with certain exceptions, have the right thereafter to convert
such Debenture only into the kind and amount of securities, cash and other
property receivable upon such consolidation, merger, sale or transfer by a
holder of the number of shares of Class A Common Stock into which such Debenture
might have been converted immediately prior to such consolidation, merger, sale
or transfer; and adjustments will be provided for events subsequent thereto that
are as nearly equivalent as practical to the conversion price adjustments
described above.
Fractional shares of Class A Common Stock will not be issued upon
conversion, but, in lieu thereof, the Company will pay a cash adjustment based
upon the then Closing Price at the close of business on the day of conversion.
If any Debentures are surrendered for conversion during the period from the
close of business on any Regular Record Date through and including the next
succeeding Interest Payment Date (except any such Debentures called for
redemption), such Debentures when surrendered for conversion must be accompanied
by payment in next day funds of an amount equal to the interest thereon which
the registered Holder on such Regular Record Date is to receive. Except as
described in the preceding sentence, no interest will be payable by the Company
on converted Debentures with respect to any Interest Payment Date subsequent to
the date of conversion. No other payment or adjustment for interest or dividends
is to be made upon conversion.
SUBORDINATION
The payment of the principal of and premium, if any, and interest on
the Debentures, to the extent set forth in the Indenture, is subordinated in
right of payment to the prior payment in full of all Senior Indebtedness. If
there is a payment or distribution of assets to creditors upon any liquidation,
dissolution, winding up, reorganization, assignment for the benefit of
creditors, marshalling of assets or any bankruptcy, insolvency or similar
proceedings of the Company, the holders of all Senior Indebtedness will be
entitled to receive payment in full of all amounts due or to become due thereon
or provision for such payment in money or money's worth before the Holders of
the Debentures will be entitled to receive any payment in respect of the
principal of or premium, if any, or interest on the Debentures. In the event of
the acceleration of the maturity of the Debentures, the holders of all Senior
Indebtedness will first be entitled to receive
9
<PAGE> 13
payment in full in cash of all amounts due thereon or provision for such payment
in money or money's worth before the holders of the Debentures will be entitled
to receive any payment for the principal of or premium, if any, or interest on
the Debentures. No payments on account of principal of or premium, if any, or
interest on the Debentures or on account of the purchase or acquisition of
Debentures may be made if there has occurred and is continuing a default in any
payment with respect to Senior Indebtedness, any acceleration of the maturity of
any Senior Indebtedness or if any judicial proceeding is pending with respect to
any such default.
Senior Indebtedness with respect to the Company is defined in the
Indenture as (a) all secured indebtedness of the Company for money borrowed
under the Company's primary revolving credit facility and any predecessor or
successor credit facilities thereto, whether outstanding on the date of
execution of the Indenture (such as the Company's $135 million credit facility
currently in existence, any increase in the maximum principal amount thereof and
any predecessor or successor facilities thereto) or thereafter created, incurred
or assumed, (b) all other secured indebtedness of the Company for money
borrowed, whether outstanding on the date of the execution of the Indenture or
thereafter created, incurred or assumed, except any indebtedness that by the
terms of the instrument or instruments by which such indebtedness was created or
incurred expressly provides that it (i) is junior in right of payment to the
Debentures or (ii) ranks pari passu in right of payment with the Debentures, and
(c) any amendments, renewals, extensions, modifications, refinancings and
refundings of any of the foregoing. The term "indebtedness for money borrowed"
when used with respect to the Company is defined to mean (i) any obligation of,
or any obligation guaranteed by, the Company for the repayment of borrowed money
(including without limitation interest, fees, penalties and other obligations in
respect thereof), whether or not evidenced by bonds, debentures, notes or other
written instruments, (ii) any deferred payment obligation of, or any such
obligation guaranteed by, the Company for the payment of the purchase price of
property or assets evidenced by a note or similar instrument, (iii) any
obligation of, or any such obligation guaranteed by, the Company for the payment
of rent or other amounts under a lease of property or assets which obligation is
required to be classified and accounted for as a capitalized lease on the
balance sheet of the Company under generally accepted accounting principles,
(iv) any obligation of, or any such obligation which is guaranteed by, the
Company for the reimbursement of any obligor of any letter of credit, banker's
acceptance or similar credit transaction, (v) any obligation of, or any such
obligation which is guaranteed by, the Company under interest rate swaps, caps,
collars, options and similar arrangements and (vi) any obligation of the Company
under any foreign exchange contract, currency swap agreement, futures contract,
currency option contract or other foreign currency hedge. Senior Indebtedness
with respect to the Company's subsidiaries for purposes of the subsidiary
guarantees of the Debentures shall have a corresponding meaning.
The Debentures are obligations of the Company. The operations of the
Company are currently conducted principally through subsidiaries, which are
separate and distinct legal entities. Each of the Company's wholly-owned
subsidiaries has guaranteed the Company's payment obligations under the
Debentures, so long as such subsidiary is a member of an affiliated group
(within the meaning of Section 279(g) of the Internal Revenue Code of 1986, as
amended) which includes the Company. The satisfaction by the Company's
subsidiaries of their contractual guarantees, as well as the payment of
dividends and certain loans and advances to the Company by such subsidiaries,
which may be subject to certain statutory or contractual restrictions, are
contingent upon the earnings of such subsidiaries and are subject to various
business considerations. Any right of the Company to receive assets of any
subsidiary of the Company upon the liquidation or reorganization of any such
subsidiary will be effectively subordinated to the claims of that subsidiary's
creditors, except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would still
be subordinate to any security in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by the Company.
The Indenture does not limit or prohibit the incurrence of Senior
Indebtedness. At September 30, 1997, the aggregate amount of Senior Indebtedness
of the Company outstanding was approximately $1.2 million. The Company expects
to incur additional indebtedness, including Senior Indebtedness from time to
time in the future. See "Capitalization."
SUBSIDIARY GUARANTEES
Each of the Company's wholly-owned subsidiaries unconditionally
guarantee, jointly and severally, the Company's obligations under the
Debentures. The indebtedness represented by the guarantees is subordinated to
all Senior Indebtedness of such subsidiaries.
10
<PAGE> 14
At such time as a subsidiary guarantor is no longer a member of an
affiliated group (within the meaning of Section 279(g) of the Internal Revenue
Code of 1986, as amended) which includes the Company, including, without
limitation, upon the sale or disposition (whether by merger, stock purchase,
asset sale or otherwise) of such subsidiary guarantor, such subsidiary guarantor
shall be deemed to be released from all its obligations under the subsidiary
guarantee.
The obligations of each subsidiary guarantor under its guarantee are
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such subsidiary guarantor (other than
liabilities of such subsidiary guarantor under indebtedness which is
subordinated to the guarantee) and after giving effect to any collections from
or payments made by or on behalf of any other subsidiary guarantor in respect of
the obligations of such other subsidiary guarantor under its guarantee, or
pursuant to its contribution obligations under the Indenture, result in the
obligations of such subsidiary guarantor under such guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal or state law. See
"Risk Factors - Risks Relating to Enforceability of Subsidiary Guarantees."
OPTIONAL REDEMPTION
The Debentures are redeemable, at the Company's option, in whole or
from time to time in part, at any time on or after August 18, 2000, upon not
less than 30 nor more than 60 days' notice mailed to each Holder of Debentures
to be redeemed at its address appearing in the Security Register and prior to
Maturity at the Redemption Prices below (expressed as percentages of the
principal amount) plus accrued interest to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date).
If redeemed during the 12-month period beginning August 15, in the year
indicated (August 18, in the case of 2000), the redemption price shall be:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- -----
<S> <C>
2000...................................................... 103.29%
2001...................................................... 102.46
2002...................................................... 101.64
2003...................................................... 100.82
</TABLE>
No sinking fund is provided for the Debentures.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Indenture provides that the Company will not consolidate with or
merge into any other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, or permit any Person to
consolidate with or merge into the Company or convey, transfer or lease its
properties substantially as an entirety to the Company, unless (a) if
applicable, the Person formed by such consolidation or into which the Company is
merged or the Person or corporation which acquires the properties and assets of
the Company substantially as an entirety is a corporation, limited liability
company, partnership or trust organized and validly existing under the laws of
the United States or any state thereof or the District of Columbia and expressly
assumes payment of the principal of and premium, if any, and interest on the
Debentures and performance and observance of each obligation of the Company
under the Indenture, (b) after consummating such consolidation, merger, transfer
or lease, no Default or Event of Default will occur and be continuing, (c) such
consolidation, merger or acquisition does not adversely affect the validity or
enforceability of the Debentures and (d) the Company has delivered to the
Trustee an Officer's Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, conveyance, transfer or lease complies with the
provisions of the Indenture.
CERTAIN RIGHTS TO REQUIRE REPURCHASE OF DEBENTURES
In the event of any Repurchase Event (as defined below) occurring after
the date of issuance of the Debentures and on or prior to Maturity, each Holder
of Debentures will have the right, at the Holder's option, to require the
Company to repurchase all or any part of the Holder's Debentures on the date
(the "Repurchase Date") that is 30 days after the date the Company gives notice
of the Repurchase Event as described below at a price (the "Repurchase Price")
equal to 100% of the principal amount thereof, together with accrued and unpaid
interest to the Repurchase Date. On or prior to the
11
<PAGE> 15
Repurchase Date, the Company shall deposit with the Trustee or a Paying Agent an
amount of money sufficient to pay the Repurchase Price of the Debentures which
are to be repaid on the Repurchase Date.
Failure by the Company to provide timely notice of a Repurchase Event,
as provided for below, or to repurchase the Debentures when required under the
preceding paragraph will result in an Event of Default under the Indenture
whether or not such repurchase is permitted by the subordination provisions of
the Indenture.
On or before the 15th day after the occurrence of a Repurchase Event,
the Company is obligated to mail to all Holders of Debentures a notice of the
occurrence of such Repurchase Event identifying the Repurchase Date, the date by
which the repurchase right must be exercised, the Repurchase Price for
Debentures and the procedures which the Holder must follow to exercise this
right. To exercise the repurchase right, the Holder of a Debenture must deliver,
on or before the close of business on the Repurchase Date, written notice to the
Company (or an agent designated by the Company for such purpose) and to the
Trustee of the Holder's exercise of such right, together with the certificates
evidencing the Debentures with respect to which the right is being exercised,
duly endorsed for transfer.
A "Repurchase Event" shall have occurred upon the occurrence of a
Change in Control or a Termination of Trading (each as defined below).
A "Change in Control" shall occur when: (i) all or substantially all of
the Company's assets are sold as an entirety to any person or related group of
persons; (ii) there shall be consummated any consolidation or merger of the
Company (A) in which the Company is not the continuing or surviving corporation
(other than a consolidation or merger with a wholly owned subsidiary of the
Company in which all shares of Class A Common Stock outstanding immediately
prior to the effectiveness thereof are changed into or exchanged for the same
consideration) or (B) pursuant to which the Class A Common Stock and Class B
Common Stock would be converted into cash, securities or other property, in each
case other than a consolidation or merger of the Company in which the holders of
the Class A Common Stock and Class B Common Stock immediately prior to the
consolidation or merger have, directly or indirectly, at least a majority of the
total voting power of all classes of capital stock entitled to vote generally in
the election of directors of the continuing or surviving corporation immediately
after such consolidation or merger in substantially the same proportion as their
ownership of Class A Common Stock and Class B Common Stock immediately before
such transaction; (iii) any person, or any persons acting together which would
constitute a "group" for purposes of Section 13(d) of the Exchange Act (in each
case other than members of the Current Control Group, as defined below),
together with any affiliates thereof, shall beneficially own (as defined in Rule
13d-3 under the Exchange Act) at least 50% of the total voting power of all
classes of capital stock of the Company entitled to vote generally in the
election of directors of the Company; (iv) at any time during any consecutive
two-year period, individuals who at the beginning of such period constituted the
Board of Directors of the Company (together with any new directors whose
election by such Board of Directors or whose nomination for election by the
stockholders of the Company was approved by a vote of 66-2/3% of the directors
then still in office who were either directors at the beginning of such period
or whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the Board of Directors of the Company
then in office; or (v) the Company is liquidated or dissolved or adopts a plan
of liquidation or dissolution.
"Current Control Group" means the members of the Board of Directors and
the executive officers of the Company as of August 7, 1997, their spouses,
children, parents and siblings, the trustee of any trust created for the benefit
of any such member of the Board of Directors, officer or family member, the
executor or administrator (in his or her capacity as such) of the estate of any
such member of the Board of Directors, officer or family member, and any Person
who receives Class B Common Stock under the last will and testament of, or under
the laws of descent and distribution from, any such member of the Board of
Directors, officer or family member.
A "Termination of Trading" shall occur if the Class A Common Stock (or
other common stock into which the Debentures are then convertible) is neither
listed for trading on a U.S. national securities exchange nor approved for
trading on an established automated over-the-counter trading market in the
United States.
The right to require the Company to repurchase Debentures as a result
of the occurrence of a Repurchase Event could create an event of default under
Senior Indebtedness of the Company, as a result of which any repurchase could,
absent a waiver, be blocked by the subordination provisions of the Debentures.
See "Subordination." Failure by the Company to repurchase the Debentures when
required will result in an Event of Default with respect to the Debentures
whether or not such repurchase is permitted by the subordination provisions. The
Company's ability to pay cash to the
12
<PAGE> 16
Holders of Debentures upon a repurchase may be limited by certain financial
covenants contained in the Company's Senior Indebtedness.
In the event a Repurchase Event occurs and the Holders exercise their
rights to require the Company to repurchase Debentures, the Company intends to
comply with applicable tender offer rules under the Exchange Act, including
Rules 13e-4 and 14e-1, as then in effect, with respect to any such purchase.
The foregoing provisions would not necessarily afford Holders of the
Debentures protection in the event of highly leveraged or other transactions
involving the Company that may adversely affect Holders. In addition, the
foregoing provisions may discourage open market purchases of the Class A Common
Stock or a non-negotiated tender or exchange offer for such stock and,
accordingly, may limit a stockholder's ability to realize a premium over the
market price of the Class A Common Stock in connection with any such
transaction.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect to
the Debentures: (a) default in the payment of principal of or any premium on any
Debenture when due (even if such payment is prohibited by the subordination
provisions of the Indenture), whether at maturity, upon redemption, upon
acceleration or otherwise; (b) default in the payment of any interest on any
Debenture when due, which default continues for 30 days (even if such payment is
prohibited by the subordination provisions of the Indenture); (c) failure to
provide timely notice of a Repurchase Event as required by the Indenture; (d)
default in the payment of the Repurchase Price in respect of any Debenture on
the Repurchase Date therefor (even if such payment is prohibited by the
subordination provisions of the Indenture); (e) default in the performance of
any other covenant of the Company in the Indenture which continues for 60 days
after written notice as provided in the Indenture; (f) default under one or more
bonds, debentures, notes or other evidences of indebtedness for money borrowed
by the Company or any subsidiary of the Company or under one or more mortgages,
indentures or instruments under which there may be issued or by which there may
be secured or evidenced any indebtedness for money borrowed by the Company or
any subsidiary of the Company, whether such indebtedness now exists or shall
hereafter be created, which default individually or in the aggregate shall
constitute a failure to pay the principal of indebtedness in excess of
$10,000,000 when due and payable after the expiration of any applicable grace
period with respect thereto or shall have resulted in indebtedness in excess of
$10,000,000 becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, without such indebtedness
having been discharged, or such acceleration having been rescinded or annulled,
within a period of 30 days after there shall have been given to the Company by
the Trustee or to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Outstanding Debentures a written notice
specifying such default and requiring the Company to cause such indebtedness to
be discharged or cause such acceleration to be rescinded or annulled; and (g)
certain events in bankruptcy, insolvency or reorganization of the Company or any
subsidiary of the Company.
If an Event of Default with respect to the Debentures shall occur and
be continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Debentures may declare the principal of and
premium, if any, on all such Debentures to be due and payable immediately, but
if the Company cures all Events of Default (except the nonpayment of interest
on, premium, if any, and principal of any Debentures) and certain other
conditions are met, such declaration may be canceled and past defaults may be
waived by the holders of a majority in principal amount of Outstanding
Debentures. If an Event of Default shall occur as a result of an event of
bankruptcy, insolvency or reorganization of the Company or any subsidiary of the
Company, the aggregate principal amount of the Debentures shall automatically
become due and payable. The Company is required to furnish to the Trustee
annually a statement as to the performance by the Company of certain of its
obligations under the Indenture and as to any default in such performance. The
Indenture provides that the Trustee may withhold notice to the Holders of the
Debentures of any continuing default (except in the payment of the principal of
or premium, if any, or interest on any Debentures) if the Trustee considers it
in the interest of Holders of the Debentures to do so.
MODIFICATION, AMENDMENTS AND WAIVERS
The Indenture contains provisions permitting the Company and the
Trustee, with the consent of the holders of not less than a majority of the
aggregate principal amount of the Outstanding Debentures, to execute a
supplemental indenture to add provisions to, or change in any manner or
eliminate any provisions of, the Indenture or modify in any manner the rights of
Holders of the Debentures, provided that without the consent of each Holder of
Outstanding Debentures, no supplemental indenture may (i) change the stated
maturity of the principal of, or any installment of interest
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on, any Debenture, or reduce the principal amount thereof or the rate of
interest thereon or any premium payable upon the redemption thereof, or change
the place of payment where, or the coin or currency in which, any Debenture or
any premium or interest thereon is payable, or impair the right to institute
suit for enforcement of any such payment on or after the stated maturity thereof
(or, in the case of redemption, on or after the redemption date), (ii) adversely
affect the right to convert the Debentures as provided in the Indenture, (iii)
modify the provisions of the Indenture with respect to the subordination of the
Debentures in a manner adverse to the Holders of Debentures, (iv) impair the
right of Holders of Debentures to require the Company to repurchase Debentures
upon the occurrence of a Repurchase Event or (v) reduce the percentage in
principal amount of Outstanding Debentures, the consent of whose Holders is
required for any waiver of compliance with certain provisions of the Indenture
or certain defaults thereunder.
Modifications and amendments of the Indenture may be made by the
Company and the Trustee without the consent of the Holders to: (a) cause the
Indenture to be qualified under the Trust Indenture Act; (b) evidence the
succession of another Person to the Company and the assumption by any such
successor of the covenants of the Company herein and in the Debentures; (c) add
to the covenants of the Company for the benefit of the Holders or an additional
Event of Default, or surrender any right or power conferred upon the Company;
(d) secure the Debentures; (e) make provision with respect to the conversion
rights of Holders in the event of a consolidation, merger or sale of assets
involving the Company, as required by the Indenture; (f) evidence and provide
for the acceptance of appointment by a successor Trustee with respect to the
Debentures; or (g) cure any ambiguity, correct or supplement any provision which
may be defective or inconsistent with any other provision, or make any other
provisions with respect to matters or questions arising under the Indenture
which shall not be inconsistent with the provisions of the Indenture, provided,
however, that no such modifications or amendment may adversely affect the
interest of Holders in any material respect.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture while
Debentures remain Outstanding if (a) all Outstanding Debentures will become due
and payable at their scheduled maturity within one year or (b) all Outstanding
Debentures are scheduled for redemption within one year, and in either case the
Company has deposited with the Trustee an amount sufficient to pay and discharge
all Outstanding Debentures on the date of their scheduled maturity or the
scheduled date of redemption.
FORM, DENOMINATION AND REGISTRATION
The Debentures have been issued in fully registered form, without
coupons, in denominations of $1,000 in principal amount and integral multiples
thereof.
Global Debenture; Book-Entry Form. Debentures will be evidenced by a
Global Debenture (hereinafter referred to as the "Registered Global Debenture"),
except as set forth below under "Certificated Debentures." The Registered Global
Debentures will be deposited with, or on behalf of, DTC and registered in the
name of Cede & Co. ("Cede") as DTC's nominee. Beneficial interests in the
Registered Global Debenture are exchangeable for definitive certificated
Debentures only in accordance with the terms of the Indenture. Except as set
forth below, the Registered Global Debentures may be transferred, in whole or in
part, only to another nominee of DTC or to a successor of DTC or its nominee.
The Holders of Debentures may hold their interests in the Registered
Global Debentures directly through DTC if such Holder is a participant in DTC,
or indirectly through organizations which are participants in DTC (the
"Participants"). Transfers between Participants will be effected in the ordinary
way in accordance with DTC rules and will be settled in same day funds. The laws
of some states require that certain persons take physical delivery of securities
in definitive form. Consequently, the ability to transfer beneficial interests
in the Registered Global Debentures to such persons may be limited.
The Holders of Debentures who are not Participants may beneficially own
interests in the Registered Global Debentures 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 Registered Global
Debentures, Cede for all purposes will be considered the sole holder of the
Registered Global Debentures.
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<PAGE> 18
Payment of interest on and the redemption price or repurchase price
(upon redemption at the option of the Company or repurchase at the option of the
Holder upon a Repurchase Event) of the Registered Global Debentures will be made
to Cede, the nominee for DTC, as the registered owner of the Registered Global
Debentures, by wire transfer of immediately available funds on each interest
payment date or the redemption date, as the case may be. Neither the Company,
the Trustee nor any paying agent will have any responsibility or liability for
any aspect of the records relating to or payments made on account of beneficial
ownership interests in the Registered Global Debentures or for maintaining,
supervising or reviewing any records relating to such beneficial ownership
interests.
With respect to any payment of interest on and the redemption price or
repurchase price (upon redemption at the option of the Company or repurchase at
the option of the Holder upon a Repurchase Event) of the Registered Global
Debentures, DTC's practice is to credit Participants' accounts on the payment
date therefor with payments in amounts proportionate to their respective
beneficial interests in the Debentures represented by the Registered Global
Debentures as shown on the records of DTC, 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 Debentures represented by the Registered
Global Debentures 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."
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 Debentures represented by the Registered Global
Debentures 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.
Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) will have 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.
If DTC is at any time unwilling or unable to continue as depositary and
a successor depositary is not appointed by the Company within 90 days, the
Company will cause Debentures to be issued in definitive form in exchange for
the Registered Global Debentures.
Certificated Debentures. Debentures sold (other than pursuant to the
Registration Statement of which this Prospectus is a part) to investors that are
neither Qualified Institutional Buyers nor persons acquiring such Debentures in
compliance with Regulation S under the Securities Act will be issued in
definitive registered form and may not be evidenced by a Global Debenture.
Qualified Institutional Buyers may request that their Debentures be issued in
definitive registered form. In addition, certificated Debentures may be issued
in exchange for Debentures represented by the Registered Global Debentures if no
successor depositary is appointed by the Company as set forth above under the
paragraph entitled "Global Debentures; Book-Entry Form."
PAYMENTS OF PRINCIPAL AND INTEREST
The Indenture requires that payments in respect of the Debentures
(including principal, premium, if any, and interest) held of record by DTC
(including Debentures evidenced by the Registered Global Debentures) be made in
same day funds. Payments in respect of the Debentures held of record by holders
other than DTC may, at the option of the Company, be made by check and mailed to
such holders of record as shown on the Register for the Debentures.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company and the Initial Purchasers entered into a Registration
Rights Agreement (the "RRA") on August 13, 1997 (the "Closing Date"). In the
RRA, the Company agreed to file with the SEC within 30 days after the Closing
Date a registration statement (the "Shelf") (of which this Prospectus forms a
part) on Form S-1 or Form S-3 to cover resales of Transfer Restricted Securities
(as defined below) by the holders thereof who satisfy the conditions referred to
below. The Company will be permitted to prohibit offers and sales of Transfer
Restricted Securities pursuant to the Shelf under certain circumstances and
subject to certain conditions (any period during which offers and sales are
prohibited being a "Suspension Period"). "Transfer Restricted Securities" means
each Debenture and any underlying share of Class A Common Stock until such
Debenture or share, as the case may be, (i) has been transferred pursuant to the
Shelf or another registration statement covering it which has been filed with
the SEC pursuant to the Securities Act, in either case after such registration
statement has become effective under the Securities Act, (ii) has been
transferred pursuant to Rule
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<PAGE> 19
144 under the Securities Act or (iii) may be sold or transferred pursuant to
Rule 144(k) under the Securities Act (or any similar provisions then in force).
"Transfer Restricted Securities" is also deemed to include the guarantees of the
Company's obligations under the Indenture and the Debentures by certain
subsidiaries of the Company. See "Description of Debentures - Subsidiary
Guarantees" above.
If the Shelf has not been declared effective by the SEC within 90 days
after the Closing Date or is filed and declared effective but shall thereafter
cease to be effective (without being succeeded immediately by a replacement
shelf registration statement filed and declared effective) or usable for the
offer and sale of Transfer Restricted Securities for a period of time (including
any Suspension Period) which shall exceed 60 days in the aggregate in any
12-month period during the period beginning on the Closing Date and ending on or
prior to the second anniversary of the Closing Date (each such event a
"Registration Default"), the Company will pay liquidated damages to each Holder
of Transfer Restricted Securities which has complied with its obligations under
the RRA. The amount of liquidated damages payable during any period in which a
Registration Default shall have occurred and be continuing is that amount which
is equal to one-quarter of one percent (25 basis points) per annum per $1,000
principal amount or $2.50 per annum per 30.581 shares of Common Stock (subject
to adjustment in the event of a stock split, stock recombination, stock dividend
and the like) constituting Transfer Restricted Securities for the first 90 days
during which a Registration Default has occurred and is continuing and 50 basis
points per annum per $1,000 principal amount of Debentures or $5.00 per annum
per 30.581 shares of Common Stock (subject to adjustment as set forth above)
constituting Transfer Restricted Securities for any additional days during which
a Registration Default has occurred and is continuing. The Company has agreed to
pay all accrued liquidated damages by wire transfer of immediately available
funds or by federal funds check on each Damages Payment Date (as defined in the
RRA). Following the cure of a Registration Default, liquidated damages will
cease to accrue with respect to such Registration Default.
The Company has agreed to maintain the Shelf until the first to occur
of (i) the second anniversary of the Closing Date or (ii) the date on which no
security covered by the Shelf remains a Transfer Restricted Security.
The foregoing summary of certain provisions of the RRA does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, the provisions of the RRA. Copies of the RRA are available from the Company
or the Initial Purchasers on request.
GOVERNING LAW
The Indenture and Debentures are governed by and construed in
accordance with the laws of the State of New York, without giving effect to such
state's conflicts of laws principles.
INFORMATION CONCERNING THE TRUSTEE
The Company and its subsidiaries maintain deposit accounts and conduct
other banking transactions with the Trustee in the ordinary course of business.
The Trustee serves as transfer agent with respect to the Class A Common Stock.
The Trustee also serves as a lender under the Company's existing credit
facility.
ABSENCE OF PUBLIC MARKET; TRANSFER RESTRICTIONS
The Debentures will be subject to significant restrictions on resale.
See "Notice to Investors." There is no existing public market for the Debentures
and there can be no assurance as to the liquidity of any markets that may
develop for the Debentures, the ability of the Holders to sell their Debentures
or at what price Holders of the Debentures will be able to sell their
Debentures. Future trading prices of the Debentures will depend upon many
factors including, among other things, prevailing interest rates, the Company's
operating results, the price of the Class A Common Stock and the market for
similar securities. The Initial Purchasers have informed the Company that they
intend to make a market in the Debentures offered hereby; however, the Initial
Purchasers are not obligated to do so and any such market making activity may be
terminated at any time without notice to the holders of the Debentures. See "-
Registration Rights; Liquidated Damages." The Debentures have been designated
for trading in the PORTAL Market; however, the Company does not intend to apply
for listing of the Debentures on any securities exchange.
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DESCRIPTION OF CAPITAL STOCK
The Company's Certificate of Incorporation (the "Certificate")
authorizes capital stock consisting of 50 million shares of Class A Common
Stock, par value $.01 per share, 20 million shares of Class B Common Stock, par
value $.01 per share (the "Class B Common Stock"), and one million shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"). The Company
is incorporated under the General Corporation Law of the State of Delaware (the
"Delaware GCL").
COMMON STOCK
At September 25, 1997, there were 11,709,473 shares of Class A Common
Stock and 7,018,824 shares of Class B Common Stock issued and outstanding, and
options to purchase 402,274 shares of Class A Common Stock and options to
purchase 164,557 shares of Class B Common Stock were outstanding. In addition,
at such date, there were an aggregate of 314,710 shares of Class A Common Stock
reserved for issuance under the Company's 1996 Long Term Incentive Plan.
The Class A Common Stock and Class B Common Stock are identical in all
material respects except that (i) shares of the Class B Common Stock entitle the
holders thereof to ten votes per share on all matters and shares of the Class A
Common Stock entitle the holders thereof to one vote per share on all matters,
and (ii) the shares of Class B Common Stock are subject to certain restrictions
on transfer. The shares of Class B Common Stock are not transferable except in
certain very limited instances to family members, trusts, other holders of Class
B Common Stock, charitable organizations and entities controlled by such persons
(collectively, "Permitted Transferees"). These restrictions on transfer may be
removed by the Board of Directors if the Board determines that the restrictions
may have a material adverse effect on the liquidity, marketability or market
value of the outstanding shares of Class A Common Stock.
The Class B Common Stock is fully convertible at any time into shares
of Class A Common Stock on a share-for-share basis and will automatically be
converted into shares of Class A Common Stock upon any purported transfer to
non-Permitted Transferees. Once a share of Class B Common Stock has been
converted into a share of Class A Common Stock, such share of Class A Common
Stock cannot thereafter be reconverted into a share of Class B Common Stock.
Because the Class B Common Stock will at all times be convertible into Class A
Common Stock on a share-for-share basis, holders of Class B Common Stock will be
able to sell the equity interest represented by their Class B Common Stock to
persons who are not Permitted Transferees by converting such shares into Class A
Common Stock. As is the case with Preferred Stock and additional Class A Common
Stock, additional Class B Common Stock can be issued at the discretion of the
Board of Directors.
Except as set forth below (and as provided by law and in the Company's
Certificate now in effect), all matters submitted to a vote of the Company's
stockholders will be voted on by holders of Class A Common Stock and Class B
Common Stock voting together as a single class. Holders of outstanding shares of
Class A Common Stock and Class B Common Stock, respectively, vote separately as
a class with respect to amendments to the Certificate of Incorporation that
would increase the authorized number of shares of Class B Common Stock, or that
would make other amendments to the Certificate (other than increases in the
number of authorized shares of Class A Common Stock) that alter or change the
designations or powers or the preferences, qualifications, limitations,
restrictions or the relative or special rights of either the Class B Common
Stock or the Class A Common Stock so as to affect them adversely.
No cash dividend may be declared or paid on the Class B Common Stock
unless an equal or greater dividend is simultaneously declared or paid on the
Class A Common Stock. Otherwise, subject to the rights of holders of Preferred
Stock, if any, the Class A Common Stock and the Class B Common Stock rank
equally and have equal rights per share with respect to all dividends and
distributions, including distributions upon liquidation of the Company and
consideration to be received upon a merger or consolidation of the Company or a
sale of all or substantially all of the Company's assets. In the case of stock
dividends or stock splits, however, only shares of Class A Common Stock can be
distributed in respect of outstanding Class A Common Stock and only shares of
Class B Common Stock can be distributed in respect of outstanding Class B Common
Stock.
Neither shares of Class A Common Stock nor shares of Class B Common
Stock can be split, divided or combined unless all outstanding shares of the
other class are correspondingly split, divided or combined.
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<PAGE> 21
Because of the restrictions on transfer of the Class B Common Stock,
over time shares of Class B Common Stock having ten votes will (unless the
Directors determine to remove such restrictions) be converted into shares of
Class A Common Stock having one vote, as holders convert their Class B Common
Stock into Class A Common Stock in order to sell their shares. Accordingly, the
holders of Class B Common Stock who continue to hold their Class B Common Stock
will realize over time an increase in their relative voting power in the
Company. The Directors and executive officers of the Company and their
affiliates collectively own approximately 67.3% of the total voting power of the
Company, prior to the conversion of any Debentures. A substantial portion of
this group's share ownership consists of Class B Common Stock. If those
individuals continue to hold their Class B Common Stock for the foreseeable
future, the degree of control of the Company by these Directors and executive
officers and their affiliates, and their percentage of the total voting power of
the Company, will increase over time.
Holders of Class A Common Stock and Class B Common Stock do not have
any preemptive rights or rights to subscribe for additional securities of the
Company and are not subject to any further calls or assessments by the Company.
There are no redemption or sinking fund provisions applicable to the Class A
Common Stock or the Class B Common Stock. The shares of Class A Common Stock are
not convertible into any other series or class of the Company's securities.
Subject to the preferences applicable to the Preferred Stock, if any,
outstanding at the time, holders of shares of Class A Common Stock and Class B
Common Stock are entitled to dividends, if, when and as declared by the Board of
Directors from funds legally available therefor and are entitled, in the event
of liquidation, to share ratably in all assets remaining after payment of
liabilities and Preferred Stock preferences, if any. See "Preferred Stock."
PREFERRED STOCK
The Company's Board of Directors is authorized, without further action
by the stockholders, to issue, from time to time, not in excess of one million
shares of Preferred Stock in one or more classes or series, and to fix or alter
the designations, powers and preferences, and relative, participating, optional
or other rights, if any, and qualifications, limitations or restrictions
thereof, including, without limitation, dividend rights (and whether dividends
are cumulative), conversion rights, if any, voting rights (including the number
of votes, if any, per share), rights and terms of redemption (including sinking
fund provisions, if any), redemption price and liquidation preferences of any
unissued shares or wholly unissued series of Preferred Stock, and the number of
shares constituting any such class or series and the designation thereof, and to
increase or decrease the number of shares of any such class or series subsequent
to the issuance of shares of such class or series, but not below the amount then
outstanding. Currently, there are no shares of Preferred Stock outstanding, and
the Company has no present intention to issue any Preferred Stock.
TWO-TIER BUSINESS COMBINATION PROVISIONS
The Certificate contains a provision designed to help assure that
stockholders of the Company receive equitable treatment, beyond that presently
provided by the applicable state law, in the event of certain Business
Combinations (as defined) between the Company and another corporation or entity.
Delaware law generally requires the affirmative vote of the holders of at least
a majority of the outstanding shares entitled to vote to approve a merger,
consolidation or disposition of all or substantially all of the Company's
assets. The Certificate raises the affirmative vote required to approve such a
business combination to at least 66-2/3% of the total voting power of the
Company's outstanding shares of Class A Common Stock and Class B Common Stock,
unless a Fair Price (as described herein) is paid to each of the stockholders of
the Company.
The Board of Directors is concerned about the partial or "two-step"
tender offer technique of accomplishing corporate takeovers. The first step in
this technique is a tender offer made by another corporation or entity seeking
control at a price that often substantially exceeds the market value of the
target corporation's stock. After acquiring a controlling number of shares, the
entity will then effectuate the second step: a business combination with the
target corporation designed to eliminate the then remaining stockholders'
interest in the corporation. The terms of the second step business combination
may not reflect arms-length bargaining and therefore may not assure proper
treatment of the stockholders remaining after the tender offer.
The Board of Directors intends to prevent persons who might acquire a
controlling interest in the Company from imposing a business combination on
minority stockholders unless such controlling persons are able and willing to
deal fairly with minority stockholders by paying them a fair price for their
interest in the Company. The Board recognizes that this fair price requirement
might have the effect of discouraging unilateral tender offers and other
takeover proposals to acquire control of the Company, as well as unsolicited
acquisitions of the Company's outstanding shares.
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<PAGE> 22
The Certificate requires, in addition to any required vote by the then
outstanding Preferred Stock, the vote of not less than 66-2/3% of the then
outstanding shares of the Company's Class A Common Stock and Class B Common
Stock to approve any Business Combination of the Company with any Related Person
(as defined) unless certain conditions have been met. In addition, the 66-2/3%
vote must include the affirmative vote of 51% of the outstanding shares of Class
A Common Stock and Class B Common Stock held by stockholders other than the
Related Person. Accordingly, the actual vote required to approve the Business
Combination may be greater than 66-2/3%, depending upon the number of shares
controlled by the Related Person. A Related Person is defined to include any
person or entity which is, directly or indirectly, the beneficial owner of
shares of Common Stock representing 5% or more of the total voting power of the
Company, including any affiliate or associate of such person or entity. The term
Business Combination is defined to include virtually any transaction between the
Company and a Related Person, including a merger, consolidation or sale of
assets.
The 66-2/3% requirement and the 51% requirement are not applicable,
however (and, therefore, the proposed Business Combination could be approved by
a simple majority of the stockholders unless otherwise required by Delaware
law), if the Related Person pays a Fair Price to the Company's stockholders in
the transaction or if a majority of the Board of Directors approves the
transaction. Under the terms of the Certificate, the Fair Price must be at least
equal to the greatest of (i) the highest price paid or agreed to be paid by the
Related Person to purchase any shares of the Company's common equity securities,
(ii) the highest market price of the common equity securities during the
24-month period prior to the taking of such vote, or (iii) the per share book
value of the Class A Common Stock at the end of the calendar quarter immediately
preceding the taking of such vote. In addition, the Fair Price consideration to
be received by the Company's stockholders must be of the same form and kind as
the most favorable form and kind of consideration paid by the Related Person in
acquiring any of its shares of common equity securities of the Company.
The Certificate provides that the above provisions regarding two-tier
business combinations may not be amended, altered, changed or repealed except by
the affirmative vote of at least 66-2/3% of the shares of the common equity
securities entitled to vote at a meeting of the stockholders called for the
consideration of such amendment, alteration, change or repeal, and at least 51%
of the outstanding shares entitled to vote thereon held by stockholders who are
not Related Persons, unless such proposal shall have been proposed by a majority
of the Board of Directors.
THE DELAWARE BUSINESS COMBINATION ACT
Section 203 of the Delaware GCL (the "Delaware Business Combination
Act") imposes a three-year moratorium on business combinations between a
Delaware corporation whose stock generally is publicly traded or held of record
by more than 2,000 stockholders and an "interested stockholder" (in general, a
stockholder owning 15% or more of a corporation's outstanding voting stock) or
an affiliate or associate thereof unless (a) prior to an interested stockholder
becoming such, the board of directors of the corporation approved either the
business combination or the transaction resulting in the interested stockholder
becoming such, (b) upon consummation of the transaction resulting in the
interested stockholder becoming such, the interested stockholder owns 85% of the
voting stock outstanding at the time the transaction commenced (excluding, from
the calculation of outstanding shares, shares beneficially owned by directors
who are also officers and certain employee stock plans) or (c) on or after an
interested stockholder becomes such, the business combination is approved by (i)
the board of directors and (ii) holders of at least 66-2/3% of the outstanding
shares (other than those shares beneficially owned by the interested
stockholder) at a meeting of stockholders. The term "business combination" is
defined generally to include mergers or consolidations between a Delaware
corporation and an "interested stockholder" involving the assets or stock of the
corporation or its majority-owned subsidiaries and transactions which increase
an "interested stockholder's" percentage ownership of stock.
The Delaware Business Combination Act applies to certain corporations
incorporated in the State of Delaware unless the corporation expressly elects
not to be governed by such legislation and sets forth such election in (a) the
corporation's original certificate of incorporation, (b) an amendment to the
corporation's by-laws as adopted by the corporation's board of directors within
90 days of the effective date of such legislation or (c) an amendment to the
corporation's certificate of incorporation or by-laws is approved by (in
addition to any other vote required by law) a majority of the shares entitled to
vote (however, such amendment would not be effective until 12 months after the
date of its adoption and would not apply to any business combination between the
corporation and any person who became an interested stockholder on or prior to
such adoption of such amendment). The Company has not made such an election and,
upon completion of the offering, will be subject to the Delaware Business
Combination Act.
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DIRECTOR LIABILITY PROVISIONS
As permitted by the Delaware GCL, the Certificate contains a provision
which eliminates, under certain circumstances, the personal liability of
Directors (only in their capacities as Directors of the Company) to the Company
or its stockholders for monetary damages for a breach of fiduciary duty as
Directors. The provision in the Certificate does not change a Director's duty of
care, but it does authorize the Company to eliminate monetary liability for
certain violations of the duty, including violations based on grossly negligent
business decisions which may include decisions relating to attempts to change
control of the Company. The provision does not affect the availability of
equitable remedies for a breach of duty of care, such as an action to enjoin or
rescind a transaction involving a breach of fiduciary duty; however, in certain
circumstances equitable remedies may not be available as a practical matter. The
provision in the Certificate in no way affects a Director's liability under the
federal securities laws. In addition, the Company's By-Laws and indemnity
agreements entered into with the Company's Directors and officers indemnify its
past and current Directors and officers for and provides advancements in respect
of all expense, liability and loss reasonably incurred in connection with any
threatened, pending or completed action, suit or proceeding, either civil,
criminal, administrative or investigative, by reason of the fact that he or she
is or was a Director or officer of the Company, including, in certain
circumstances under the indemnity agreements for settlements in derivative
actions.
CLASSIFIED BOARD
The Certificate divides the Board of Directors into three classes. The
Directors serve staggered terms of three years, with the members of one class
being elected in any year, as follows: (i) James B. Naylor, Phyllis K. Wilson
and A. Malachi Mixon III have been designated as Class I Directors and will
serve until the 1999 annual meeting; (ii) Boake A. Sells and Kevin B. Shaw have
been designated as Class II Directors and will serve until the 1997 annual
meeting; and (iii) Richard L. Osborne and Jon H. Outcalt have been designated as
Class III Directors and will serve until the 1998 annual meeting; and in each
case until their respective successors are elected and qualified.
A classified Board of Directors may have the effect of making it more
difficult to remove incumbent Directors, providing such Directors with enhanced
ability to retain their positions. A classified Board of Directors may also make
the acquisition of control of the Company by a third party by means of a proxy
contest more difficult. In addition, the classification may make it more
difficult to change the majority of Directors for business reasons unrelated to
a change of control.
The Certificate provides that the above provisions regarding
classification of the Board of Directors may not be amended, altered, changed or
repealed except by the affirmative vote of at least 66-2/3% of the shares of
Common Stock entitled to vote at a meeting of the stockholders called for the
consideration of such amendment, alteration, change or repeal, unless such
proposal shall have been proposed by a majority of the Board of Directors.
GENERAL
It is possible that the existence of the ten vote per share Class B
Common Stock, the Company's ability to issue Preferred Stock, the increased
voting requirements with respect to a Business Combination provided for in the
Certificate, the provisions of the Delaware Business Combination Act and the
division of the Board of Directors of the Company into classes as provided in
the Certificate, may discourage other persons from making a tender offer for or
acquisitions of substantial amounts of the Company's Class A Common Stock. This
could have the incidental effect of inhibiting changes in management and may
also prevent temporary fluctuations in the market price of the Company's Class A
Common Stock which often result from actual or rumored takeover attempts. In
addition, the limited liability provisions in the Certificate with respect to
Directors and officers may discourage stockholders from bringing a lawsuit
against Directors for breach of their fiduciary duty and may also have the
effect of reducing the likelihood of derivative litigation against Directors and
officers, even though such an action, if successful, might otherwise have
benefited the Company and its stockholders. Furthermore, a stockholder's
investment in the Company may be adversely affected to the extent that cost of
settlement and damage awards against the Company's Directors and executive
officers are paid by the Company pursuant to the indemnification provisions
contained in the Company's By-Laws and indemnity agreements described above.
20
<PAGE> 24
REGISTRATION RIGHTS
The Company has granted from time to time, in connection with
acquisitions and otherwise, rights relating to the registration of Class A
Common Stock. Pursuant to such rights, the Company has filed and intends to
cause to be declared effective a registration statement relating to the resale
of approximately 1,070,000 shares of Class A Common Stock. Additional
registration rights may be granted, and additional shares may be registered, in
the future.
TRANSFER AGENT AND REGISTRAR
The Company's Transfer Agent and Registrar for the Common Stock is
National City Bank, Cleveland, Ohio.
SELLING SECURITYHOLDERS
The following table sets forth information concerning the aggregate
principal amount of Debentures beneficially owned by each Selling
Securityholder, as of October 3, 1997, and the number of shares of Class A
Common Stock issuable upon conversion of Debentures held thereby, which may be
offered from time to time pursuant to this Prospectus. Other than their
ownership of the Company's Class A Common Stock, none of the Selling
Securityholders has had any material relationship with the Company within the
past three years other than Smith Barney Inc. which, during such period has
acted as an Initial Purchaser, financial advisor and underwriter for the
Company. The table below has been prepared on the basis of information furnished
to the Company by DTC and/or by or on behalf of the Selling Securityholders. Any
or all of the Debentures or shares of Class A Common Stock listed below may be
offered for sale by the Selling Securityholders from time to time.
<TABLE>
<CAPTION>
PERCENTAGE OF
UNDERLYING SHARES OF CLASS A
CLASS A COMMON COMMON
PRINCIPAL AMOUNT STOCK OR ADDITIONAL STOCK
OF DEBENTURES PERCENTAGE OF SHARES OF CLASS A OUTSTANDING
BENEFICIALLY OWNED DEBENTURES COMMON STOCK THAT AFTER THE
NAME(1) THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(2) OFFERING(3)
----------------- ------------------ ------------- -------------------- -------------
<S> <C> <C> <C> <C>
AAM/Zazove Institutional Income Fund, $ 600,000 * % 18,348 * %
L.P.
AIM Balanced Fund 1,600,000 1.6 48,929 *
AIM Charter Fund 12,000,000 12.0 366,972 3.0
AIM V.I. Growth and Income Fund 1,500,000 1.5 45,871 *
Allstate Insurance Company 2,000,000 2.0 61,162 *
Bank of America Convertible 260,000 * 7,951 *
Securities Fund
Bank of America Pension 1,000,000 1.0 30,581 *
Bankers Trust Company 3,580,000 3.6 109,480 *
Chrysler Corporation Master 1,980,000 2.0 60,550 *
Retirement Trust
</TABLE>
21
<PAGE> 25
<TABLE>
<CAPTION>
PERCENTAGE OF
UNDERLYING SHARES OF CLASS A
CLASS A COMMON COMMON
PRINCIPAL AMOUNT STOCK OR ADDITIONAL STOCK
OF DEBENTURES PERCENTAGE OF SHARES OF CLASS A OUTSTANDING
BENEFICIALLY OWNED DEBENTURES COMMON STOCK THAT AFTER THE
NAME(1) THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(2) OFFERING(3)
----------------- ------------------ ------------- -------------------- -------------
<S> <C> <C> <C> <C>
The Cincinnati Insurance Company 2,000,000 2.0 61,162 *
Dean Witter Convertible Securities 3,000,000 3.0 91,743 *
Trust
Declaration of Trust for the Defined 540,000 * 16,513 *
Benefit Plan of ICI American Holdings
Inc.
Declaration of Trust for the Defined 370,000 * 11,314 *
Benefit Plan of ZENECA Holdings Inc.
Delaware State Employees Retirement 1,765,000 1.8 53,975 *
Fund
Delta Air Lines Master Trust 1,135,000 1.1 34,709 *
Employee Benefit Convertible Fund 130,000 * 3,975 *
General Motors Employees Domestic 6,300,000 6.3 192,660 1.6
Group Trust
George E. Dorsey IRA 100,000 * 3,058 *
GLG Global Convertible Fund PLC 1,500,000 1.5 45,871 *
Heritage Income Growth Trust 500,000 * 15,290 *
Hillside Capital Incorporated 160,000 * 4,892 *
Corporate Account
Hughes Aircraft Company Master 1,040,000 1.0 31,804 *
Retirement Trust
The J.W. McConnell Family Foundation 350,000 * 10,703 *
Laterman & Co. 35,000 * 1,070 *
Laterman Strategies 90's L.L.C. 65,000 * 1987 *
Merrill Lynch, Pierce, Fenner & 7,100,000 7.1 217,125 1.8
Smith, Inc.
</TABLE>
22
<PAGE> 26
<TABLE>
<CAPTION>
PERCENTAGE OF
UNDERLYING SHARES OF CLASS A
CLASS A COMMON COMMON
PRINCIPAL AMOUNT STOCK OR ADDITIONAL STOCK
OF DEBENTURES PERCENTAGE OF SHARES OF CLASS A OUTSTANDING
BENEFICIALLY OWNED DEBENTURES COMMON STOCK THAT AFTER THE
NAME(1) THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(2) OFFERING(3)
----------------- ------------------ ------------- -------------------- -------------
<S> <C> <C> <C> <C>
Northwestern Mutual Life Insurance 3,750,000 3.8 619,178 (4) 5.0
Company
OCM Convertible Trust 2,120,000 2.1 64,831 *
Offshore Strategies Ltd. 150,000 * 4,587 *
Pacific Horizon Capital Income Fund 4,310,000 4.3 131,804 1.1
Pacific Innovation Trust Capital 140,000 * 4,281 *
Income Fund
Paloma Securities L.L.C. 925,000 * 28,287 *
Partner Reinsurance Company Ltd. 210,000 * 6,422 *
Silverton International Fund Limited 575,000 * 17,584 *
Smith Barney Inc. 2,225,000 2.2 68,042 *
Societe Generale Securities Corp. 3,000,000 3.0 91,743 *
Southport Management Partners L.P. 1,450,000 1.5 44,342 *
Southport Partners International Ltd. 1,250,000 1.3 38,226 *
State Employees Retirement Plan of 825,000 * 25,229 *
the State of Delaware
State of Connecticut Combined 2,360,000 2.4 72,171 *
Investment Funds
Summer Hill Global Partners LP 40,000 * 1,223 *
Susquehanna Capital Group 1,000,000 1.0 30,581 *
The TCW Group, Inc. 6,625,000 6.6 202,599 1.7
Tennessee Consolidated Retirement 5,000,000 5.0 152,905 1.3
System
</TABLE>
23
<PAGE> 27
<TABLE>
<CAPTION>
PERCENTAGE OF
UNDERLYING SHARES OF CLASS A
CLASS A COMMON COMMON
PRINCIPAL AMOUNT STOCK OR ADDITIONAL STOCK
OF DEBENTURES PERCENTAGE OF SHARES OF CLASS A OUTSTANDING
BENEFICIALLY OWNED DEBENTURES COMMON STOCK THAT AFTER THE
NAME(1) THAT MAY BE SOLD OUTSTANDING MAY BE SOLD(2) OFFERING(3)
----------------- ------------------ ------------- -------------------- -------------
<S> <C> <C> <C> <C>
Thermo Electron Balanced Investment 475,000 * 14,525 *
Fund
Vanguard Convertible Securities Fund, 1,830,000 1.8 55,963 *
Inc.
Unnamed holders of Debentures or any 11,130,000 11.1 340,365 2.4
future transferees, pledgees, donees
or successors of or from any such
unnamed holders (5)
- ---------------------------------------
* Less than 1%
</TABLE>
(1) The Selling Securityholders and the amount of Debentures held by them are
set forth herein is as of October 3, 1997 and will be updated as required.
(2) Assumes conversion of the full amount of Debentures held by such holder at
the initial rate of $32.70 in principal amount of Debentures per share of
Class A Common Stock. The conversion rate and the number of shares of
Class A Common Stock issuable upon conversion of the Debentures is subject
to adjustment under certain circumstances. See "Description of Debentures
-- Conversion Rights." Accordingly, the number of shares of Common Stock
issuable upon conversion of the Debentures may increase or decrease from
time to time. Under the terms of the Indenture, fractional shares will not
be issued upon conversion of the Debentures; cash will be paid in lieu of
fractional shares, if any.
(3) Based upon 11,709,473 shares of Class A Common Stock outstanding as of
October 3, 1997, treating as outstanding the total number of shares of
Class A Common Stock shown as being issuable upon the assumed conversion
by the named Selling Securityholder of the full amount of such Selling
Securityholder's Debentures but not assuming the conversion of the
Debentures of any other Selling Securityholder.
(4) Includes 504,500 shares of Class A Common Stock currently held by
Northwestern Mutual Life Insurance Company, or its affiliates, which are
not being registered pursuant to the Registration Statement of which this
prospectus is a part.
(5) Assumes that the unnamed holders of Debentures or any future transferees,
pledgees, donees or successors of or from any such unnamed holder do not
beneficially own any Class A Common Stock other than the Class A Common
Stock issuable upon conversion of the Debentures at the initial conversion
rate. No such unnamed holder may offer Debentures pursuant to this
prospectus until such unnamed holder is included as a Selling
Securityholder in a supplement to this prospectus in accordance with the
Registration Rights Agreement.
Because the Selling Securityholders may, pursuant to this prospectus,
offer all or some portion of the Debentures and Class A Common they presently
hold or, with respect to the Class A Common Stock, have the right to acquire
upon conversion of such Debentures, no estimate can be given as to the amount of
the Debentures and Class A Common Stock that will be held by the Selling
Securityholders upon termination of any such sales. In addition, the Selling
Securityholders identified above may have sold, transferred or otherwise
disposed of all or a portion of their Debentures and Class A Common Stock since
the date on which they provided the information regarding their Debentures and
Class A Common Stock, in transactions exempt from the registration requirements
of the Securities Act.
Only Selling Securityholders identified above who have complied with
the conditions to being included as Selling Securityholders and who beneficially
own the Debentures and the Class A Common Stock set forth opposite each such
Selling Securityholder's name in the foregoing table on the effective date of
the Registration Statement may sell such
24
<PAGE> 28
Debentures and Class A Common Stock pursuant to this prospectus. The Company may
from time to time, in accordance with the Registration Rights Agreement, include
additional Selling Securityholders in supplements to this Prospectus.
PLAN OF DISTRIBUTION
The Debentures, the underlying shares of Class A Common Stock and the
subsidiary guarantees are being registered to permit public secondary trading of
such securities by the holders thereof from time to time after the date of this
Prospectus. The Company and the Selling Securityholders have agreed to indemnify
each other against certain liabilities arising under the Securities Act. The
Company has agreed, among other things, to bear all expenses (other than
underwriting discounts, selling commissions and fees and expenses of counsel and
other advisors to holders of the Debentures and the shares of Class A Common
Stock) in connection with the registration and sale of the securities covered by
this Prospectus.
The Company will not receive any of the proceeds from the offering of
the Debentures and the shares of Class A Common Stock by the Selling
Securityholders. The Company has been advised by the Selling Securityholders
that the Selling Securityholders may sell all or a portion of the Debentures and
shares beneficially owned by them and offered hereby from time to time on any
exchange on which the securities are listed, as applicable, on terms to be
determined at the times of such sales. The Selling Securityholders may also make
private sales directly or through a broker or brokers. Alternatively, any of the
Selling Securityholders may from time to time offer the Debentures or shares of
Class A Common Stock which may be offered hereby and beneficially owned by them
through underwriters, dealers or agents, who may receive compensation in the
form of underwriting discounts, commissions or concessions from the Selling
Securityholders and the purchasers of the Debentures or shares of Class A Common
Stock for whom they may act as agent. Such underwriters, dealers or agents may
include the Initial Purchasers of the Debentures, which may perform investment
banking or other services for or engage in other transactions with the Company
from time to time in the future.
The securities offered hereby may be sold from time to time in one or
more transactions at fixed offering prices, which may be changed, or at varying
prices determined at the time of sale or at negotiated prices. Such prices will
be determined by the Selling Securityholders or by agreement between such
Selling Securityholders and underwriters or dealers who receive fees or
commissions in connection therewith.
The Company's outstanding Class A Common Stock is listed for trading on
the Nasdaq Stock Market's National Market ("Nasdaq"), and application has been
made to list the shares of Class A Common Stock issuable upon conversion of the
Debentures on Nasdaq. There is no assurance as to the development or liquidity
of any trading market that may develop for the Debentures.
In order to comply with the securities laws of certain states, if
applicable, the securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states the Debentures and shares of Class A Common Stock offered hereby may not
be sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and compliance with such requirement is effected.
The Selling Securityholders and any broker-dealers, agents or
underwriters that participate with the Selling Securityholders in the
distribution of the Debentures or shares of Class A Common Stock offered hereby
may be deemed to be "underwriters" within the meaning of the Securities Act, in
which case any commissions or discounts received by such broker-dealers, agents
or underwriters any profit on the resale of the Debentures or shares of Class A
Common Stock offered hereby and purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain United States federal
income tax considerations to Holders of the Debentures. This discussion is based
upon the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations, Internal Revenue Service ("IRS") rulings, and judicial decisions
now in effect, all of which are subject to change (possibly with retroactive
effect) or different interpretations.
25
<PAGE> 29
This discussion does not deal with all aspects of United States federal
income taxation that may be important to Holders of the Debentures or the shares
of Class A Common Stock and does not deal with tax consequences arising under
the laws of any foreign, state or local jurisdiction. This discussion is for
general information only and does not purport to address all tax consequences
that may be important to particular purchasers in light of their personal
circumstances, or to certain types of purchasers (such as certain financial
institutions, insurance companies, tax-exempt entities, dealers in securities or
persons who hold the Debentures or shares of Class A Common Stock in connection
with a straddle) that may be subject to special rules. This discussion assumes
that each Holder holds the Debentures and any shares of Class A Common Stock
received upon conversion thereof as capital assets.
For the purpose of this discussion, a "Non-U.S. Holder" refers to any
Holder who is not a United States person. The term "United States person" means
a citizen or resident of the United States, a corporation or partnership created
or organized in the United States or any state thereof, or an estate or trust,
the income of which is includible in income for United States federal income tax
purposes regardless of its source.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR
PARTICIPATION IN THIS OFFERING, OWNERSHIP AND DISPOSITION OF THE DEBENTURES,
INCLUDING CONVERSION OF THE DEBENTURES, AND THE EFFECT THAT THEIR PARTICULAR
CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
OWNERSHIP OF THE DEBENTURES
Interest on Debentures. Interest paid on the Debentures will be taxable
to a Holder as ordinary interest income in accordance with the Holder's methods
of tax accounting at the time that such interest is accrued or (actually or
constructively) received. The Company expects that the Debentures will not be
issued with original issue discount ("OID") within the meaning of the Code.
Constructive Dividend. Certain corporate transactions, such as
distributions of assets to holders of Class A Common Stock, may cause a deemed
distribution to the Holders of the Debentures if the conversion price or
conversion ratio of the Debentures is adjusted to reflect such corporate
transaction. Such deemed distributions will be taxable as a dividend, return of
capital, or capital gain in accordance with the earnings and profits rules
discussed under "Dividends on Shares of Class A Common Stock."
Sale or Exchange of Debentures or Shares of Class A Common Stock. In
general, a Holder of Debentures will recognize gain or loss upon the sale,
redemption, retirement or other disposition of the Debentures measured by the
difference between the amount of cash and the fair market value of any property
received (except to the extent attributable to the payment of accrued interest)
and the Holder's adjusted tax basis in the Debentures. A Holder's tax basis in
the Debentures generally will equal the cost of the Debentures to the Holder
increased by the amount of market discount, if any, previously taken into income
by the Holder or decreased by any bond premium theretofore amortized by the
Holder with respect to the Debentures. In general, each holder of Class A Common
Stock into which the Debentures have been converted will recognize gain or loss
upon the sale, exchange, redemption, or other disposition of the Class A Common
Stock under rules similar to those applicable to the Debentures. Special rules
may apply to redemptions, or other disposition of the Class A Common Stock under
rules similar to those applicable to the Debentures. Special rules may apply to
redemptions of the Class A Common Stock which may result in the amount paid
being treated as a dividend. Subject to the market discount rules discussed
below, the gain or loss on the disposition of the Debentures or shares of Class
A Common Stock will be capital gain or loss and will be long-term gain or loss
if the Debentures or shares of Class A Common Stock have been held for more than
one year at the time of such disposition. (For the basis and holding period of
shares of Class A Common Stock, see "Conversion of Debentures.")
Conversion of Debentures. A Holder of Debentures will not recognize
gain or loss on the conversion of the Debentures into shares of Class A Common
Stock. The Holder's tax basis in the shares of Class A Common Stock received
upon conversion of the Debentures will be equal to the Holder's aggregate basis
in the Debentures exchanged therefor (less any portion thereof allocable to cash
received in lieu of a fractional share). The holding period of the shares of
Class A Common Stock received by the Holder upon conversion of Debentures will
generally include the period during which the Holder held the Debentures prior
to the conversion.
26
<PAGE> 30
Cash received in lieu of a fractional share of Class A Common Stock
should be treated as a payment in exchange for such fractional share rather than
as a dividend. Gain or loss recognized on the receipt of cash paid in lieu of
such fractional shares generally will equal the difference between the amount of
cash received and the amount of tax basis allocable to the fractional shares.
Market Discount. The resale of Debentures may be affected by the
"market discount" provisions of the Code. For this purpose, the market discount
on a Debenture will generally be equal to the amount, if any, by which the
stated redemption price at maturity of the Debenture immediately after its
acquisition exceeds the Holder's tax basis in the Debenture. Subject to a de
minimis exception, these provisions generally require a Holder of a Debenture
acquired at a market discount to treat as ordinary income any gain recognized on
the disposition of such Debenture to the extent of the "accrued market discount"
on such Debenture at the time of disposition. In general, market discount on a
Debenture will be treated as accruing on a straight-line basis over the term of
such Debenture, or, at the election of the Holder, under a constant yield
method. A Holder of a Debenture acquired at a market discount may be required to
defer the deduction of a portion of the interest on any indebtedness incurred or
maintained to purchase or carry the Debenture until the Debenture is disposed of
in a taxable transaction, unless the Holder elects to include accrued market
discount in income currently. If a Holder acquires a Debenture at a market
discount and receives shares of Class A Common Stock upon conversion of the
Debenture, the amount of accrued market discount with respect to the converted
Debenture through the date of conversion will be treated as ordinary income upon
the disposition of the Class A Common Stock.
Dividends on Shares of Class A Common Stock. Distributions on shares of
Class A Common Stock will constitute dividends for United States federal income
tax purposes to the extent of current or accumulated earnings and profits of the
Company as determined under United States federal income tax principles.
Dividends paid to holders that are United States corporations may qualify for
the dividends-received deduction.
To the extent, if any, that a holder receives distributions on shares
of Class A Common Stock that would otherwise constitute dividends for United
States federal income tax purposes but that exceed current and accumulated
earnings and profits of the Company, such distributions will be treated first as
a non-taxable return of capital reducing the holder's basis in the shares of
Class A Common Stock. Any such distributions in excess of the holder's basis in
the shares of Class A Common Stock will be treated as capital gain.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
Interest on Debentures. Generally, interest paid on the Debentures to a
Non-U.S. Holder will not be subject to United States federal income tax if: (i)
such interest is not effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Holder; (ii) the Non-U.S.
Holder does not actually or constructively own 10% or more of the total voting
power of all classes of stock of the Company entitled to vote and is not a
controlled foreign corporation with respect to which the Company is a "related
person" within the meaning of the Code; and (iii) the beneficial owner, under
penalty of perjury, certifies that the owner is not a United States person and
provides the owner's name and address. If certain requirements are satisfied,
the certification described in clause (iii) above may be provided by a
securities clearing organization, a bank, or other financial institution that
holds customers' securities in the ordinary course of its trade or business. For
this purpose, the Holder of Debentures would be deemed to own constructively the
shares of Class A Common Stock into which it could be converted. A Holder that
is not exempt from tax under these rules will be subject to United States
federal income tax withholding at a rate of 30% unless the interest is
effectively connected with the conduct of a United States trade or business, in
which case the interest will be subject to the United States federal income tax
on net income that applies to United States persons generally. Non-U.S. Holders
should consult applicable income tax treaties, which may provide different
rules.
Sales or Exchange of Debentures or Shares of Class A Common Stock. A
Non-U.S. Holder generally will not be subject to United States federal income
tax on gain recognized upon the sale or other disposition of the Debentures or
shares of Class A Common Stock unless: (i) the gain is effectively connected
with the conduct of a trade or business within the United States by the Non-U.S.
Holder or (ii) in the case of a Non-U.S. Holder who is a nonresident alien
individual and holds the Class A Common Stock as a capital asset, such holder is
present in the United States for 183 or more days in the taxable year and
certain other circumstances are present. If the Company is a "United States real
property holding corporation," a Non-U.S. Holder may be subject to federal
income tax with respect to gain realized on the disposition of such Debentures
or shares of Class A Common Stock as if it were effectively connected with a
United States trade or business and the amount realized will be subject to
withholding at the rate of 10%. The amount withheld pursuant to these rules will
be creditable against such Non-U.S. Holder's United States federal income tax
liability and
27
<PAGE> 31
may entitle such Non-U.S. Holder to a refund upon furnishing the required
information to the Internal Revenue Service. Non-U.S. Holders should consult
applicable income tax treaties, which may provide different rules.
Conversion of Debentures. A Non-U.S. Holder generally will not be
subject to United States federal income tax on the conversion of a Debenture
into shares of Class A Common Stock. To the extent a Non-U.S. Holder receives
cash in lieu of a fractional share on conversion, such cash may give rise to
gain that would be subject to the rules described above with respect to the sale
or exchange of a Debenture or Class A Common Stock.
Dividends on Shares of Class A Common Stock. Generally, any
distribution on shares of Class A Common Stock to a Non-U.S. Holder will be
subject to United States federal income tax withholding at a rate of 30% unless
the dividend is effectively connected with the conduct of trade or business
within the United States by the Non-U.S. Holders, in which case the dividend
will be subject to the United States federal income tax on net income that
applies to United States persons generally (and, with respect to corporate
holders and under certain circumstances, the branch profits tax). Non-U.S.
Holders should consult any applicable income tax treaties, which may provide for
a lower rate of withholding or other rules different from those described above.
A Non-U.S. Holder may be required to satisfy certain certification requirements
in order to claim a reduction of or exemption from withholding under the
foregoing rules.
INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders. Information reporting and backup withholding may apply to
payments of interest or dividends on or the proceeds of the sale or other
disposition of the Debentures or shares of Class A Common Stock made by the
Company with respect to certain non corporate U.S. holders. Such U.S. holders
generally will be subject to backup withholding at a rate of 31% unless the
recipient of such payment supplies a taxpayer identification number, certified
under penalties of perjury, as well as certain other information, or otherwise
establishes, in the manner prescribed by law, an exemption from backup
withholding. Any amount withheld under backup withholding is allowable as a
credit against the U.S. holder's federal income tax, upon furnishing the
required information.
Non-U.S. Holders. Generally, information reporting and backup
withholding of United States federal income tax at a rate of 31% may apply to
payments of principal, interest and premium (if any) to Non-U.S. Holders if the
payee fails to certify that the holder is a Non-U.S. person or if the Company or
its paying agent has actual knowledge that the payee is a United States person.
The 31% backup withholding tax generally will not apply to dividends paid to
foreign holders outside the United States that are subject to 30% withholding as
discussed above or that are subject to a tax treaty that reduces such
withholding.
The payment of the proceeds on the disposition of Debenture or shares
of Class A Common Stock to or through the United States office of a United
States or foreign broker will be subject to information reporting and backup
withholding unless the owner provides the certification described above or
otherwise establishes an exemption. The proceeds of the disposition by a
Non-U.S. Holder of Debentures or shares of Class A Common Stock to or through a
foreign office of a broker will not be subject to backup withholding. However,
if such broker is a U.S. person, a controlled foreign corporation for United
States tax purposes, or a foreign person 50% or more of whose gross income from
all sources for certain periods is from activities that are effectively
connected with a United States trade or business, information reporting will
apply unless such broker has documentary evidence in its files of the owner's
foreign status and has no actual knowledge to the contrary or unless the owner
otherwise establishes an exemption. Both backup withholding and information
reporting will apply to the proceeds from such dispositions if the broker has
actual knowledge that the payee is a U.S. Holder.
LEGAL MATTERS
The validity of the Debentures and the underlying shares of Class A
Common Stock offered hereby will be passed upon for the Company by Calfee,
Halter & Griswold LLP, Cleveland, Ohio.
EXPERTS
The consolidated financial statements of NCS HealthCare, Inc. appearing
in NCS HealthCare, Inc.'s Annual Report (Form 10-K) for the year ended June 30,
1997, 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
28
<PAGE> 32
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
29
<PAGE> 33
<TABLE>
<CAPTION>
===================================================== =====================================================
<S> <C>
No dealer, salesperson or any other person has $100,000,000 AGGREGATE
been authorized to give any information or to make PRINCIPAL AMOUNT OF
any representations not contained in this 5 3/4% CONVERTIBLE
Prospectus and, if given or made, such information SUBORDINATED DEBENTURES
or representations must not be relied upon as DUE 2004
having been authorized by the Company. This
Prospectus does not constitute an offer to sell or
the solicitation of an offer to buy any of the
Securities offered hereby in any jurisdiction to 3,058,103 SHARES OF
any person to whom it is unlawful to make such CLASS A COMMON STOCK
offer in such jurisdiction. Neither the delivery of
this Prospectus nor any sale made hereunder shall,
under any circumstances, create any implication
that information contained herein is correct as of [LOGO]
any time subsequent to the date hereof or that
there has been no change in the affairs of the
Company since that date.
NCS HEALTHCARE, INC.
TABLE OF CONTENTS
PAGE
PROSPECTUS SUPPLEMENT
Selling Securityholders........................S-2
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PROSPECTUS
Available Information ...........................2 PROSPECTUS SUPPLEMENT
Incorporation Of Certain Documents By
Reference ...................................2 June 22, 1998
The Company .....................................2
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Risk Factors ....................................3
Use Of Proceeds .................................7
Ratio Of Earnings to Fixed Charges....... .......7
Description Of Debentures .......................8
Description Of Capital Stock ...................17
Selling Securityholders ........................21
Plan of Distribution ...........................25
Certain United States Federal Income Tax
Consequences ...............................25
Legal Matters ..................................28
Experts ........................................28
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