<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1998
REGISTRATION NO. 333-51747
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
PRIME MEDICAL SERVICES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 8090 74-2652727
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
SEE TABLE OF ADDITIONAL REGISTRANTS
1301 CAPITAL OF TEXAS HIGHWAY, SUITE C-300
AUSTIN, TEXAS 78746-6550
(512) 328-2892
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
KENNETH S. SHIFRIN
PRIME MEDICAL SERVICES, INC.
1301 CAPITAL OF TEXAS HIGHWAY, SUITE C-300
AUSTIN, TEXAS 78746-6550
(512) 328-2892
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER
INCLUDING AREA CODE, OF REGISTRANT'S AGENT FOR SERVICE)
---------------
Copy to:
TIMOTHY L. LA FREY
AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
1900 FROST BANK PLAZA
816 CONGRESS AVENUE
AUSTIN, TEXAS 78701
(512) 499-6200
FAX: (512) 499-6290
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the registration statement becomes effective.
---------------
If any of the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES
AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
STATE OR PRIMARY
OTHER STANDARD
JURISDICTION OF INDUSTRIAL I.R.S. EMPLOYER
INCORPORATION OR CLASSIFICATION IDENTIFICATION
NAME ORGANIZATION CODE NUMBER NUMBER
---- ---------------- -------------- ---------------
<S> <C> <C> <C>
Prime Medical Operating, Inc. Delaware 8090 13-2734997
Prime Management, Inc. Nevada 8090 88-0343988
Prime Cardiac Rehabilitation
Services, Inc. Delaware 8090 22-2477772
Prime Diagnostic Services,
Inc. Delaware 8090 13-3195916
Prime Lithotripsy Services,
Inc. New York 8090 11-2560396
Prime Kidney Stone Treatment,
Inc. New Jersey 8090 22-3167335
Prime Diagnostic Corp. of
Florida Delaware 8090 13-3354830
Prime Lithotripter Operations,
Inc. New York 8090 13-3044748
Prime Practice Management,
Inc. New York 8090 13-3073716
Texas Litho, Inc. Delaware 8090 75-2349671
R.R. Litho, Inc. Texas 8090 75-2342610
Ohio Litho, Inc. Delaware 8090 75-2387493
Alabama Renal Stone Institute,
Inc. Alabama 8090 63-0894773
Sun Medical Technologies, Inc. California 8090 77-0254359
Sun Acquisition, Inc. California 8090 77-0338063
Lithotripters, Inc. North Carolina 8090 56-1587298
Prime Medical Management, L.P. Delaware 8090 74-2757440
Prostatherapies, Inc. Delaware 8090 56-2019571
FastStart, Inc. North Carolina 8090 56-1768984
MedTech Investments, Inc. North Carolina 8090 56-1590815
Executive Medical Enterprises,
Inc. Delaware 8090 22-2822719
</TABLE>
<PAGE>
PROSPECTUS
PRIME MEDICAL SERVICES, INC.
OFFER TO EXCHANGE
8 3/4% SENIOR SUBORDINATED NOTES DUE 2008
FOR ALL THE OUTSTANDING
8 3/4% SENIOR SUBORDINATED NOTES DUE 2008
($100,000,000 PRINCIPAL AMOUNT)
----------------
The Exchange Offer will expire at 5:00 p.m., New York City time, on June 30,
1998, unless extended (the "Expiration Date").
----------------
Prime Medical Services, Inc., a Delaware corporation (the "Company"), hereby
offers (the "Exchange Offer"), upon the terms and subject to the conditions
set forth in this Prospectus and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange up to an aggregate principal amount of
$100,000,000 of its outstanding 8 3/4% Senior Subordinated Notes due 2008 (the
"Outstanding Notes") for an equal principal amount of its 8 3/4% Senior
Subordinated Notes due 2008 in integral multiples of $1,000 (the "Exchange
Notes" and, together with the Outstanding Notes, the "Notes"). The Exchange
Notes will be general unsecured obligations of the Company and are
substantially identical (including principal amount, interest rate, maturity
and redemption rights) to the Outstanding Notes for which they may be
exchanged pursuant to this Exchange Offer, except for certain transfer
restrictions and registration rights relating to the Outstanding Notes. The
Outstanding Notes have been, and the Exchange Notes will be, issued under an
Indenture dated as of March 27, 1998 (the "Indenture"), between the Company
and State Street Bank and Trust Company of Missouri, National Association, as
trustee (the "Trustee"). See "Description of Exchange Notes." There will be no
proceeds to the Company from the Exchange Offer; however, pursuant to that
certain Registration Rights Agreement dated as of March 27, 1998 (the
"Registration Rights Agreement") among the Company and the Initial Purchasers
(as defined herein) of the Outstanding Notes, the Company will bear certain
offering expenses.
(Cover text continued on next page)
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN RISKS TO
BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER AND IN EVALUATING AN
INVESTMENT IN THE EXCHANGE NOTES.
----------------
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 May 22, 1998.
<PAGE>
(Continued From Cover Page)
The Company will accept for exchange any and all validly tendered
Outstanding Notes on or prior to 5:00 p.m., New York City time, on the
Expiration Date. Tenders of Outstanding Notes may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the Expiration Date; otherwise such
tenders are irrevocable. The Trustee is acting as exchange agent (the
"Exchange Agent") in connection with the Exchange Offer. The minimum period of
time that the Exchange Offer will remain open is 20 business days after the
date notice of the Exchange Offer is mailed to the holders of the Outstanding
Notes. The Exchange Offer is not conditioned upon any minimum principal amount
of Outstanding Notes being tendered for exchange, but is otherwise subject to
certain customary conditions. See "The Exchange Offer."
The Exchange Notes will bear interest at a rate equal to 8 3/4% per annum on
the same terms as the Outstanding Notes. Interest on the Exchange Notes will
be payable semi-annually in arrears on April 1 and October 1 of each year,
commencing October 1, 1998. Interest on the Exchange Notes will accrue from
the most recent date to which interest has been paid on the Outstanding Notes
or, if no interest has been paid, from the date of original issuance of the
Outstanding Notes.
The Outstanding Notes in an aggregate principal amount of $100.0 million
were sold by the Company on March 27, 1998 (the "Initial Offering"), to
NationsBanc Montgomery Securities LLC, Donaldson, Lufkin & Jenrette Securities
Corporation, Prudential Securities Incorporated and J.C. Bradford & Co.
(collectively, the "Initial Purchasers"), in a transaction not registered
under the Securities Act of 1933, as amended (the "Securities Act"), in
reliance upon the exemption provided in Section 4(2) of the Securities Act.
The Initial Purchasers subsequently placed the Outstanding Notes with
qualified institutional buyers ("QIBs") in reliance upon Rule 144A under the
Securities Act ("Rule 144A"). Accordingly, the Outstanding Notes may not be
re-offered, resold or otherwise transferred in the United States unless
registered or unless an applicable exemption from the registration
requirements of the Securities Act is available. The Exchange Notes are being
offered hereunder in order to satisfy the obligations of the Company under the
Registration Rights Agreement. See "The Exchange Offer."
Under existing interpretations of the Securities and Exchange Commission
(the "Commisson") contained in no-action letters to third parties, the Company
believes the Exchange Notes will be freely transferable by holders thereof
(subject to certain exceptions set forth herein under "The Exchange Offer--
Resales of the Exchange Notes") after the Exchange Offer without further
registration under the Securities Act; provided, however, that each holder
that wishes to exchange its Outstanding Notes for Exchange Notes will be
required to represent (i) that any Exchange Notes to be received by it will be
acquired in the ordinary course of its business, (ii) that at the time of the
commencement of the Exchange Offer it has no arrangement or understanding with
any person to participate in the distribution (within the meaning of
Securities Act) of the Exchange Notes, (iii) that it is not an "affiliate" (as
defined in Rule 405 promulgated under the Securities Act) of the Company, (iv)
if such holder is not a broker-dealer, that it is not engaged in, and does not
intend to engage in, the distribution of Exchange Notes, and (v) if such
holder is a broker-dealer (a "Participating Broker-Dealer") that will receive
Exchange Notes for its own account in exchange for Outstanding Notes that were
acquired as a result of market-making or other trading activities, that it
will deliver a prospectus in connection with any resale of such Exchange
Notes. The Company will agree to make available, during the period required by
the Securities Act, a prospectus meeting the requirements of the Securities
Act for use by Participating Broker-Dealers and other persons, if any, with
similar prospectus delivery requirements for use in connection with any resale
of Exchange Notes. See "The Exchange Offer--Terms and Conditions of the Letter
of Transmittal."
The Outstanding Notes are traded on the Private Offering, Resales and
Trading through Automated Linkages ("PORTAL") Market of the National
Association of Securities Dealers, Inc. The Company does not intend to list
the Exchange Notes on any national securities exchange or to seek the
admission thereof to trading on the National Association of Securities Dealers
automatic quotation system ("NASDAQ"). The Initial Purchasers have advised the
Company that they intend to make a market in the Exchange Notes; however, they
are not obligated to do so and any market-making may be discontinued at any
time without notice. Accordingly, no assurance can be given that an active
public or other market will develop for the Exchange Notes or as to the
liquidity of or the trading market for the Exchange Notes.
2
<PAGE>
Any Outstanding Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that any Outstanding Notes of other holders
are tendered and accepted in the Exchange Offer, a holder's ability to sell
untendered Outstanding Notes could be adversely affected. Following
consummation of the Exchange Offer, the holders of untendered Outstanding
Notes will continue to be subject to the existing restrictions upon transfer
thereof. See "The Exchange Offer--Consequences of Failure to Exchange
Outstanding Notes."
The Company expects that the Exchange Notes issued pursuant to this Exchange
Offer will be issued in the form of a global note (the "Global Exchange
Note"), which will be deposited with, or on behalf of, The Depository Trust
Company ("DTC") and registered in the name of a nominee of DTC. Beneficial
interests in the Global Exchange Note representing the Exchange Notes will be
shown on, and transfers therof to QIBs will be effected through, records
maintained by DTC and its participants. Outstanding Notes which remain
outstanding after the Expiration Date will continue to be represented by one
or more global notes (together with the Global Exchange Note, the "Global
Notes"). After the initial issuance of the Global Exchange Note, Notes in
certificated form will be issued in exchange for the Global Notes on the terms
set forth in the Indenture. See "Book-Entry, Delivery and Form."
No dealer, salesperson or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any
security other than the Exchange Notes offered hereby, nor does it constitute
an offer to sell or the solicitation of an offer to buy any of the Exchange
Notes to any person in any jurisdiction in which it is unlawful to make such
an offer or solicitation to such person. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create
any implication that the information contained herein is correct as of any
date subsequent to the date hereof.
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WERE OBTAINED FROM INTERNAL
COMPANY SURVEYS AND INDUSTRY PUBLICATIONS. INDUSTRY PUBLICATIONS GENERALLY
STATE THAT THE INFORMATION CONTAINED THERIN HAS BEEN OBTAINED FROM SOURCES
BELIEVED TO BE RELIABLE, BUT THE ACCURACY AND COMPLETENESS OF SUCH INFORMATION
IS NOT GUARANTEED. THE COMPANY HAS NOT INDEPENDENTLY VERIFIED ANY SUCH MARKET
DATA. SIMILARLY, INTERNAL COMPANY SURVEYS, WHILE BELIEVED BY THE COMPANY TO BE
RELIABLE, HAVE NOT BEEN VERIFIED BY ANY INDEPENDENT SOURCES.
THE INFORMATION CONTAINED IN THIS PROSPECTUS WAS OBTAINED FROM THE COMPANY
AND OTHER SOURCES, BUT NO ASSURANCE CAN BE GIVEN AS TO THE ACCURACY OR
COMPLETENESS OF SUCH INFORMATION. IN MAKING AN INVESTMENT DECISION, INVESTORS
MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE
OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE CONTENTS OF THIS
PROSPECTUS ARE NOT TO BE CONSTRUED AS LEGAL, BUSINESS OR TAX ADVICE. EACH
PROSPECTIVE INVESTOR SHOULD CONSULT ITS OWN ATTORNEY, BUSINESS ADVISOR AND TAX
ADVISOR AS TO LEGAL, BUSINESS OR TAX ADVICE.
3
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 (which term shall encompass any amendment thereto) under the Securities
Act, for the registration of the Exchange Notes offered hereby. This
Prospectus, which constitutes a part of the Registration Statement, does not
contain all of the information set forth or incorporated by reference in the
Registration Statement, certain items of which are contained in the schedules
and exhibits to the Registration Statement as permitted by the rules and
regulations of the Commission. For further information, reference is made to
the Registration Statement, including the exhibits filed as a part thereof or
incorporated by reference therein. Any statements made in this Prospectus
concerning the contents of any document referred to herein are not necessarily
complete. With respect to each such document filed with the Commission as an
exhibit to the Registration Statement, or otherwise filed with the Commission,
reference is made to the copy of such document so filed for a more complete
description of the matter involved and each such statement shall be deemed
qualified in its entirety by such reference. The Company is subject to the
periodic reporting and other informational requirements of the Exchange Act of
1934, as amended (the "Exchange Act") and, in accordance therewith, files
reports, proxy statements and other information with the Commission. Reports,
proxy statements and other information filed by the Company with the
Commission, including the Registration Statement and the exhibits thereto, can
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Regional Offices at Seven World Trade Center, 13th Floor, New
York, New York 10048 and CitiCorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material can be obtained by mail
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such reports, proxy statements
and other information concerning the Company are also available for inspection
at the offices of The Nasdaq National Market, Reports Section, 1735 K Street,
N.W., Washington, D.C. 20006. The Commission maintains a Web site that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission at
"http://www.sec.gov."
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated herein by reference:
(1)The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997;
(2) The Company's Amendment on Form 10-K/A to its Annual Report for the
fiscal year ended December 31, 1997 (dated April 30, 1998);
(3) The Company's Current Report on Form 8-K, dated May 2, 1996;
(4) The Company's Current Report on Form 8-K/A, dated June 4, 1996; and
(5) The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of this offering shall be deemed to be incorporated by
reference into this Prospectus and to be a part hereof from the date of filing
of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document 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 will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person,
a copy of any or all of the documents which are incorporated by reference
herein, other than exhibits to such documents (unless such exhibits are
specifically incorporated by reference into such documents). Such requests
should be directed to Prime Medical Services, Inc., 1301 Capital of Texas
Highway, Suite C-300, Austin, Texas 78746-6550, Attention: Chief Financial
Officer.
4
<PAGE>
As long as the Company is subject to the periodic reporting and
informational requirements of the Exchange Act, it will furnish all reports
and other information required thereby to the Commission and pursuant to the
Indenture will furnish copies of such reports and other information to the
Trustee.
The Company will deliver to the Trustee within 15 days after the filing of
the same with the Commission, copies of the quarterly and annual reports and
of the information, documents and other reports, if any, which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. Notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide (without
exhibits) the Trustee and Holders with such annual reports and such
information, documents and other reports specified in Sections 13 and 15(d) of
the Exchange Act. The Company will also comply with the other provisions of
Section 314(a) of the Trust Indenture Act of 1939.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN
THIS PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THE DELIVERY OF
THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER,
NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE
THE DATE HEREOF. NEITHER THIS PROSPECTUS NOR THE ACCOMPANYING LETTER OF
TRANSMITTAL, OR BOTH TOGETHER, CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THE INFORMATION CONTAINED IN THIS PROSPECTUS CONTAINS "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995, WHICH ARE IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY SUCH
AS "MAY," "WILL," "COULD," "SHOULD," "EXPECT," "ANTICIPATE," "INTEND," "PLAN,"
"ESTIMATE" OR "CONTINUE" OR THE NEGATIVE THEREOF OR OTHER VARIATIONS THEREOF,
SUCH FORWARD-LOOKING STATEMENTS ARE NECESSARILY BASED ON VARIOUS ASSUMPTIONS
AND ESTIMATES AND ARE INHERENTLY SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES,
INCLUDING RISKS AND UNCERTAINTIES RELATING TO THE POSSIBLE INVALIDITY OF THE
UNDERLYING ASSUMPTIONS AND ESTIMATES AND POSSIBLE CHANGES OR DEVELOPMENTS IN
SOCIAL, ECONOMIC, BUSINESS, INDUSTRY, MARKET, LEGAL AND REGULATORY
CIRCUMSTANCES AND CONDITIONS AND ACTIONS TAKEN OR OMITTED TO BE TAKEN BY THIRD
PARTIES, INCLUDING CUSTOMERS, SUPPLIERS, BUSINESS PARTNERS AND COMPETITORS AND
LEGISLATIVE, REGULATORY, JUDICIAL AND OTHER GOVERMENTAL AUTHORITIES AND
OFFICIALS. IN ADDITION TO ANY RISKS AND UNCERTAINTIES SPECIFICALLY IDENTIFIED
IN THE TEXT SURROUNDING SUCH FORWARD-LOOKING STATEMENTS, THE STATEMENTS IN
"RISK FACTORS" BEGINNING ON PAGE 17 OF THIS PROSPECTUS OR IN THE REPORTS,
PROXY STATEMENTS, AND OTHER INFORMATION REFERRED TO IN "AVAILABLE INFORMATION"
CONSTITUTE CAUTIONARY STATEMENTS IDENTIFYING IMPORTANT FACTORS THAT COULD
CAUSE ACTUAL AMOUNTS, RESULTS, EVENTS AND CIRCUMSTANCES TO DIFFER MATERIALLY
FROM THOSE REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS. ALL SUBSEQUENT
WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR
PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
CAUTIONARY STATEMENTS.
5
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified in its
entirety by the more detailed information and financial statements and related
notes appearing or incorporated by reference elsewhere in this Prospectus.
Unless the context otherwise requires, references in this Prospectus to the
"Company" or "Prime" refer to Prime Medical Services, Inc., its consolidated
subsidiaries and affiliated partnerships and limited liability companies, and
references to the Company's "subsidiaries" refer to the Company's consolidated
subsidiaries and affiliated partnerships and limited liability companies. See
"Risk Factors" for information that should be carefully considered by
prospective investors.
THE COMPANY
The Company is the largest provider of lithotripsy services in the United
States. Lithotripsy is a non-invasive procedure for the treatment of kidney
stones, typically performed on an outpatient basis, that eliminates the need
for lengthy hospital stays and extensive recovery periods associated with
surgery. The Company has 62 lithotripters of which 55 are mobile and seven are
fixed site. The Company's lithotripters performed approximately 36,000, or 20%,
of the estimated 180,000 lithotripsy procedures in the United States in 1997
through its network of approximately 450 hospitals and surgery centers in 34
states. Approximately 2,300 urologists utilized the Company's lithotripters in
1997, representing 30% of the estimated 7,700 urologists in the U.S. Of these
physicians, approximately 1,150 also own minority interests in certain of the
Company's lithotripters. In addition, the Company has over 270 contracts with
managed care organizations.
Lithotripters fragment kidney stones by use of extracorporeal shock wave
lithotripsy. The Company provides services related to the operation of the
lithotripters, including scheduling, staffing, training, quality assurance,
maintenance, regulatory compliance and contracting with payors, hospitals and
surgery centers. Medical care is rendered by the urologists utilizing the
lithotripters. Management believes that the Company has collected the
industry's largest and most comprehensive lithotripsy database, containing
detailed treatment and outcomes data on over 120,000 lithotripsy procedures.
The Company and its associated urologists utilize this database in seeking to
provide the highest quality of lithotripsy services as efficiently as possible.
From 1992 through 1997, the Company completed 12 acquisitions involving 57
lithotripter operations and internally developed five new operations. Forty-
eight of the Company's 62 lithotripsy operations were formed by the Company's
current directors and managers prior to the Company's acquisition of such
operations. Since 1992, the Company has substantially divested its original
non-lithotripsy businesses. Lithotripsy revenues have grown from $4.3 million
in 1992 to $93.1 million in 1997, representing a compound annual growth rate of
approximately 85%. The Company had total revenues and EBITDA of approximately
$96.0 million and $33.7 million, respectively, for the year ended December 31,
1997.
INDUSTRY OVERVIEW
Kidney stones develop from crystals made up primarily of calcium which
separate from urine and build up on the inner surfaces of the kidney. The exact
cause of kidney stone formation is unclear, and there is no known preventative
cure in the vast majority of cases. Approximately 25% of all kidney stones do
not pass spontaneously and therefore require medical or surgical treatment.
Kidney stone treatments used by urologists include lithotripsy, drug therapy,
endoscopic extraction or open surgery. While the nature and location of a
kidney stone impacts the choice of treatment, the Company believes the majority
of all kidney stones that require treatment are treated with lithotripsy
because it is non-invasive, typically requires no general anesthesia, and
rarely requires hospital stays. After fragmentation by lithotripsy, the
resulting kidney stone fragments pass out of the body naturally. Recovery from
the procedure is usually a matter of hours. The Company believes the
6
<PAGE>
incidence of kidney stone disease is growing in the United States due to
overall growth in the population, the increase in the population of males ages
45-64 years old who experience kidney stones most frequently, and the
increasing population in the southern U.S. where kidney stones are most
prevalent.
The market for lithotripsy services is highly fragmented and is comprised of
independent service providers (like the Company), hospitals and small physician
affiliated partnerships. While the Company operates approximately 17% of the
estimated 350 lithotripters currently in use in the United States, the Company
believes that the next six largest lithotripsy service companies collectively
account for approximately 21% of the country's lithotripters. A substantial
percentage of all remaining lithotripters currently in operation are owned
through partnerships comprised of professional managers and groups of
urologists serving specific geographic markets.
Federal Medicare and Medicaid regulations covering the industry have
historically been interpreted to allow physicians to refer their government pay
patients to a hospital for lithotripsy treatment where the physician owned an
interest in the lithotripter operation. Lithotripsy services for these patients
are typically provided pursuant to an arrangement where the hospital bills the
government program directly. Recently proposed regulations would prohibit
physicians from making such a referral. Due to state law considerations,
hospital non-discrimination requirements, third-party payor policies and other
practical considerations, the Company believes this prohibition would
ultimately apply to non-government pay patient referrals as well. As a result,
if the proposed regulations are enacted, physicians who own interests in
lithotripsy operations would be forced to stop referring patients to the
facility in which they had an interest or to divest their interests. The
Company believes that if the proposed regulations are enacted, substantially
all of its physician-investors will be forced to sell their interests in
Company affiliated lithotripters in order to continue utilizing the
lithotripters they have traditionally used in the same manner. In this event,
the Company intends to offer to acquire physician interests in both affiliated
and non-affiliated lithotripsy operations. If the proposed regulations are not
enacted, or are enacted in a form which allows for ownership of the interests
by referring physician-investors, the Company will continue to pursue the
development and acquisition of new operations in partnership with urologists.
COMPETITIVE STRENGTHS
The Company attributes its market leadership and its significant
opportunities for continued growth and increased profitability to the following
strengths:
. LARGEST PROVIDER OF LITHOTRIPSY SERVICES. Given the highly fragmented
nature of the industry, the Company believes that its position as the
largest operator of lithotripters gives it a competitive advantage with
urologists, hospitals and third-party payors. Compared to its smaller
competitors, the Company believes it benefits from: (i) significant
equipment purchasing savings; (ii) more attractive service and
maintenance contracts from its suppliers; (iii) strong name recognition
and a reputation for quality service; (iv) substantial financial
flexibility and access to lower-cost capital; and (v) the ability to
efficiently deploy lithotripters in a manner which maximizes fleet
utilization while satisfying customer requirements.
. SUPERIOR CUSTOMER SERVICE AND STRONG CUSTOMER RELATIONSHIPS. The Company
positions itself as a service company rather than solely as an equipment
provider and competes on the basis of value-added services in addition
to price. The Company differentiates itself from competitors by
providing a full range of services to referring physicians, hospitals
and surgery centers. These value-added services include patient
scheduling and pre-screening, insurance pre-authorization, appointment
confirmations, billing, managed care contracting, and management
reporting. In addition, the Company typically fully staffs each unit
with a registered technician and a registered nurse and is therefore
able to accommodate higher patient volume and operate with greater
efficiency, resulting in high customer satisfaction levels.
7
<PAGE>
. PROPRIETARY OUTCOMES DATABASE. In 1991, the Company began to develop its
proprietary lithotripsy outcomes database, which currently includes
information on over 120,000 lithotripsy procedures. The Company utilizes
information from this database to assist in the improvement of the
quality and efficiency of patient care. This information also enables
the Company to negotiate more effectively with hospitals and third-party
payors. Moreover, the Company is able to provide clinical information
that helps establish strong relationships with referring physicians,
hospitals and surgery centers.
. EXPERIENCED MANAGEMENT TEAM. The Company's senior management team has an
average of 16 years of industry experience. The Company's managers have
successfully developed and implemented sophisticated marketing, fleet
management and financial strategies which have enabled the Company to
become the largest and among the most efficient and profitable
lithotripsy operators. Senior management includes Dr. Joseph Jenkins,
President and Chief Executive Officer, and Dr. Dan Myers, Senior Vice
President of Development, both of whom are board certified urologists
who were pioneers in the U.S. lithotripsy industry. Dr. Jenkins is also
a founding member and past president of the American Lithotripsy
Society.
BUSINESS STRATEGY
The Company's objective is to become the leading provider of medical related
services to urologists in the United States. The Company believes that its
reputation and position as the leading provider of lithotripsy services has
allowed it to establish strong relationships with physicians, equipment
manufacturers, managed care organizations and hospital groups which have
strategically positioned it to grow through the introduction of additional
services to the urological community. The Company has consistently pursued a
policy of growth through acquisitions since it entered the lithotripsy business
in 1992 and believes its acquisition experience and ability to leverage its
existing infrastructure will allow it to continue to take advantage of future
acquisition opportunities. The primary components of the Company's business
strategy are as follows:
. GROW THROUGH ACQUISITIONS. The Company intends to continue to
aggressively pursue acquisitions of both large and small lithotripsy
service providers. Since October 1995 the Company has acquired two of
the three other largest lithotripsy service companies in the United
States, and since 1992 the Company has made 12 acquisitions representing
a total of 57 lithotripters. The Company believes that the fragmented
nature of the lithotripsy industry, combined with operational challenges
created by increasing regulatory and business complexities, including
the recent regulatory proposals, will provide it with significant
lithotripsy acquisition opportunities. The Company believes that it is
viewed as the preferred acquirer of physician-owned lithotripters
because of its focus on the needs of the urological community and its
reputation for providing quality service.
. PROVIDE SUPERIOR SERVICE. The Company seeks to provide the highest level
of service possible to its customers. This includes consistently
providing: (i) high quality lithotripter facilities, properly staffed
with trained personnel; (ii) convenient scheduling for hospitals and
physicians; (iii) proper billing; and (iv) contracting with managed care
entities. In addition, the Company offers services not typically
provided in the industry including physician training, regulatory
compliance, quality assurance and the Company's proprietary outcomes
database. Management believes that providing superior service will
enable the Company to maintain its existing relationships with hospitals
and urologists and attract new relationships.
. MAINTAIN STATE OF THE ART EQUIPMENT. The Company has a policy of routine
maintenance and periodic upgrades to its lithotripters, which both
ensures consistent quality service and maintains its reputation with
hospitals and urologists as the leading provider of lithotripsy
services. During 1996 and 1997, the Company spent approximately $2
million on a system wide upgrade of substantially all of its 40
electromagnetic lithotripters, which improved performance and decreased
average treatment time by up to 30%. This benefited patients by
shortening treatment times and benefited hospitals, attending urologists
and the Company by effectively increasing capacity.
8
<PAGE>
. LEVERAGE RELATIONSHIPS WITH UROLOGISTS. The Company currently provides
services to approximately 30% of the estimated 7,700 urologists in the
United States and seeks to maintain close relationships with the medical
community through its network of local physician advisory boards. The
Company believes that it can utilize these relationships and its
management expertise to develop new opportunities resulting from
technological and other advances in affiliated urology businesses,
including new therapeutic services relating to prostate disease and
other urological disorders. As an example, in October 1997, the Company
began providing thermotherapy services for the treatment of non-
cancerous enlargement of the prostate through a mobile service operation
located in North Carolina.
RECENT DEVELOPMENTS
The Company utilized a portion of the proceeds from the sale of the
Outstanding Notes in the Initial Offering to repay all of the outstanding
indebtedness under its existing credit facility in the approximate aggregate
amount of $77.0 million. On April 20, 1998, the Company entered into a
syndicated senior credit facility (the "Senior Credit Facility") consisting of
a $100.0 million, five-year revolving line of credit. Advances under the Senior
Credit Facility will be used to fund future acquisitions and to finance capital
expenditures and working capital needs of the Company. All amounts owing under
the Senior Credit Facility will be guaranteed by the Company's wholly-owned
subsidiaries and will be secured by security interests in substantially all of
the assets of the Company and its wholly-owned subsidiaries. See "Description
of Other Indebtedness."
In March 1998 the Company entered into a non-binding letter of intent for the
possible acquisition of an interest in another provider of lithotripsy services
(the "Seller"). Under the terms of the letter of intent, the Company would
acquire a 50% ownership interest in the Seller for a cash price based on a
multiple of the Seller's recurring pre-tax income. In addition, the Company
would obtain the right to purchase the remaining 50% of the Seller on the
occurrence of certain triggering events to be mutually agreed upon by the
parties. The transactions are subject to due diligence reviews by the parties
and the negotiation and execution of definitive agreements. The Company
estimates that purchase price for the initial 50% interest would not exceed
$15.0 million.
9
<PAGE>
THE EXCHANGE OFFER
The Outstanding Notes..... The Outstanding Notes were sold by the Company
as of March 27, 1998, in the Initial Offering,
to the Initial Purchasers pursuant to the
Purchase Agreement. The Initial Purchasers
subsequently resold the Outstanding Notes to
QIBs as such term is defined in Rule 144A.
Registration
Requirements.............. Pursuant to the Purchase Agreement, the Company
and the Initial Purchasers entered into the
Registration Rights Agreement, which grants the
holders of the Outstanding Notes certain
exchange and registration rights. The Exchange
Offer is intended to satisfy such exchange and
registration rights, which terminate upon the
consummation of the Exchange Offer. If
applicable law or applicable interpretations of
the staff of the Commission do not permit the
Company to effect the Exchange Offer, the
Company has agreed to file a shelf registration
statement (the "Shelf Registration Statement")
covering resales of the Outstanding Notes. See
"The Exchange Offer--Resales of the Exchange
Notes" and "--Shelf Registration Statement."
The Exchange Offer........ The Company is offering to exchange $1,000
principal amount of the Exchange Notes for each
$1,000 principal amount of Outstanding Notes.
As of the date hereof, $100.0 million aggregate
principal amount of Outstanding Notes are
outstanding. The Company will issue the
Exchange Notes subsequent to the Expiration
Date and on or before July 21, 1998, unless the
Exchange Offer is extended (the "Exchange
Date"). See "Risk Factors--Exchange Offer
Procedures; Consequences of Failure to
Exchange."
Based on an interpretation of the staff of the
Commission set forth in no-action letters
issued to third parties, the Company believes
that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Outstanding
Notes may be offered for resale, resold and
otherwise transferred by any holder thereof
(other than (i) a broker-dealer who purchased
Outstanding Notes directly from the Company for
resale pursuant to Rule 144A under the
Securities Act or any other available exemption
under the Securities Act, or (ii) any such
holder that is an "affiliate" of the Company
within the meaning of Rule 405 under the
Securities Act) without compliance with the
registration and prospectus delivery provisions
of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary
course of such holder's business and that such
holder does not intend to participate and has
no arrangement or understanding with any person
to participate in the distribution of such
Exchange Notes.
Any holder who tenders in the Exchange Offer
with the intention to participate, or for the
purpose of participating, in a distribution of
the Exchange Notes could not rely on the
position of the staff of the Commission
enunciated in Exxon Capital Holdings
Corporation (available April 13, 1989) or
similar no-action letters and, in the absence
of an exemption therefrom, must comply with the
registration
10
<PAGE>
and prospectus delivery requirements of the
Securities Act in connection with the resale
transaction. Failure to comply with such
requirements in such instance may result in
such holder incurring liability under the
Securities Act for which the holder is not
indemnified by the Company.
Each Participating Broker-Dealer that receives
Exchange Notes for its own account in exchange
for Outstanding Notes, where such Outstanding
Notes were acquired by such broker-dealer as a
result of market-making activities or other
trading activities, must acknowledge that it
will deliver a prospectus in connection with
any resale of Exchange Notes. By so
acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may
be amended or supplemented from time to time,
may be used by a broker-dealer in connection
with resales of Exchange Notes received in
exchange for Outstanding Notes where such
Outstanding Notes were acquired by such broker-
dealer as a result of market-making activities
or other trading activities. The Company has
agreed to make this Prospectus available to any
Participating Broker-Dealer for use in
connection with any such resale for a period of
up to 180 days from the Expiration Date. See
"Plan of Distribution."
Expiration Date........... 5:00 p.m., New York City time, on June 30,
1998, unless extended.
Interest on Exchange Interest on the Exchange Notes will accrue at a
Notes..................... rate equal to 8 3/4% per annum and will be
payable semi-annually in arrears on April 1 and
October 1 of each year, commencing October 1,
1998. Interest on the Exchange Notes will
accrue from the most recent date to which
interest has been paid on the Outstanding Notes
or, if no interest has been paid, from the date
of original issuance of the Outstanding Notes.
Procedures for Tendering
Outstanding Notes........ Each holder of Outstanding Notes wishing to
accept the Exchange Offer must complete, sign
and date the accompanying Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with the Outstanding Notes
and any other required documentation to the
Exchange Agent at the address set forth herein.
By executing the Letter of Transmittal, each
holder will represent to the Company that,
among other things, the holder or person
receiving such Exchange Notes, whether or not
such person is the holder, is acquiring the
Exchange Notes in the ordinary course of
business and that neither the holder nor any
such other person has any arrangement or
understanding with any person to participate in
the distribution of such Exchange Notes. In
lieu of physical delivery of the certificates
representing Outstanding Notes, tendering
holders may transfer Outstanding Notes pursuant
to the procedure for book-entry transfer as set
forth under "The Exchange Offer--Procedures for
Tendering Outstanding Notes."
11
<PAGE>
Each Participating Dealer which acquired
Outstanding Notes as a result of market-making
or other trading activities must acknowledge
that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See
"Plan of Distribution."
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Outstanding Notes
are registered in the name of a broker-dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered holder promptly and instruct such
registered holder to tender on such beneficial
owner's behalf.
If such beneficial owner wishes to tender on
such owner's own behalf, such owner must prior
to completing and executing the Letter of
Transmittal and delivering its Outstanding
Notes, either make appropriate arrangements to
register ownership of the Outstanding Notes in
such owner's name or obtain a properly
completed bond power from the registered
holder. The transfer of record ownership may
take considerable time.
Guaranteed Delivery
Procedures................ Holders of Outstanding Notes who wish to tender
their Outstanding Notes and whose Outstanding
Notes are not immediately available or who
cannot deliver their Outstanding Notes, the
Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent (or comply with the procedures
for book-entry transfer) prior to the
Expiration Date must tender their Outstanding
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
Withdrawal Rights......... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date pursuant to the procedures
described under "The Exchange Offer--Withdrawal
Rights."
Acceptance of Outstanding
Notes and Delivery of
Exchange Notes........... Subject to certain conditions, the Company will
accept for exchange any and all Outstanding
Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange
Notes issued pursuant to the Exchange Offer
will be delivered on the Exchange Date. See
"The Exchange Offer--Terms of the Exchange
Offer."
Federal Income Tax
Consequences.............. The exchange pursuant to the Exchange Offer
should not be a taxable event for United States
federal income tax purposes. See "Certain
Federal Income Tax Consequences."
Effect on Holders of
Outstanding Notes........ As a result of the making of this Exchange
Offer, the Company will have fulfilled one of
its obligations under the Registration Rights
Agreement, and, with certain exceptions noted
below, holders of Outstanding Notes who do not
tender their Outstanding Notes will not have
any further registration rights under the
Registration Rights
12
<PAGE>
Agreement or otherwise. Such holders will
continue to hold the untendered Outstanding
Notes and will be entitled to all the rights
and subject to all the limitations applicable
thereto under the Indenture, except to the
extent such rights or limitations, by their
terms, terminate or cease to have further
effectiveness as a result of the Exchange
Offer. All untendered Outstanding Notes will
continue to be subject to certain restrictions
on transfer. Accordingly, if any Outstanding
Notes are tendered and accepted in the Exchange
Offer, the trading market of the untendered
Outstanding Notes could be adversely affected.
See "Risk Factors--Exchange Offer Procedures;
Consequences of Failure to Exchange" and "--
Absence of Public Market; Restrictions on
Transfer."
Exchange Agent............ State Street Bank and Trust Company of
Missouri, National Association.
SUMMARY OF TERMS OF THE EXCHANGE NOTES
ISSUER.................... Prime Medical Services, Inc.
SECURITIES OFFERED........ $100,000,000 in aggregate principal amount of 8
3/4% Senior Subordinated Notes due 2008.
MATURITY DATE............. April 1, 2008.
INTEREST PAYMENT DATES.... Interest on the Exchange Notes will accrue at a
rate equal to 8 3/4% per annum and will be payable
semi-annually in arrears on April 1 and October 1
of each year, commencing October 1, 1998. Interest
on the Exchange Notes will accrue from the most
recent date to which interest has been paid on the
Outstanding Notes or, if no interest has been paid,
from the date of original issuance of the
Outstanding Notes.
SUBSIDIARY GUARANTEES..... The Exchange Notes will be fully and
unconditionally guaranteed by each of the existing
and future Wholly-Owned Restricted Subsidiaries (as
defined herein) of the Company other than not-for-
profit subsidiaries. See "Description of Exchange
Notes--Subsidiary Guarantees."
SUBORDINATION............. The Exchange Notes will be unsecured senior
subordinated obligations of the Company and will be
subordinated in right of payment to all existing
and future Senior Debt (as defined herein) of the
Company. The Exchange Notes will rank pari passu
with all existing and future senior subordinated
indebtedness of the Company and will rank senior to
all other existing and future subordinated
indebtedness of the Company. The Subsidiary
Guarantees (as defined herein) will be unsecured
senior subordinated obligations of the Subsidiary
Guarantors (as defined herein) and will be
subordinated in right of payment to all existing
and future Senior Debt of the Subsidiary
Guarantors. In addition, the Company conducts
substantial operations through subsidiaries that
will not guarantee the Exchange Notes and
accordingly all liabilities of such subsidiaries
and equity interests therein (other than equity
interests owned by the Company or a Subsidiary
Guarantor) will effectively rank senior to the
Exchange Notes. As of December 31, 1997, on an
adjusted basis, after giving
13
<PAGE>
effect to the Exchange Offer, the Initial Offering
and the application of net proceeds therefrom and
the establishment of the Senior Credit Facility,
the Company and the Subsidiary Guarantors would
have had $0.2 million of Senior Debt outstanding
(and $100.0 million available to be borrowed under
the Senior Credit Facility) and the Company's
subsidiaries that will not guarantee the Exchange
Notes would have had approximately $20.0 million of
indebtedness and other liabilities and $19.4
million of minority interests outstanding. See
"Risk Factors--Subordination" and "--Holding
Company Structure; Effective Subordination."
OPTIONAL REDEMPTION....... On or after April 1, 2003, the Company may redeem
the Exchange Notes, in whole or in part, at the
redemption prices set forth herein, plus accrued
and unpaid interest thereon and Liquidated Damages
(as defined herein), if any, to the redemption
date. Notwithstanding the foregoing, at any time on
or before April 1, 2001, the Company may redeem up
to 35% of the original aggregate principal amount
of the Exchange Notes with the net proceeds of a
public offering of common stock of the Company at a
redemption price equal to 108.75% of the principal
amount thereof, plus accrued and unpaid interest
thereon and Liquidated Damages, if any, to the
redemption date; provided, that at least $65.0
million in aggregate principal amount of Exchange
Notes remains outstanding immediately after the
occurrence of such redemption. See "Description of
Exchange Notes--Optional Redemption."
CHANGE OF CONTROL......... Upon a Change of Control (as defined herein), the
Company will be required to make an offer to
repurchase all outstanding Exchange Notes at 101%
of the principal amount thereof plus accrued and
unpaid interest thereon and Liquidated Damages, if
any, to the date of repurchase. See "Description of
Exchange Notes--Repurchase at the Option of
Holders--Change of Control."
COVENANTS................. The Indenture will restrict, among other things,
the ability of the Company and its Restricted
Subsidiaries (as defined herein) to incur
additional indebtedness and issue preferred stock,
enter into sale and leaseback transactions, incur
liens, pay dividends or make certain other
restricted payments, apply net proceeds from
certain asset sales, enter into certain
transactions with affiliates, merge or consolidate
with any other person, sell stock of subsidiaries,
and assign, transfer, lease, convey or otherwise
dispose of substantially all of the assets of the
Company. See "Description of Exchange Notes--
Certain Covenants."
RISK FACTORS
Prospective investors should carefully consider the factors discussed in
detail elsewhere in this Prospectus under the caption "Risk Factors."
--------------------
The Company's principal executive offices are located at 1301 Capital of
Texas Highway, Suite C-300, Austin, Texas 78746, and its telephone number is
(512) 328-2892. The Company's common stock is quoted on The Nasdaq National
Market under the symbol "PMSI."
14
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL FINANCIAL DATA
The following table presents summary consolidated historical financial data
of the Company for each of the fiscal years in the three-year period ended
December 31, 1997. The selected historical data presented below under the
captions "Statement of Income" for each of the years in the three-year period
ended December 31, 1997 and "Balance Sheet Data" as of December 31, 1997 are
derived from the consolidated financial statements of the Company, which
financial statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants, and are incorporated by reference in this
Prospectus. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and notes thereto of the Company
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF INCOME:
Revenues:
Lithotripsy................................... $22,153 $71,602 $93,113
Other......................................... 1,042 802 2,866
------- ------- -------
Total revenues............................... 23,195 72,404 95,979
Costs and expenses:
Lithotripsy................................... 5,979 19,922 25,381
Other......................................... 1,505 632 2,221
Corporate expenses............................ 2,573 4,245 5,683
------- ------- -------
Total costs and expenses..................... 10,057 24,799 33,285
Depreciation and amortization................. 3,195 8,422 9,911
------- ------- -------
Operating income............................. 9,943 39,183 52,783
Interest expense.............................. 1,231 5,977 7,477
Other income (deductions)(1).................. 799 (2,706) 386
------- ------- -------
Income before income taxes and minority
interest.................................... 9,511 30,500 45,692
Provision for income taxes.................... 886 1,996 5,795
Minority interest in consolidated income...... 1,421 19,543 25,041
------- ------- -------
Net income................................... $ 7,204 $ 8,961 $14,856
======= ======= =======
OPERATING DATA:
Number of lithotripters at end of period...... 23 55 61
Number of lithotripsy procedures.............. 11,308 28,480 36,183
Approximate number of locations served........ 160 400 450
OTHER DATA:
Capital expenditures(2)....................... $ 473 $ 2,526 $ 4,546
Consolidated EBITDA(3)........................ 13,138 47,605 62,334
Consolidated EBITDA margin(4)................. 56.6% 65.7% 64.9%
EBITDA(5)..................................... $11,536 $25,652 $33,743
Ratio of EBITDA to interest expense........... 9.4x 4.3x 4.5x
Adjusted interest expense(6).................. $ 9,067
Ratio of EBITDA to adjusted interest expense.. 3.7x
Ratio of Net debt to EBITDA(7)................ 2.2x
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-------------------------
HISTORICAL AS ADJUSTED(6)
---------- --------------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(8)......................... $ 23,770 $ 40,403
Total assets......................................... 225,826 241,995
Long-term debt (including current maturities)........ 82,336 103,336
Minority interest.................................... 19,372 19,372
Stockholders' equity................................. 92,064 88,861
</TABLE>
- -----------------
(1) Includes immediate write-off of costs associated with offerings of debt
securities, the establishment of credit facilities and a canceled stock
offering of $3.5 million incurred during the second quarter of 1996 and
$360,000 incurred during the first quarter of 1997.
(2) Excludes acquisitions of $15.0 million, $70.1 million and $20.2 million in
the years of 1995, 1996 and 1997, respectively.
(3) Consolidated EBITDA is defined as income before income taxes, minority
interest, interest expense, depreciation and amortization, and other non-
operating items for the Company and its consolidated subsidiaries.
Consolidated EBITDA is not intended to represent net income or cash flows
from operating activities in accordance with generally accepted accounting
principles and should not be considered a measure of the Company's
profitability or liquidity.
(4) Consolidated EBITDA margin is defined as the ratio of Consolidated EBITDA
to total revenues.
(5) EBITDA is defined as Consolidated EBITDA for the Company less EBITDA
attributable to minority interests in consolidated subsidiaries. EBITDA is
presented because it is a widely accepted financial indicator of a
company's ability to service debt. EBITDA is not intended to represent net
income or cash flows from operating activities in accordance with generally
accepted accounting principles and should not be considered a measure of
the Company's profitability or liquidity.
(6) Adjusted to give effect to the issuance of the Outstanding Notes and the
application of the proceeds therefrom.
(7) Net debt is total debt less cash and cash equivalents (other than cash and
cash equivalents attributable to minority interests in consolidated
subsidiaries), as adjusted for the Initial Offering.
(8) Includes $11.2 million attributable to minority interests in consolidated
subsidiaries.
16
<PAGE>
RISK FACTORS
Prospective investors should carefully consider and evaluate the following
factors relating to the Company and the Exchange Offer together with the other
information and financial data set forth or incorporated by reference
elsewhere in this Prospectus, in evaluating, and before making an investment
in, the Exchange Notes offered hereby.
EXCHANGE OFFER PROCEDURES; CONSEQUENCES OF FAILURE TO EXCHANGE
Issuance of the Exchange Notes in exchange for Outstanding Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Outstanding Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. Therefore, holders of the
Outstanding Notes desiring to tender such Outstanding Notes in exchange for
Exchange Notes should allow sufficient time to ensure timely delivery. The
Company is under no duty to give notification of defects or irregularities
with respect to the tenders of Outstanding Notes for exchange. Outstanding
Notes that are not tendered or are tendered but not accepted will, following
the consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof. Upon consummation of the Exchange Offer,
the registration rights under the Registration Rights Agreement will
terminate. In addition, any holder of Outstanding Notes who tenders in the
Exchange Offer for the purpose of participating in a distribution of the
Exchange Notes may be deemed to have received restricted securities and, if
so, will be required to comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any resale transaction.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for the Outstanding Notes, where such Outstanding Notes were acquired
by such broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. See "Plan of Distribution." TO THE
EXTENT THAT SOME OF THE OUTSTANDING NOTES ARE TENDERED AND ACCEPTED IN THE
EXCHANGE OFFER, THE TRADING MARKET FOR UNTENDERED AND TENDERED BUT UNACCEPTED
OUTSTANDING NOTES COULD BE ADVERSELY AFFECTED.
LEVERAGE
The Company has and will continue to have after the Exchange Offer,
substantial indebtedness. On December 31, 1997, after giving effect to the
Initial Offering and the application of the proceeds therefrom, the Company
would have had total indebtedness of approximately $103.3 million (of which
$100.0 million would have consisted of the Outstanding Notes and the balance
would have consisted of debt of the Company's subsidiaries) and stockholders'
equity of approximately $88.9 million. The Company and its subsidiaries will
be permitted to incur substantial additional indebtedness in the future
including $100.0 million of indebtedness under the Senior Credit Facility. See
"Capitalization," "Selected Historical Consolidated Financial and Operating
Data," "Description of Exchange Notes," and "Description of Other
Indebtedness."
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures
and possible acquisitions (including mandatory or optional purchases of its
affiliated physician-investors' interests) will depend on its future
performance, which, to a certain extent, is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond its control. Based upon the current level of operations, management
believes that cash flow from operations and available cash, together with
available borrowings under the Senior Credit Facility, will be adequate to
meet the Company's future liquidity needs for at least the next several years.
The Company may, however, need to refinance all or a portion of the principal
of the Notes on or prior to maturity. There can be no assurance that the
Company's business will generate sufficient cash flow from operations or that
future borrowings will be available under the Senior Credit Facility in an
amount sufficient to enable the Company to service its indebtedness, including
the Notes, or to fund its other liquidity needs. In addition, there can be no
assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms or at all. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
17
<PAGE>
The degree to which the Company is, and following the Exchange Offering will
be, leveraged could have important consequences to holders of the Notes,
including, but not limited to: (i) making it more difficult for the Company to
satisfy its obligations with respect to the Notes; (ii) increasing the
Company's vulnerability to general adverse economic and industry conditions;
(iii) limiting the Company's ability to obtain additional financing to fund
future working capital, capital expenditures, acquisitions and other general
corporate requirements; (iv) requiring the dedication of a substantial portion
of the Company's cash flow from operations to the payment of principal of, and
interest on, its indebtedness, thereby reducing the availability of such cash
flow to fund working capital, capital expenditures, acquisitions or other
general corporate purposes; (v) limiting the Company's flexibility in planning
for, or reacting to, changes in its business and the industry; and (vi)
placing the Company at a competitive disadvantage vis-a-vis less leveraged
competitors. In addition, the Indenture and the Senior Credit Facility contain
financial and other restrictive covenants that limit the ability of the
Company to, among other things, borrow additional funds. Failure by the
Company to comply with such covenants could result in an event of default
which, if not cured or waived, could have a material adverse effect on the
Company. In addition, the degree to which the Company is leveraged could
prevent it from repurchasing all of the Notes tendered to it upon the
occurrence of a Change of Control. See "Description of Exchange Notes--
Repurchase at the Option of Holders--Change of Control" and "Description of
Other Indebtedness."
SUBORDINATION
The Notes and the Subsidiary Guarantees are and will be subordinated in
right of payment to all current and future Senior Debt of the Company and the
Subsidiary Guarantors. Upon any distribution to creditors of the Company or a
Subsidiary Guarantor in a liquidation or dissolution of the Company or a
Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or a Subsidiary
Guarantor or its property, the holders of Senior Debt will be entitled to be
paid in full in cash before any payment may be made with respect to the Notes.
In addition, the subordination provisions of the Indenture provide that
payments with respect to the Notes will be blocked in the event of a payment
default on Senior Debt and may be blocked for up to 179 days each year in the
event of certain non-payment defaults on Senior Debt. In the event of a
bankruptcy, liquidation or reorganization of the Company or a Subsidiary
Guarantor, holders of the Notes will participate ratably with all holders of
subordinated indebtedness of the Company or such Subsidiary Guarantor that is
deemed to be of the same class as the Notes, and potentially with all other
general creditors of the Company or such Subsidiary Guarantor, based upon the
respective amounts owed to each holder or creditor, in the remaining assets of
the Company. In any of the foregoing events, there can be no assurance that
there would be sufficient assets to pay amounts due on the Notes. As a result,
holders of Notes may receive less, ratably, than the holders of Senior Debt.
As of December 31, 1997, on an adjusted basis after giving effect to the
Exchange Offer, the Initial Offering and the application of the net proceeds
therefrom and the establishment of the Senior Credit Facility, the aggregate
amount of Senior Debt of the Company and the Subsidiary Guarantors would have
been approximately $0.2 million, and $100.0 million would have been available
for additional borrowing under the Senior Credit Facility. The Indenture
permits the incurrence of substantial additional indebtedness, including
Senior Debt, by the Company and its subsidiaries in the future. See
"Description of Exchange Notes" and "Description of Other Indebtedness."
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION
The Company has limited operations of its own and derives substantially all
of its revenue from its subsidiaries. Although the Company's Wholly-Owned
Restricted Subsidiaries (other than not-for-profit subsidiaries) are
guarantors of the Notes, a substantial portion of the Company's operations are
conducted by subsidiaries that will not guarantee the Notes. Creditors
(including trade creditors) of such subsidiaries of the Company are entitled
to payment in respect of their claims and interests from the assets of the
affected subsidiaries before such assets would be available for distribution
to the Company and minority interest holders. The Indenture permits the
incurrence of substantial additional indebtedness by the Company and its
subsidiaries, and permits significant investments by the Company in
subsidiaries.
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As of December 31, 1997, on an adjusted basis after giving effect to the
Initial Offering and the application of the net proceeds therefrom and the
establishment of the Senior Credit Facility, the aggregate amount of
indebtedness and other liabilities of the Company's subsidiaries that do not
guarantee the Notes would have been approximately $20.0 million. In addition,
as of December 31, 1997 minority interests in such subsidiaries were $19.4
million and for the year ended December 31, 1997 cash distributed in respect
of such minority interests was $28.7 million. In the event of a bankruptcy,
liquidation or reorganization of the Company, there can be no assurance that
the assets of the subsidiaries that do not guarantee the Notes will be
available to holders of debt of the Company after satisfying all liabilities
and equity interests in such subsidiaries, or that the assets of the Company
and of the other subsidiaries would be sufficient to repay in full the
indebtedness of the Company, including the Notes. See "Description of Other
Indebtedness."
ACQUISITION GROWTH STRATEGY
The Company has followed an aggressive acquisition strategy since 1992 that
has resulted in rapid growth in its business. This acquisition strategy is
dependent on the continued availability of suitable acquisition candidates and
subjects the Company to the risks inherent in assessing acquisition candidates
and integrating and managing the operations of acquired companies. The
Company's growth is also expected to place significant demands on the
Company's financial and management resources. Moreover, the Federal Trade
Commission ("FTC") initiated an investigation in 1991 to determine whether the
limited partnerships in which Lithotripters, Inc., now a wholly-owned
subsidiary of the Company, was the general partner posed an unreasonable
threat to competition in the healthcare field. While the FTC closed its
investigation and took no action, the FTC or another governmental authority
charged with the enforcement of federal or state antitrust laws or a private
litigant might, due to the Company's size and market share, seek to (i)
restrict the Company's future growth by prohibiting or restricting the
acquisition of additional lithotripsy facilities or (ii) require that the
Company divest of certain of its lithotripsy operations. Consequently, there
can be no assurance that the Company will be able to continue to grow or that
its growth strategy will prove successful. Moreover, in view of the Company's
significant recent growth, the Company's historical financial performance may
not be indicative of its future performance. The Company's failure to
implement its growth strategy successfully could adversely affect the Company.
See "Prospectus Summary--Recent Developments" and "Business--Business
Strategy."
OPERATIONS SUBJECT TO GOVERNMENT REGULATION; RECENT REGULATORY PROPOSALS
The Company is subject to extensive regulation by both the federal and state
governments. The Company is subject to Section 1128B of the Social Security
Act (known as the "Illegal Remuneration Statute"), which imposes civil and
criminal sanctions on persons who solicit, offer, receive or pay any
remuneration, directly or indirectly, for referring, or arranging for the
referral of, a patient for treatment that is paid for in whole or in part by
Medicare, Medicaid or similar government programs. The federal government has
published regulations that provide exceptions or a "safe harbor" for certain
business transactions. Transactions that are structured within the safe
harbors are deemed not to violate the Illegal Remuneration Statute.
Transactions that do not satisfy all elements of a relevant safe harbor do not
necessarily violate the Illegal Remuneration Statute, but may be subject to
greater scrutiny by enforcement agencies. The arrangements between the Company
and the partnerships and other entities in which it owns an indirect interest
and through which the Company provides most of its lithotripsy services (and
the corresponding arrangements between such partnerships and other entities
and the treating physicians who own interests therein and who use the
lithotripsy facilities owned by such partnerships and other entities) could
potentially be questioned under the illegal remuneration prohibition and may
not fall within the protection afforded by these safe harbors. Many states
also have laws similar to the Federal Illegal Remuneration Statute. While
failure to fall within the safe harbors may subject the Company to scrutiny
under the Illegal Remuneration Statute, such failure does not constitute a
violation of the Illegal Remuneration Statute. Nevertheless, these illegal
remuneration laws, as applied to activities and relationships similar to those
of the Company, have been subjected to limited judicial and regulatory
interpretation, and the Company has not obtained or applied for any opinion of
any regulatory or judicial authority that its business operations and
affiliations are in compliance with these laws. Therefore, no assurances can
be given that the Company's activities will be found to be in compliance with
these laws if scrutinized by such authorities.
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Section 1877 of the Social Security Act ("Stark II") imposes certain
restrictions upon referring physicians and providers of certain designated
health services under the Medicare, Medicaid and Champus programs ("Government
Programs"). Subject to certain exceptions, Stark II provides that if a
physician (or a family member of a physician) has a financial relationship
with an entity: (i) the physician may not make a referral to the entity for
the furnishing of designated health services under the Government Programs;
and (ii) the entity may not bill Government Programs, any individual or any
third-party payor for designated health services pursuant to a prohibited
referral under the Government Programs. The prohibitions of Stark II only
apply to the treatment of Government Program patients, and have no application
to services performed for non-government program patients. Entities and
physicians committing an act in violation of Stark II will be required to
refund amounts collected in violation of the statute and also are subject to
civil money penalties and to exclusion from the Government Programs. Of the
Company's lithotripsy revenues for the year ended December 31, 1997, 77% were
attributable to affiliates of the Company having referring physician-
investors. Urologists are investors in 44 of the Company's 62 lithotripsy
operations, and the two Company affiliates engaged in thermotherapy services
have referring physician-investors (the Company lithotripsy and thermotherapy
affiliates with referring physician-investors are referred to herein as the
"Company Physician Entities").
Many key terms in Stark II are not adequately defined and the statute is
silent regarding its application to vendors, such as the Company Physician
Entities, contracting "under arrangements" with hospitals for the provision of
outpatient services. Since the passage of Stark II, the Company interpreted
Stark II consistently with the informal view of the General Counsel for Health
and Human Services, and concluded that the statute did not apply to its method
of conducting business. Based upon a reasonable interpretation of Stark II, by
referring a patient to a hospital furnishing the outpatient lithotripsy or
thermotherapy services "under arrangements" with the Company Physician Entity,
a physician investor in a Company Physician Entity is not making a referral to
an entity (the hospital) in which they have an ownership interest.
On January 9, 1998, the federal government published proposed regulations
under Stark II (the "Proposed Stark Regulations"). By clarifying certain
ambiguities and defining certain statutory terms, the Proposed Stark
Regulations and accompanying commentary apply the physician referral
prohibitions of Stark II to the Company Physician Entities' practice of
contracting "under arrangements" with hospitals for treatment and billing of
Government Program patients. Only hospitals can bill the Government Programs
for lithotripsy and thermotherapy services; thus contracting under
arrangements with hospitals was the way the Company Physician Entities
economically participated in the treatment of Government Program patients.
Absent a restructuring of traditional operations, to comply with the
government's interpretation of Stark II the physician-investors will be
prohibited from referring Government Program patients to the hospitals
contracting with the Company Physician Entities. The Company cannot predict
when final Stark II regulations will be issued or the substance of the final
regulations, but the interpretive provisions of the Proposed Stark Regulations
may be viewed as the federal government's interim enforcement position until
final regulations are issued. Restructuring traditional operations may reduce
Company revenues and limit future growth by (i) reducing or eliminating
revenues attributable to the treatment of Government Program patients by
Company Physician Entities, (ii) reducing revenues from the treatment of non-
government patients by Company Physician Entities due to physician, hospital
and third-party payor anxiety and concern created by Stark II, (iii) requiring
the Company Physician Entities to restructure their operations to comply with
Stark II, (iv) restricting the acquisition or development of additional
lithotripsy or thermotherapy operations that will both treat Government
Program patients and have referring physician-investors, (v) impairing the
Company's relationship with urologists and (vi) otherwise materially adversely
impacting the Company.
Many states currently have laws similar to Stark II that restrict a
physician with a financial relationship with an entity from referring patients
to that entity. Often these laws contain statutory exceptions for
circumstances where the referring physician, or a member of his practice
group, treats their own patients. States also commonly require physicians to
disclose to patients their financial relationship with an entity. The Company
believes that it is in material compliance with these state laws.
Nevertheless, these state self-referral laws, as applied to activities and
relationships similar to those of the Company, have been subjected to limited
judicial and regulatory
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interpretation, and the Company has not obtained or applied for any opinion of
any regulatory or judicial authority that its business operations and
affiliations are in compliance with these laws. Therefore, no assurances can
be given that the Company's activities will be found to be in compliance with
these laws if scrutinized by such authorities.
In addition, upon the occurrence of changes in the law that may adversely
affect operations, the Company is required to purchase the interests of
physician-investors for certain of the Company Physician Entities. These
mandatory purchase obligations require the payment by the Company of a
multiple of earnings similar to multiples used by the Company in pricing the
original acquisition of such interests. The Company estimates that, as of
December 31, 1997, the aggregate potential cost of all such mandatory
purchases would not exceed $6.0 million. To the extent the Company is required
to purchase such interests, such purchases might cause a default under the
terms of the Senior Credit Facility, impair the Company's relationship with
urologists and otherwise have a material adverse impact on the Company.
Regulatory developments, such as the Proposed Stark Regulations, might also
dictate that the Company purchase all the interests of its physician-
investors, regardless of any contractual requirements to do so, or
substantially alter its business and operations to remain in compliance with
applicable laws. A purchase of all the interests of the physician-investors in
the Company Physician Entities would require significant resources, and there
can be no assurance that the Company could fund such acquisitions.
Additionally, there can be no assurance that the Company will not be required
to change its business practices or its investment relationships with
urologists or that the Company will not experience a material adverse effect
as a result of any challenge made by a federal or state regulatory agency. In
addition, there can be no assurance that physician-investors who, voluntarily
or otherwise, divest of their interests in Company Physician Entities will
continue to refer patients at the same rate or at all. See "Business--
Lithotripsy Operations," "Description of Other Indebtedness," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
UNCERTAINTIES RELATED TO CHANGING HEALTHCARE ENVIRONMENT
The healthcare industry has experienced substantial changes in recent years.
Although managed care has yet to become a major factor in the delivery of
lithotripsy or thermotherapy services, the Company anticipates that managed
care programs, including capitation plans, may play an increasing role in the
delivery of lithotripsy and thermotherapy services and that competition for
these services may shift from individual practitioners to health maintenance
organizations and other significant providers of managed care. No assurance
can be given that the changing healthcare environment will not have a material
adverse effect on the Company.
In addition, the hospitals and surgery centers to which the Company provides
services are reimbursed for lithotripsy and thermotherapy services under
various federal and state programs, including Medicare, Medicaid and Champus,
primarily at fixed rates. These programs are subject to statutory and
regulatory changes, administrative rulings, interpretations of policy and
governmental funding restrictions, all of which may have the effect of
decreasing program payments, increasing costs or requiring the Company to
modify the way in which it operates its business. The Company is not able to
predict whether changes will be made in the rates prescribed by these
governmental programs. Furthermore, over the last several years, there has
been a general trend toward lower reimbursement rates for healthcare services
by government and other third-party payors. Such reimbursement reductions
could have a material adverse effect on the Company. Furthermore, increases in
operating costs that are subject to inflation, such as labor and supply costs,
without a compensating increase in prescribed rates may adversely affect the
Company.
There have been numerous initiatives at the federal and state levels for
comprehensive reforms affecting the payment for and availability of healthcare
services, including services provided by the Company. The Company believes
that such initiatives may continue in the future. Aspects of certain of these
reforms as proposed in the past could, if adopted, adversely affect the
Company.
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RISKS INHERENT IN THE PROVISION OF MEDICAL SERVICES
The urologists who use the Company's lithotripters and thermotherapy devices
are involved in the delivery of healthcare services to the public and,
therefore, are exposed to the risk of liability claims. Since the Company
typically operates the lithotripters and thermotherapy devices used by the
urologists and provides nurses and/or radiology technicians to assist the
urologists in the use of lithotripters and thermotherapy devices, the Company
may also be named in a claim against a urologist in connection with performing
a lithotripsy or thermotherapy procedure at the Company's facilities. Although
the Company has not experienced any losses due to claims for malpractice, such
claims, if successful, could result in substantial damage awards to the
claimants which may exceed the limits of any applicable insurance coverage.
While the Company maintains professional liability insurance, there can be no
assurance that any such claims against the Company will not exceed the amount
of insurance maintained. Successful malpractice claims asserted against the
Company, to the extent not covered by the Company's liability insurance, could
adversely affect the Company. See "Business--Lithotripsy Operations."
COMPETITION
The lithotripsy services industry is fragmented and highly competitive in
many respects. Moreover, certain of the Company's current and potential
competitors have substantially greater financial resources than the Company
and may compete with the Company for acquisitions and development of
operations in markets targeted by the Company. The Company has experienced
competition in the acquisition of existing lithotripsy facilities and the
development of relationships with treating physicians. The Company has also
experienced competition from hospitals or treating physicians who have opened
their own lithotripsy facilities. Such competition could intensify in the
event of a decrease in the purchase price of lithotripters, as a result of the
development of less expensive lithotripsy equipment, if the supply of new or
used lithotripters increases over time, or as a result of regulatory changes.
Most of the Company's lithotripsy services agreements have matured past their
initial terms and are now in annual renewal terms or are on a month-to-month
basis, which increases the risk that a large number of agreements may be
terminated over a relatively short period of time. Another significant
provider of lithotripsy services is also a manufacturer of lithotripsy
equipment, which may create different incentives for such provider in pricing
lithotripsy services. Moreover, the Company competes with alternative kidney
stone disease treatments. See "Business--Industry Overview."
TECHNOLOGICAL CHANGES
The equipment and software utilized by the Company in the provision of its
lithotripsy services and other business activities have been characterized by
technological changes. The development of new technologies or refinements of
existing ones might render the Company's existing equipment and software
technologically or economically obsolete. Regulatory approvals have recently
been received for smaller and less expensive lithotripsy equipment that can
either be utilized as a mobile or fixed site operation and can be transported
with smaller and less expensive vehicles than those utilized by the Company.
Although this compact lithotripsy technology is relatively new and not in
widespread use, the availability of such technology could materially and
adversely affect the Company's business. There is also a risk that the
particular manufacturers of the Company's equipment may discontinue the
manufacture of such equipment or may not offer equipment and software upgrades
necessary to keep such equipment technologically current. Even if such
upgrades are available, there can be no assurance that the Company will have
the financial resources to acquire them. See "Business--Industry Overview" and
"--Lithotripsy Operations."
DEPENDENCE ON KEY PERSONNEL
The Company is dependent upon the services and management experience of the
Company's executive officers, including Kenneth S. Shifrin, Chairman of the
Board, Joseph Jenkins, M.D., President and Chief Executive Officer, and
Michael Madler, Senior Vice President--Operations. The Company does not carry
key-man life insurance in material amounts on any of its officers. The loss
of, or the failure to attract, qualified
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employees could adversely affect the Company. In addition, the Company's
continued growth depends upon its ability to attract and retain skilled
employees, particularly highly skilled lithotripsy nurses and radiology
technicians.
DEPENDENCE ON PHYSICIANS
The Company depends upon the treatment of patients by urologists practicing
in the communities served by the Company's lithotripters and thermotherapy
units. In some cases, the Company's affiliated physician-investors have
entered into noncompetition agreements with the Company under which they have
agreed to refrain from owning interests in competing facilities for various
periods. The enforceability of these noncompetition agreements is generally a
matter of state law, varies from state-to-state and is evolving over time.
Additionally, in some cases the Company may be forced to purchase the minority
ownership interests of affiliated physician-investors under mandatory
repurchase arrangements existing between the Company and such physician-
investors. The loss of relationships with key treating urologists at a
particular facility, whether due to retirement, relocation, dissatisfaction
with the Company's services, regulatory referral prohibitions or other
factors, could adversely affect the Company. See "--Operations Subject to
Government Regulation; Recent Regulatory Proposals."
RESTRICTIVE COVENANTS AND ASSET ENCUMBRANCES
The Senior Credit Facility and the Indenture contain numerous restrictive
covenants which limit the discretion of Company management with respect to
certain business matters. These covenants place significant restrictions on,
among other things, the ability of the Company to incur additional
indebtedness, to create liens or other encumbrances, to pay dividends or make
other restricted payments, to make investments, loans and guarantees and to
sell or otherwise dispose of a substantial portion of assets to, or merge or
consolidate with, another entity. The Senior Credit Facility also contains a
number of financial covenants that require the Company to meet certain
financial ratios and tests and provide that a "change of control" constitutes
an event of default. A failure to comply with the obligations contained in the
Senior Credit Facility or the Indenture, if not cured or waived, could permit
acceleration of the related indebtedness and acceleration of indebtedness
under other instruments that contain cross-acceleration or cross-default
provisions. If the Company were obligated to repay all or a significant
portion of its indebtedness, there can be no assurance that the Company would
have sufficient cash to do so or that the Company could successfully refinance
such indebtedness. Other indebtedness of the Company that may be incurred in
the future may contain financial or other covenants more restrictive than
those applicable to the Senior Credit Facility or the Notes. In addition, the
obligations of the Company under the Senior Credit Facility are secured by
substantially all of the assets of the Company, and the Indenture permits
other Senior Debt of the Company to be secured. In the case of an event of
default under the Senior Credit Facility or such other secured indebtedness,
the lenders thereunder would be entitled to exercise the remedies available to
a secured lender under applicable law. See "Description of Exchange Notes--
Certain Covenants" and "Description of Other Indebtedness."
POSSIBLE INABILITY TO FUND A CHANGE OF CONTROL OFFER
Upon a Change of Control, the Company is required to offer to repurchase all
outstanding Notes at 101% of the principal amount thereof plus accrued and
unpaid interest and Liquidated Damages, if any, to the date of repurchase.
However, there can be no assurance that sufficient funds will be available at
the time of any Change of Control to make any required repurchases of Notes
tendered or that restrictions in the Senior Credit Facility will allow the
Company to make such required repurchases. Notwithstanding these provisions,
the Company could enter into certain transactions, including certain
recapitalizations, that would not constitute a Change of Control but would
increase the amount of debt outstanding at such time. See "Description of
Exchange Notes--Repurchase at the Option of Holders."
FRAUDULENT CONVEYANCE; UNENFORCEABILITY OF CERTAIN CORPORATE GUARANTEES
Under applicable provisions of federal bankruptcy law or comparable
provisions of state fraudulent transfer law, if, among other things, the
Company or any Subsidiary Guarantor, at the time it incurred the indebtedness
evidenced by the Notes or its Subsidiary Guarantee, (i) (a) was or is
insolvent or rendered insolvent by reason of
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such occurrence or (b) was or is engaged in a business or transaction for
which the assets remaining with the Company or such Subsidiary Guarantor
constituted unreasonably small capital or (c) intended or intends to incur, or
believed or believes that it would incur, debts beyond its ability to pay such
debts as they mature and (ii) the Company or such Subsidiary Guarantor
received or receives less than reasonably equivalent value or fair
consideration for the incurrence of such indebtedness, then the Notes and the
Subsidiary Guarantees, and any pledge or other security interest securing such
indebtedness, could be voided, or claims in respect of the Notes or the
Subsidiary Guarantees could he subordinated to all other debts of the Company
or such Subsidiary Guarantor, as the case may be. In addition, the payment of
interest and principal by the Company pursuant to the Notes or the payment of
amounts by a Subsidiary Guarantor pursuant to a Subsidiary Guarantee could be
voided and required to be returned to the person making such payment, or to a
fund for the benefit of the creditors of the Company or such Subsidiary
Guarantor, as the case may be.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company or Subsidiary Guarantor would be
considered insolvent if (i) the sum of its debts, including contingent
liabilities, were greater than the saleable value of all of its assets at a
fair valuation or if the present fair saleable value of its assets were less
than the amount that would be required to pay its probable liability on its
existing debts, including contingent liabilities, as they become absolute and
mature or (ii) it could not pay its debts as they become due.
On the basis of historical financial information, recent operating history
and other factors, the Company and each Subsidiary Guarantor believes that,
after giving effect to the indebtedness incurred in connection with the
Offering and the establishment of the Senior Credit Facility, it will not be
insolvent, will not have unreasonably small capital for the business in which
it is engaged and will not incur debts beyond its ability to pay such debts as
they mature. There can be no assurance, however, as to what standard a court
would apply in making such determinations or that a court would agree with the
Company's or the Subsidiary Guarantors' conclusions in this regard.
In addition, the enforceability of a guarantee by a subsidiary of
indebtedness of its corporate parent may be unclear or limited under the laws
of certain jurisdictions under which existing or future Subsidiary Guarantors
may be organized. Although substantially all of the existing Subsidiary
Guarantors are organized under the laws of jurisdictions under which no such
limitations exist for wholly-owned subsidiaries, the Company may form
additional subsidiaries under the laws of jurisdictions where such limitations
do exist. If a Subsidiary Guarantee is held to be invalid or unenforceable as
a result of any such limitation, then any right of the Company or any other
Subsidiary Guarantor to receive assets of the Subsidiary Guarantor whose
Subsidiary Guarantee is so limited upon the latter's liquidation or
reorganization (and the consequent right of the holders of the Notes to
participate in those assets) will be effectively subordinated to the claims of
the affected Subsidiary Guarantor's creditors, except to the extent that the
Company or any other Subsidiary Guarantor is itself recognized as a creditor
of such affected Subsidiary Guarantor, in which case the claims of the Company
or such other Subsidiary Guarantor would still be effectively subordinated to
any security interest in the assets of such affected Subsidiary Guarantor.
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
The Exchange Notes are a new issue of securities, have no established
trading market and may not be widely distributed. The Company does not intend
to list the Exchange Notes on any national securities exchange or to seek the
admission thereof to trading in the National Association of Securities Dealers
Automated Quotation System. No one has any obligation to make a market in the
Exchange Notes, and any market making activities with respect to the Exchange
Notes, if ever initiated, may be discontinued at any time without notice. In
addition, any market making activity will be subject to the limitations
imposed by the Exchange Act and may be limited during the Exchange Offer and
at certain other times. No assurance can be given that an active public or
other market will develop for the Exchange Notes or as to the liquidity of or
the trading market for the Exchange Notes. If a trading market does not
develop or is not maintained, holders of the Exchange Notes may experience
difficulty in reselling the Exchange Notes or may be unable to sell them at
all. If a market for the Exchange
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Notes develops, any such market may be discontinued at any time. If a public
trading market develops for the Exchange Notes, future trading prices of the
Exchange Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's results of operations and the market
for similar securities. Depending on prevailing interest rates, the market for
similar securities and other facts, including the financial condition of the
Company, the Exchange Notes may trade at a significant discount from their
principal amount.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Company does not anticipate that it will incur significant operating
expenses or be required to invest heavily in computer systems improvements to
be year 2000 compliant. However, significant uncertainty exists concerning the
potential costs and effects associated with any year 2000 compliance. Any year
2000 compliance problem of either the Company or its vendors, third-party
payors or customers could have a material adverse effect on the Company's
business, results of operations, financial condition and prospects.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT
The Outstanding Notes were sold by the Company to the Initial Purchasers on
March 27, 1998, pursuant to the Purchase Agreement. The Initial Purchasers
subsequently placed the Outstanding Notes with QIBs in reliance on Rule 144A.
As a condition to the sale of the Outstanding Notes, the Company, the
Subsidiary Guarantors and the Initial Purchasers also entered into the
Registration Rights Agreement, pursuant to which the Company agreed, with
respect to the Outstanding Notes and subject to the Company's determination
that the Exchange Offer is permitted under applicable law, to (i) cause to be
filed, on or prior to May 11, 1998, a registration statement with the
Commission under the Securities Act concerning the Exchange Offer, (ii) use
its best efforts (a) to cause such registration statement to be declared
effective by the Commission on or prior to August 24, 1998, and (b) to cause
the Exchange Offer to be consummated on or prior to 30 business days after the
date such registration statement is declared effective by the Commission. The
Company will keep the Exchange Offer open for a period of not less than 20
business days and not more than 30 business days. A copy of the Registration
Rights Agreement has been filed as an exhibit to the Registration Statement of
which this Prospectus is a part. This Exchange Offer is intended to satisfy
the Company's exchange offer obligations under the Registration Rights
Agreement.
CONSEQUENCES OF FAILURE TO EXCHANGE OUTSTANDING NOTES
Following the expiration of the Exchange Offer, holders of Outstanding Notes
not tendered, or not properly tendered and not accepted, will continue to hold
such Outstanding Notes and will be entitled to all the rights and preferences
and subject to the limitations applicable thereto under the Indenture.
However, such holders will not have any further registration rights and such
Outstanding Notes will continue to be subject to the existing restrictions on
transfer thereof. To the extent that a portion of the Outstanding Notes are
tendered and accepted in the Exchange Offer, the liquidity of the market for a
holder's untendered and tendered but unaccepted Outstanding Notes could be
adversely affected upon expiration of the Exchange Offer. See "Risk Factors--
Exchange Offer Procedures; Consequences of Failure to Exchange."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth herein and in the
accompanying Letter of Transmittal, the Company, upon the Registration
Statement being declared effective, will accept for exchange any and all
Outstanding Notes validly tendered and not withdrawn prior to 5:00 p.m., New
York City time, on the Expiration Date. The Company will issue $1,000 in
principal amount of the Exchange Notes in exchange for each $1,000 in
principal amount of the Outstanding Notes accepted in the Exchange Offer.
Outstanding Notes may be tendered only in multiples of $1,000.
Subject to the foregoing, holders of Outstanding Notes may tender less than
the aggregate principal amount represented by the Outstanding Notes held by
them, provided that they appropriately indicate this fact on the Letter of
Transmittal accompanying the tendered Outstanding Notes. Tenders of the
Outstanding Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date. The Exchange Offer is not conditioned upon
any minimum principal amount of Outstanding Notes being tendered for exchange.
However, the Exchange Offer is subject to the terms and provisions of the
Registration Rights Agreement. See "--Conditions of the Exchange Offer."
The Exchange Notes will evidence the same debt as the Outstanding Notes for
which they are exchanged, and are entitled to the benefits of the Indenture.
The form and terms of the Exchange Notes are the same as the form and terms of
the Outstanding Notes except that the Exchange Notes have been registered
under the Securities Act and hence will not bear legends restricting the
transfer thereof.
As of the date of this Prospectus, $100.0 million in aggregate principal
amount of the Outstanding Notes is outstanding. The Company has fixed the
close of business on May 21, 1998, as the record date (the "Record Date") for
purposes of determining the persons to whom this Prospectus and the Letter of
Transmittal will be
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mailed initially. Only a holder of the Outstanding Notes (or such holder's
legal representative or attorney-in-fact) may participate in the Exchange
Offer. There will be no fixed record date for determining holders of the
Outstanding Notes entitled to participate in the Exchange Offer. The Company
believes that, as of the date of this Prospectus, no such holder is an
affiliate (as defined in Rule 405 under the Securities Act) of the Company.
The Company intends to conduct the Exchange Offer in accordance with the
applicable requirements of the Exchange Act and the rules and regulations of
the Commission thereunder, including Rule 14e-1 thereunder.
The Company shall be deemed to have accepted validly tendered Outstanding
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of Outstanding Notes and for the purposes of receiving the Exchange
Notes from the Company.
If any tendered Outstanding Notes are not accepted for exchange because of
an invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Outstanding Notes will be
returned, without expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Outstanding Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
the Outstanding Notes pursuant to the Exchange Offer. The Company will pay all
charges and expenses, other than certain applicable taxes, in connection with
the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The Expiration Date shall be June 30, 1998, at 5:00 p.m., New York City
time, unless the Company, in its sole discretion, extends the Exchange Offer,
in which case the Expiration Date shall be the latest date and time to which
the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof, each prior to 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Such announcement
may state that the Company is extending the Exchange Offer for a specified
period of time or on a daily basis until 5:00 p.m., New York City time, on the
date on which a specified percentage of Original Notes are tendered.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Outstanding Notes, (ii) to extend the Exchange Offer, (iii) if
any of the conditions set forth below under "--Conditions of the Exchange
Offer" shall not have been satisfied, to terminate the Exchange Offer and not
accept Outstanding Notes not previously accepted, by giving oral or written
notice of such delay, extension, or termination to the Exchange Agent, and
(iv) to amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by oral or written notice thereof to the holders. If the
Exchange Offer is amended in a manner determined by the Company to constitute
a material change, the Company will promptly disclose such amendments by means
of a prospectus supplement that will be distributed to the registered holders
of the Outstanding Notes. Modification of the Exchange Offer, including, but
not limited to, (i) extension of the period during which the Exchange Offer is
open and (ii) satisfaction of the conditions set forth below under "--
Conditions of the Exchange Offer" may require that at least five (5) business
days remain in the Exchange Offer. During any extension of the Expiration
Date, all Outstanding Notes previously tendered will remain subject to the
Exchange Offer and may be accepted for exchange by the Company.
Without limiting the manner in which the Company may choose to make public
announcement of any extension, amendment or termination of the Exchange Offer,
the Company shall have no obligation to publish, advertise, or otherwise
communicate any such public announcement, other than by making a timely
release to the Dow Jones News Service.
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<PAGE>
CONDITIONS OF THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company's
obligation to accept for exchange, or exchange Exchange Notes for, any
Outstanding Notes not theretofore accepted for exchange is subject to the
following conditions:
(a) no action or proceeding having been instituted or threatened in any
court or by or before any governmental agency with respect to the Exchange
Offer which, in the judgment of the Company, might impair the ability of
the Company to proceed with the Exchange Offer or have a material adverse
effect on the Company or there shall not have occurred any material adverse
development in any existing action or proceeding with respect to the
Company or any of its subsidiaries;
(b) there shall not have been any material change, or development
involving a prospective change, in the business or financial affairs of the
Company or any of its subsidiaries which, in the judgment of the Company,
would materially impair the Company's ability to consummate the Exchange
Offer or have a material adverse impact on the Company if the Exchange
Offer is consummated;
(c) there shall not have been proposed, adopted or enacted any law,
statute, rule or regulation which, in the judgment of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer or have a material adverse effect on the Company if the Exchange
Offer is consummated; or
(d) all governmental approvals which the Company shall deem necessary for
the consummation of the Exchange Offer as contemplated hereby shall have
been obtained.
If the Company determines in good faith that any of the conditions are not
met, the Company may (i) refuse to accept any Outstanding Notes and return all
tendered Outstanding Notes to exchanging holders, (ii) extend the Exchange
Offer and retain all Outstanding Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of holders to withdraw such
Outstanding Notes (see "--Withdrawal Rights") or (iii) waive certain of such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Outstanding Notes which have not been withdrawn or revoked.
If such waiver constitutes a material change to the Exchange Offer, the
Company will promptly disclose such waiver by means of a prospectus supplement
that will be distributed to all registered holders of the Outstanding Notes.
Holders of the Outstanding Notes have certain rights and remedies against
the Company under the Registration Rights Agreement. If, notwithstanding a
failure of the conditions stated above, a Registration Default (as defined in
Section 5 of the Registration Rights Agreement) occurs, then with respect to
the first 90-day period following the date on which such Registration Default
occurs, holders of Outstanding Notes are entitled to receive liquidated
damages of $0.05 per week per $1,000 principal amount of Outstanding Notes
held by such holders for each week or portion thereof that the Registration
Default continues. The amount of the liquidated damages shall increase by an
additional $.05 per week per $1,000 in principal amount of Outstanding Notes
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of liquidated damages of $.50 per week
per $1,000 principal amount of Outstanding Notes (collectively, such remedies
are referred to herein as "Liquidated Damages"). The conditions of the
Exchange Offer are not intended to modify those rights or remedies in any
respect.
The foregoing conditions are for the benefit of the Company and may be
asserted by the Company in good faith regardless of the circumstances giving
rise to such conditions or may be waived by the Company in whole or in part at
any time and from time to time in its discretion. The failure by the Company
at any time to exercise the foregoing rights shall not be deemed a waiver of
any such right and each such right shall be deemed an ongoing right which may
be asserted at any time and from time to time. In addition, the Company has
reserved the right, notwithstanding the satisfaction of each of the foregoing,
to terminate or amend the Exchange Offer.
TERMINATION OF CERTAIN RIGHTS
Holders of Exchange Notes will not be and, upon consummation of the Exchange
Offer, holders of Outstanding Notes will no longer be, entitled to (i) the
right to receive the liquidated damages described above
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<PAGE>
or (ii) certain other rights under the Registration Rights Agreement intended
for holders of Outstanding Notes. The Exchange Offer shall be deemed
consummated upon the occurrence of the delivery by the Company to the
registrar under the Indenture of Exchange Notes in the same aggregate
principal amount as the aggregate principal amount of Outstanding Notes that
are tendered by holders thereof pursuant to the Exchange Offer.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 8 3/4% per annum.
Interest accrues on the Outstanding Notes, and will accrue on the Exchange
Notes, in each case, from the most recent date to which interest has been paid
or, if no interest has been paid, from the date of the original issuance.
Interest will be payable semi-annually in arrears on April 1 and October 1,
commencing October 1, 1998. No interest will be payable on the Outstanding
Notes on the date of the exchange for the Exchange Notes and therefore no
interest will be paid thereon to the holders at such time. See "Description of
Exchange Notes--Principal, Maturity and Interest."
PROCEDURES FOR TENDERING OUTSTANDING NOTES
The tender of a holder's Outstanding Notes as set forth below and the
acceptance thereof by the Company will constitute a binding agreement between
the tendering holder and the Company upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal. Except as set forth below, a holder who wishes to tender
Outstanding Notes for exchange pursuant to the Exchange Offer must transmit
such Outstanding Notes, together with a properly completed and duly executed
Letter of Transmittal, including all other documents required by such Letter
of Transmittal, to the Exchange Agent at the address set forth below under "--
The Exchange Agent; Assistance" prior to 5:00 p.m., New York City time, on the
Expiration Date. Delivery of the Outstanding Notes may be made by book-entry
transfer in accordance with the procedures described below. Confirmation of
such book-entry transfer must be received by the Exchange Agent prior to the
Expiration Date.
THE METHOD OF DELIVERY OF OUTSTANDING NOTES, LETTERS OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT THE HOLDER USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTER
OF TRANSMITTAL OR OUTSTANDING NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES
OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner of the Outstanding Notes (a "Beneficial Owner") whose
Outstanding Notes are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and who wishes to tender Outstanding
Notes in the Exchange Offer should contact such registered holder promptly and
instruct such registered holder to tender on such Beneficial Owner's behalf.
If such Beneficial Owner wishes to tender directly, such Beneficial Owner
must, prior to completing and executing the Letter of Transmittal and
tendering Outstanding Notes, make appropriate arrangements to register
ownership of the Outstanding Notes in such Beneficial Owner's name. Beneficial
Owners should be aware that the transfer of registered ownership may take
considerable time and may not be able to be completed prior to the Expiration
Date.
Each signature on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Outstanding Notes surrendered for
exchange pursuant hereto are tendered (i) by a registered holder of the
Outstanding Notes who has not completed either the box entitled "Special
Registration Instructions" or the box entitled "Special Delivery Instructions"
on the Letter of Transmittal, or (ii) for the account of an Eligible
Institution (as defined below). In the event that a signature on a Letter of
Transmittal or a notice of withdrawal, as the case may be, is required to be
guaranteed, such guarantee must be by a firm which is a member firm of a
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<PAGE>
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office
or correspondent in the United States or otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Exchange Act (an
"Eligible Institution"). If the Letter of Transmittal is signed by any person
other than the registered holder or holders of the Outstanding Notes listed
therein, such Outstanding Notes surrendered for exchange must be endorsed or
accompanied by a properly completed bond power, in either case signed exactly
as the names of the registered holder or holders that appear on the
Outstanding Notes with each such signature thereon guaranteed by an Eligible
Institution. The term "registered holder" as used herein with respect to the
Outstanding Notes means any person in whose name the Outstanding Notes are
registered on the books of the Registrar.
If any Letter of Transmittal, Outstanding Notes, endorsement, bond power,
power of attorney or any other document required by the Letter of Transmittal
is signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or
representative capacity, such person should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company, in
its sole discretion, of such person's authority to so act must be submitted
with the Letter of Transmittal.
The Company understands that the Exchange Agent will make a request promptly
after the date of this Prospectus to establish accounts with respect to the
Exchange Notes at DTC (the "Book-Entry Transfer Facility") for the purpose of
facilitating the Exchange Offer, and subject to the establishment thereof, any
financial institution that is a participant in the Book-Entry Transfer
Facility's system may make book-entry delivery of the Outstanding Notes by
causing such Book-Entry Transfer Facility to transfer such Outstanding Notes
into the Exchange Agent's account with respect to the Outstanding Notes in
accordance with the Book-Entry Transfer Facility's procedures for such
transfer. Although delivery of the Outstanding Notes may be effected through
book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility, an appropriate Letter of Transmittal properly completed and
duly executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address set forth below on or prior to the Expiration
Date, or, if the guaranteed delivery procedures described below are complied
with, within the time period provided under such procedures; provided,
however, that a participant in DTC's book-entry system may, in accordance with
DTC's Automated Tender Offer Program procedures and in lieu of physical
delivery to the Exchange Agent of a Letter of Transmittal, electronically
acknowledge its receipt of, and agreement to be bound by, the terms of the
Letter of Transmittal. Delivery of documents to the Book-Entry Transfer
Facility does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Outstanding Notes tendered for exchange
will be determined by the Company in its sole discretion, which determination
shall be final and binding. The Company reserves the absolute right to reject
any and all tenders of any Outstanding Notes not properly tendered and to
reject any Outstanding Notes the Company's acceptance of which might, in the
judgment of the Company or its counsel, be unlawful. The Company also reserves
the absolute right at its sole discretion to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular
Outstanding Notes either before or after the Expiration Date (including the
right to waive the ineligibility of any holder who seeks to tender Outstanding
Notes in the Exchange Offer). The interpretation of the terms and conditions
of the Exchange Offer as to any Outstanding Notes either before or after the
Expiration Date (including the Letter of Transmittal and the instructions
thereto) by the Company shall be final and binding on all parties. Unless
waived, any defects or irregularities in connection with tenders of
Outstanding Notes for exchange must be cured within such period of time as the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of any defects or
irregularities with respect to any tender of Outstanding Notes for exchange,
nor shall any of them incur any liability for failure to give such
notification. Tenders of the Outstanding Notes will not be deemed to have been
made until such irregularities have been cured or waived. Any Outstanding
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date.
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<PAGE>
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
By tendering, each registered holder will represent to the Company that,
among other things that (i) the Exchange Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of business of the
person receiving such Exchange Notes, whether or not such person is the
registered holder, (ii) neither the registered holder nor any such other
person is engaged in, or intends to engage in, or has an arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of such Exchange Notes, (iii) if the registered
holder or the person receiving the Exchange Notes covered hereby is (a)
participating in the Exchange Offer for the purpose of distributing the
Exchange Notes or (b) a broker-dealer that is receiving the Exchange Notes for
its own account in exchange for Outstanding Notes that were acquired as a
result of market-making activities or other trading activities, the registered
holder or such person will comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction of the acquired Exchange Notes and cannot rely on the
position of the Staff of the Commission set forth in "no-action" letters that
are discussed herein under "--Resales of the Exchange Notes" and (iv) neither
the registered holder nor the person receiving the Exchange Note covered
hereby is an affiliate (as defined under Rule 405 of the Securities Act) of
the Company, or, if the registered holder or any such other person is an
affiliate of the Company, whether as a result of tendering in the Exchange
Offer or otherwise, the registered holder understands and acknowledges that
such Exchange Notes may not be offered for resale, resold or otherwise
transferred by the registered holder or such other person without registration
under the Securities Act or an exemption therefrom.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Outstanding Notes and (i) whose Outstanding
Notes are not immediately available, (ii) who cannot deliver their Outstanding
Notes, the Letter of Transmittal or any other required documents to the
Exchange Agent or (iii) who cannot complete the procedures for book-entry
transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder, the certificate number(s)
of such Outstanding Notes and the principal amount of Outstanding Notes
tendered, stating that the tender is being made thereby and guaranteeing
that, within five Nasdaq Stock Market trading days after the Expiration
Date, the Letter of Transmittal (or facsimile thereof), together with the
certificates representing the Outstanding Notes (or a confirmation of book-
entry transfer of such Outstanding Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility) and any other documents required by
the Letter of Transmittal, will be deposited by the Eligible Institution
with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificates representing all tendered
Outstanding Notes in proper form for transfer (or a confirmation of book-
entry transfer of such Outstanding Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility) and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within five
Nasdaq Stock Market trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL RIGHTS
Outstanding Notes tendered pursuant to the Exchange Offer may be withdrawn
at any time prior to 5:00 p.m. New York City time, on the Expiration Date,
after which tenders of Outstanding Notes are irrevocable. To be effective, a
written, telegraphic or facsimile transmission notice of withdrawal must be
timely received by the Exchange Agent. Any such notice of withdrawal must (i)
specify the name of the person having deposited the
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Outstanding Notes to be withdrawn (the "Depositor"), (ii) identify the
Outstanding Notes to be withdrawn (including the certificate number(s) and
principal amount of such Outstanding Notes, or, in the case of Outstanding
Notes transferred by book-entry transfer, the name and number of the account
at the Book-Entry Transfer Facility to be credited), (iii) be signed by the
holder in the same manner as the original signature on the Letter of
Transmittal by which such Outstanding Notes were tendered (including any
required signature guarantees) or be accompanied by documents of transfer
sufficient to have the Trustee with respect to the Outstanding Notes register
the transfer of such Outstanding Notes into the name of the person withdrawing
the tender, (iv) specify the name in which any such Outstanding Notes are to
be registered, if different from that of the Depositor and (v) if applicable
because the Outstanding Notes have been tendered pursuant to book-entry
procedures, specify the name and number of the participant's account at DTC to
be credited, if different from that of the Depositor. All questions as to the
validity, form and eligibility (including time of receipt) of such notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Any Outstanding Notes so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no
Exchange Notes will be issued with respect thereto unless the Outstanding
Notes so withdrawn are validly retendered. Any Outstanding Notes that have
been tendered but not accepted for exchange, will be returned to the holder
thereof without cost to such holder as soon as practicable after withdrawal,
rejection of tender or termination of the Exchange Offer. Properly withdrawn
Outstanding Notes may be retendered by following one of the procedures
described above under "--Procedures for Tendering Outstanding Notes" at any
time prior to the Expiration Date.
THE EXCHANGE AGENT; ASSISTANCE
State Street Bank and Trust Company of Missouri, NA is the Exchange Agent.
All tendered Outstanding Notes, executed Letters of Transmittal and other
related documents should be directed to the Exchange Agent. Questions and
requests for assistance and requests for additional copies of this Prospectus,
the Letter of Transmittal and other related documents should be addressed to
the Exchange Agent as follows:
By Registered or Certified Mail: By Hand or Overnight Courier:
State Street Bank and Trust Company State Street Bank and Trust Company of
of Missouri, Missouri,
National Association National Association
Corporate Trust Window Corporate Trust Window
Two International Place, Fourth Two International Place, Fourth Floor
Floor Boston, MA 02110
Boston, MA 02110
By Facsimile Transmission
(For Eligible Institutions Only):
(617) 664-5395
Attention: Corporate Trust Window
Confirm by Telephone: (800) 531-0368
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation is being made by mail;
however, additional solicitation may be made by telegraph, telephone,
facsimile or in person by officers and regular employees of the Company and
its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers or others soliciting
acceptances of the Exchange Offer. The Company, however, will pay the Exchange
Agent reasonable and customary fees for its services and registration
expenses, including fees and expenses of the Trustee, filing fees, blue sky
fees and printing and distribution expenses.
The Company will pay all transfer taxes, if any, applicable to the exchange
of the Outstanding Notes pursuant to the Exchange Offer. If, however,
certificates representing the Exchange Notes or the Outstanding Notes for the
principal amounts not tendered or accepted for exchange are to be delivered
to, or are to be issued
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<PAGE>
in the name of, any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange of the Outstanding Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered holder or
any other person) will be payable by the tendering holder.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes, as reflected in the Company's accounting records on the
date of the exchange. Accordingly, no gain or loss will be recognized by the
Company for accounting purposes. The costs of the Exchange Offer will be
expensed during the year in which they occur.
RESALES OF THE EXCHANGE NOTES
Based on an interpretation by the Staff of the Commission set forth in "no-
action" letters issued to third parties, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer to a holder in exchange
for Outstanding Notes may be offered for resale, resold and otherwise
transferred by such holder (other than (i) a broker-dealer who purchased
Outstanding Notes directly from the Company for resale pursuant to Rule 144A
or any other available exemption under the Securities Act, or (ii) a person
that is an affiliate of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such holder is
acquiring the Exchange Notes in the ordinary course of business and is not
participating, and has no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. The Company has not
requested or obtained an interpretive letter from the Staff of the Commission
with respect to this Exchange Offer, and the Company and the holders are not
entitled to rely on interpretive advice provided by the Staff to other
persons, which advice was based on the facts and conditions represented in
such letters. However, the Exchange Offer is being conducted in a manner
intended to be consistent with the facts and conditions represented in such
letters. If any holder acquires Exchange Notes in the Exchange Offer for the
purpose of distributing or participating in a distribution of the Exchange
Notes, such holder cannot rely on the position of the Staff of the Commission
enunciated in Exxon Capital Holdings Corporation (available April 13, 1989) or
similar "no-action" or interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with a secondary resale transaction, unless an exemption from
registration is otherwise available. Failure to comply with such requirements
in such instance could result in the undersigned or any such other person
incurring liability under the Securities Act for which such persons are not
indemnified by the Company.
As set forth above, affiliates of the Company are not entitled to rely on
the foregoing interpretations of the staff of the Commission with respect to
resales of the Exchange Notes without compliance with the registration and
prospectus delivery requirements of the Securities Act.
SHELF REGISTRATION STATEMENT
If the Company is not permitted to consummate the Exchange Offer because the
Exchange Offer is not permitted by any applicable law or applicable
interpretation of the Commission or the staff of the Commission, the Company
has agreed to file with the Commission and use its best efforts to have
declared effective and keep continuously effective for up to two years a
registration statement that would allow resales of Outstanding Notes.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Outstanding Notes are
urged to consult their financial and tax advisors in making their own decision
on what action to take.
The Company may in the future seek to acquire untendered Outstanding Notes
in open market or privately negotiated transactions, through subsequent
exchange offers or otherwise. The Company, however, has no present plans to
acquire any Outstanding Notes that are not tendered in the Exchange Offer or
to file a registration statement to permit resales of any untendered
Outstanding Notes.
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USE OF PROCEEDS
This Exchange Offer is intended to satisfy certain of the Company's
obligations under the Purchase Agreement and the Registration Rights Agreement
with respect to the Outstanding Notes. The Company will not receive any cash
proceeds from the issuance of the Exchange Notes offered hereby. In
consideration for issuing the Exchange Notes contemplated in this Prospectus,
the Company will receive Outstanding Notes in like principal amount, the form
and terms of which are substantially similar to the form and terms of the
Exchange Notes, except as otherwise described herein. The Outstanding Notes
surrendered in exchange for Exchange Notes will be retired and canceled and
cannot be reissued. Accordingly, issuance of the Exchange Notes will not
result in any increase or decrease in the indebtedness of the Company.
CAPITALIZATION
The following table sets forth as of December 31, 1997 (i) the actual cash
and cash equivalents and capitalization of the Company and (ii) the cash and
cash equivalents and capitalization of the Company on an adjusted basis to
give effect to the Initial Offering and the use of proceeds therefrom to repay
all the outstanding indebtedness under the Company's prior credit facility, as
if such transactions occurred on December 31, 1997.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------
HISTORICAL AS ADJUSTED
---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents(1)........................ $ 23,770 $ 40,403
======== ========
Total debt (including current maturities):
Debt payable to banks............................. $ 79,000 $ --
8 3/4% Senior Subordinated Notes due 2008......... -- 100,000
Other............................................. 3,336 3,336
-------- --------
Total debt(2)................................... 82,336 103,336
Minority interest................................... 19,372 19,372
Stockholders' equity:
Common Stock, 40,000,000 shares authorized;
19,306,267 shares issued and outstanding......... 193 193
Capital in excess of par value.................... 84,050 84,050
Accumulated earnings(3)........................... 7,821 4,618
-------- --------
Total stockholders' equity...................... 92,064 88,861
-------- --------
Total capitalization............................ $193,772 $211,569
======== ========
</TABLE>
- -----------------
(1) Includes $11.2 million attributable to the minority interests in
consolidated subsidiaries.
(2) Excludes availability of approximately $100.0 million under the Senior
Credit Facility, as if it existed at December 31, 1997.
(3) Reflects the Company's policy to expense estimated costs associated with
the Initial Offering and the Exchange Offer of approximately $3.2 million,
net of tax.
34
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OPERATING DATA
The selected data presented below under the captions "Statement of Income
Data" and "Balance Sheet Data" as of and for each of the years in the five-
year period ended December 31, 1997 are derived from the consolidated
financial statements of the Company, which financial statements have been
audited by KPMG Peat Marwick LLP, independent certified public accountants.
This information is qualified by reference to, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Company's consolidated financial statements
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues:
Lithotripsy...................... $ 7,309 $14,843 $22,153 $71,602 $93,113
Other............................ 13,259 9,925 1,042 802 2,866
------- ------- ------- ------- -------
Total revenues.................. 20,568 24,768 23,195 72,404 95,979
Costs and expenses:
Lithotripsy...................... 2,672 4,283 5,979 19,922 25,381
Other............................ 11,996 8,580 1,505 632 2,221
Corporate expenses............... 1,198 2,414 2,573 4,245 5,683
------- ------- ------- ------- -------
Total costs and expenses........ 15,866 15,277 10,057 24,799 33,285
Depreciation and amortization.... 1,818 2,975 3,195 8,422 9,911
------- ------- ------- ------- -------
Operating income................ 2,884 6,516 9,943 39,183 52,783
Interest expense................. 544 902 1,231 5,977 7,477
Other income (deductions)(1)..... 409 128 799 (2,706) 386
------- ------- ------- ------- -------
Income before income taxes and
minority interest............... 2,749 5,742 9,511 30,500 45,692
Provision for income taxes....... 210 547 886 1,996 5,795
Minority interest in consolidated
income.......................... -- 691 1,421 19,543 25,041
------- ------- ------- ------- -------
Net income...................... $ 2,539 $ 4,504 $ 7,204 $ 8,961 $14,856
======= ======= ======= ======= =======
Diluted earnings per share(2).... $ 0.21 $ 0.31 $ 0.48 $ 0.49 $ 0.76
Weighted average shares
outstanding (diluted basis)
(in thousands)(2)............... 11,991 14,323 15,350 18,638 19,461
OPERATING DATA:
Number of lithotripters at end of
period.......................... 5 13 23 55 61
Number of lithotripsy
procedures...................... 2,348 6,057 11,308 28,480 36,183
Approximate number of locations
served.......................... 26 90 160 400 450
OTHER DATA:
Capital expenditures(3).......... $ 406 $ 602 $ 473 $ 2,526 $ 4,546
Consolidated EBITDA(4)........... 4,702 9,491 13,138 47,605 62,334
Consolidated EBITDA margin(5).... 22.9% 38.3% 56.6% 65.7% 64.9%
Ratio of earnings to fixed
charges(6)...................... 6.1x 6.5x 7.3x 3.1x 4.4x
EBITDA(7)........................ $ 4,702 $ 8,733 $11,536 $25,652 $33,743
Ratio of EBITDA to interest
expense......................... 8.6x 9.7x 9.4x 4.3x 4.5x
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------
1993 1994 1995 1996 1997
------- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents(8)........ $ 1,634 $ 2,912 $ 4,692 $ 20,096 $ 23,770
Total assets........................ 38,768 53,861 77,627 202,534 225,826
Long-term debt (including current
maturities)........................ 3,590 15,228 25,366 81,432 82,336
Minority interest................... -- 178 623 18,735 19,372
Stockholders' equity................ 29,976 34,421 42,750 76,427 92,064
</TABLE>
- -----------------
(1) Includes immediate write-off of costs associated with offerings of debt
securities, the establishment of credit facilities and a canceled stock
offering of $3.5 million incurred during the second quarter of 1996 and
$360,000 incurred during the first quarter of 1997.
(2) The Company has restated all previous earnings per share data to comply
with Statement of Financial Accounting Standards No. 128 "Earnings per
Share," which became effective on a retroactive basis with the issuance of
December 31, 1997 earnings data.
(3) Excludes acquisitions of $14.8 million, $15.0 million, $70.1 million and
$20.2 million in the years 1994, 1995, 1996 and 1997, respectively. The
Company made no acquisitions in 1993.
(4) Consolidated EBITDA is defined as income before income taxes, minority
interest, interest expense, depreciation and amortization, and other non-
operating items for the Company and its consolidated subsidiaries.
Consolidated EBITDA is not intended to represent net income or cash flows
from operating activities in accordance with generally accepted accounting
principles and should not be considered a measure of the Company's
profitability or liquidity.
(5) Consolidated EBITDA margin is defined as the ratio of Consolidated EBITDA
to total revenues.
(6) The ratio of earnings to fixed charges is computed by dividing fixed
charges into income before income taxes (after consideration of minority
interests in consolidated subsidiaries which have no fixed charges) plus
fixed charges. Fixed charges consist of interest expense, including debt
issuance costs expensed.
(7) EBITDA is defined as Consolidated EBITDA for the Company, less EBITDA
attributable to minority interests in consolidated subsidiaries. EBITDA is
presented because it is a widely accepted financial indicator of a
company's ability to service debt. EBITDA is not intended to represent net
income or cash flows from operating activities in accordance with
generally accepted accounting principles and should not be considered a
measure of the Company's profitability or liquidity.
(8) Includes $11.2 million attributable to the minority interests in
consolidated subsidiaries as of December 31, 1997.
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
As of December 31, 1997, the Company had 61 lithotripter operations located
in 34 states, of which 18 were wholly-owned, 38 were owned by partnerships or
limited liability companies where the Company was general partner or managing
member, and five were managed by third parties. Of the Company's 61
lithotripsy operations on December 31, 1997, 52 were wholly-owned or
controlled by the Company and therefore fully consolidated in the Company's
results of operations with provisions for minority interests where
appropriate. Revenues from these fully consolidated operations consist of fees
charged to hospitals, patients and third-party payors for lithotripsy
services. The remaining nine lithotripters are accounted for using the equity
method. Revenues in these cases include management fees paid to the Company
and equity income from the Company's ownership interests. For the year ended
December 31, 1997, 91% of the Company's lithotripsy revenues were generated
from fees charged for lithotripsy services, 7% were derived from management
fees, and 2% were derived from equity income. See "--Significant Accounting
Policies."
The Company completed its exit from the diagnostic imaging business in 1994
and has also substantially reduced its cardiac rehabilitation business, which
accounted for approximately 1% of the Company's total revenues for the year
ended December 31, 1997.
The Company's rapid growth has resulted primarily from acquisitions of or
investments in businesses engaged in providing lithotripsy services. During
the period from April 1, 1992 to December 31, 1997, the Company completed 12
acquisitions involving 57 lithotripter operations and developed four new
lithotripter operations. The Company believes that the fragmented nature of
the lithotripsy industry and changing regulatory environment will result in
additional acquisition opportunities in the future. See "Prospectus Summary--
Recent Developments."
The following table outlines the growth in the Company's number of
lithotripters during the periods indicated:
<TABLE>
<CAPTION>
NUMBER OF LITHOTRIPTERS YEAR ENDED DECEMBER 31,
----------------------- -----------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
At beginning of period.......................... -- 1 5 13 23 55
Acquired........................................ 1 4 7 10 31 4
Developed....................................... -- -- 1 -- 1 2
At end of period................................ 1 5 13 23 55 61
</TABLE>
The Company has generally not experienced an increase in revenues per
lithotripter after its acquisitions as increases in lithotripsy procedures
have been offset by general industry-wide declines in rates charged per
procedure. However, the Company centralizes certain functions, such as managed
care contracting, vendor relations, maintenance and supply contracting and
accounting, resulting in increased operating efficiencies and profitability.
The Company provides lithotripsy services under three types of contracts.
Under a wholesale contract, the Company bills and collects from the hospital
or surgery center for lithotripsy services provided by the Company to
patients. Under a retail contract, the Company bills the patient or the
patient's third-party payor a combined fee, which includes all aspects of the
procedure, excluding the treating urologist's fee, and the Company then pays
the hospital or surgery center a percentage of the collected amount for its
services. Under a true-up contract, the Company bills and collects a
negotiated fee from the hospital or surgery center, which is then
retrospectively reviewed and adjusted based on the payments received by the
hospital or surgery center for the corresponding treatments. In recent years
the Company has increased the number of its retail contracts, which the
Company believes generally result in greater margins per procedure.
In September 1997, the Company acquired a 75% interest in AK Associates,
L.L.C. ("AK"), a provider of products and services for major medical
equipment, for $4.8 million plus an earn-out of up to $1.1 million. The
remaining 25% of AK is owned by certain members of AK management. For the
eight months ended August 31, 1997, the predecessor of AK recognized revenues
and EBITDA of approximately $3.5 million and $1.1 million, respectively. For
the four month period ending December 31, 1997, revenues from AK were $2.4
million. During
37
<PAGE>
October 1997, the Company began providing thermotherapy services for the
treatment of non-cancerous enlargement of the prostate. Neither the
thermotherapy services nor AK have significantly impacted earnings to date.
The Company had approximately $2.8 million of net operating loss carry-
forward as of December 31, 1996, which the Company fully utilized in early
1997. As a result of the utilization of the loss carry-forward, the Company's
effective federal tax rate in the years ended December 31, 1996 and 1997 was
18% and 28%, respectively, and earnings are expected to be fully taxed at a
combined federal and state tax rate of approximately 40% in 1998.
SIGNIFICANT ACCOUNTING POLICIES
The Company's consolidated financial statements include the accounts of its
wholly-owned subsidiaries, entities in which the Company has more than a 50%
ownership interest and entities where the Company has control, even though its
ownership interest is less than 50%. Investments in entities not controlled by
the Company in which the Company's ownership interest is less than 50% are
accounted for by the equity method if ownership is between 20%-50%, or by the
cost method if ownership is less than 20%.
The Company records as goodwill the excess of the purchase price over the
fair value of the net assets of acquired businesses. Goodwill is amortized
over a period not to exceed 40 years using the straight-line method. Goodwill
is reviewed for impairment whenever events or changes in circumstances
indicate that the carrying value may not be recoverable. If the sum of the
expected future undiscounted cash flows is less than the carrying value of the
goodwill, a loss is recognized for the difference between the fair value and
carrying value of the goodwill.
The Company immediately expenses the full amount of debt issuance costs
associated with offerings of its securities and the establishment of its
credit facilities, including the Senior Credit Facility, the Outstanding Notes
and the Exchange Notes offered hereby.
RESULTS OF OPERATIONS
The following table sets forth certain consolidated financial data as a
percentage of total net revenues (unless otherwise noted) for each of the
three years ended December 31, 1997.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
-------------------------
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Revenues:
Lithotripsy........................................ 95.5% 98.9% 97.0%
Other.............................................. 4.5 1.1 3.0
------- ------- -------
Total Revenues..................................... 100.0 100.0 100.0
------- ------- -------
Costs and expenses:
Lithotripsy as a percent of lithotripsy revenues... 27.0 27.8 27.3
Other as a percent of other revenues............... 144.4 78.8 77.5
Corporate expenses................................. 11.1 5.9 5.9
------- ------- -------
Total costs and expenses........................... 43.4 34.3 34.7
Depreciation and amortization...................... 13.8 10.3 10.3
------- ------- -------
Operating income................................... 42.9 55.5 55.0
Interest expense................................... (5.3) (8.3) (7.8)
Other income (deductions).......................... 3.4 (3.7) 0.4
------- ------- -------
Income before income taxes and minority interest... 41.0 43.5 47.6
Provision for income taxes.......................... 3.8 2.8 6.0
Minority interest in consolidated income............ 6.1 28.3 26.1
------- ------- -------
Net income.......................................... 31.1% 12.4% 15.5%
======= ======= =======
</TABLE>
38
<PAGE>
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
For the year ended December 31, 1997, total revenues increased $23,575,000
(33%) as compared to the same period in 1996. Revenues from lithotripter
operations increased by $21,511,000 primarily due to the acquisitions of (i)
one lithotripter entity that owned or managed 31 lithotripters throughout the
United States effective May 1996, (ii) additional interests in 10 partnerships
in January 1997, (iii) one lithotripter entity that owned two lithotripters
effective June 1997 and (iv) a 38.25% interest in a lithotripter unit
effective May 1997. Revenues from manufacturing were $2,358,000, related to
the acquisition of the trailer manufacturer on September 1, 1997. Revenues
from cardiac centers decreased $323,000 primarily due to the one sold cardiac
center.
For the year ended December 31, 1997, costs and expenses (excluding
depreciation and amortization) increased from 34% to 35% of revenues, and
increased $8,486,000 (34%) in absolute terms, compared to the same period in
1996. Costs of services associated with lithotripter operations increased
$5,459,000 (27%) in absolute terms primarily due to the acquisitions discussed
above, and decreased from 28% to 27% of lithotripter revenues. Expenses from
manufacturing were $1,743,000. Cost of services associated with cardiac
centers decreased $322,000 (51%) primarily due to the sale of one cardiac
center. Corporate expenses were 6% of revenues for both years as the Company
was able to successfully grow without proportionately adding overhead.
Corporate expenses increased $1,438,000 (34%) primarily due to the additional
corporate expenses associated with the acquisitions discussed above.
For the year ended December 31, 1997, other deductions decreased $1,592,000
primarily due to $3,535,000 in debt issuance and canceled stock offering costs
in 1996, compared to only $360,000 which were recorded in 1997, partially
offset by an increase in interest expense of $1,500,000 due to borrowings in
1997 related to the acquisitions discussed above.
Minority interest in consolidated income increased $5,498,000 primarily due
to the other ownership interest associated with 21 partnerships in which
Lithotripters, Inc. holds a controlling interest. The Company concluded the
Lithotripters, Inc. acquisition effective May 1, 1996.
Provision for income taxes increased $3,799,000 due to the increase in
income before income taxes partially offset by the Company fully utilizing its
net operating loss and other carryforwards in 1997, which resulted in a
reduction in the beginning of year valuation allowance of $2,399,000.
COMPARISON OF YEAR ENDED DECEMBER 31, 1996 TO YEAR ENDED DECEMBER 31, 1995
Total revenues increased $49,209,000 (212%) as compared to the same period
in 1995. Revenues from lithotripter operations increased by $49,449,000
primarily due to the acquisition of (i) an entity that owned or managed 31
lithotripters effective May 1, 1996 (ii) an entity that owned or managed eight
lithotripters effective October 1, 1995, and (iii) a 70% interest in an entity
that operated one lithotripter, as of July 1, 1995. In addition, the Company
acquired a 32.5% interest in an entity that operated one lithotripter in June
1995. Revenues from cardiac centers decreased $240,000 primarily due to four
discontinued/sold cardiac centers.
Costs and expenses (excluding depreciation and amortization) decreased from
43% to 34% of revenues, but increased $14,742,000 (147%) in absolute terms,
compared to the same period in 1995. Costs of services associated with
lithotripter operations increased $13,943,000 (233%) in absolute terms and
from 27% to 28% of lithotripter revenues primarily due to the acquisitions
discussed above. Cost of services associated with cardiac centers decreased
$873,000 (58%) primarily due to four discontinued/sold cardiac centers.
Corporate expenses decreased from 11% to 6% of revenues as the Company was
able to successfully grow without proportionately adding overhead. Corporate
expenses increased $1,672,000 (65%) primarily due to the additional corporate
expenses associated with the acquisition discussed above and the management
incentive plans tied to the performance of the Company.
Other deductions increased $8,251,000 primarily due to (i) the write-off of
$2,735,000 in fees paid to lenders to obtain financing, and $800,000 in fees
associated with a proposed stock offering that was canceled in August 1996 and
(ii) an increase in interest expense of $4,746,000 due to $74.0 million in new
borrowings in 1996 primarily for the Litho Acquisition, effective May 1, 1996.
39
<PAGE>
Minority interest in consolidated income increased $18,122,000 primarily due
to the minority interest associated with the 21 partnerships in which
Lithotripters, Inc. holds a controlling interest. The Company concluded the
Litho Acquisition effective May 1, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Cash was $23,770,000 and $20,096,000 at December 31, 1997 and December 31,
1996, respectively. Cash provided by operations was $51,693,000 for the year
ended December 31, 1997 and $41,602,000 for the year ended December 31, 1996.
The Company's subsidiaries generally distribute all of their available cash
quarterly, after establishing reserves for estimated capital expenditures and
working capital. For the years ended December 31, 1997 and 1996, the Company's
subsidiaries distributed cash of approximately $28,667,000 and $13,440,000,
respectively, to minority interest holders.
The following table details the capital expenditures for the periods
reflected:
<TABLE>
<CAPTION>
CAPITAL EXPENDITURES YEAR ENDED DECEMBER 31,
-------------------- -----------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Acquisitions.................................... $15,033 $70,129 $20,217
Other........................................... 473 2,526 4,546
------- ------- -------
Total.......................................... $15,506 $72,665 $24,763
======= ======= =======
</TABLE>
The Company's acquisitions have been funded by drawings under its bank
credit facilities, cash generated from operations and the issuance of shares
of its common stock.
Cash used in financing activities for the year ended December 31, 1997 was
$25,070,000, primarily due to distributions to minority interests of
$28,667,000 offset by net borrowings of $873,000, and contributions received
from minority interests of $2,381,000. Cash provided by financing activities
for the year ended December 31, 1996 was $45,572,000, which was primarily due
to $58,649,000 million in net borrowings under credit facilities, partially
offset by distributions to minority interests of $13,440,000.
The Company utilized the net proceeds from the sale of the Outstanding Notes
in the Initial Offering to repay all of the outstanding indebtedness under its
prior credit facility in the approximate aggregate amount of $77.0 million.
The balance of the net proceeds from the Initial Offering (approximately $19.0
million) has been used for general working capital purposes or is being held
in short-term investments. As of April 20, 1998, the Company replaced the
prior credit facility with the Senior Credit Facility. See "Description of
Other Indebtedness."
The Company is currently evaluating its alternatives in light of the
Proposed Stark Regulations. While the Company believes the changing regulatory
environment may benefit the Company by creating new lithotripsy acquisition
opportunities, the Company is reevaluating its historical model for providing
lithotripsy and thermotherapy services through operations which include
physician-investors and has delayed the organization of physician partnerships
that were in various stages of development.
The Company intends to increase the number of its lithotripsy operations
primarily through acquisitions. The Company believes that the fragmented
nature of the lithotripsy industry, combined with operational challenges
created by increasing regulatory and business complexities, including Stark
II, the Illegal Remuneration Statute and similar state laws, will provide
significant lithotripsy acquisition opportunities. Where appropriate, the
Company will seek to increase its ownership interest in current lithotripsy
operations by purchasing interests of urologists and other investors who
desire to divest due to concerns over regulatory issues, a desire to realize a
return on their investment or retirement. For the year ended December 31,
1997, EBITDA attributable to minority interests in the Company's subsidiaries
was approximately $28.6 million. In addition, upon the occurrence of changes
in the law that may adversely affect operations, the Company may be required
to purchase the interests of physician-investors for certain of the Company
Physician Entities, and the Company estimates that, as of December 31, 1997,
the aggregate potential cost of all such mandatory purchases would not exceed
$6.0 million. See "Prospectus Summary--Recent Deveopments."
40
<PAGE>
The Company intends to fund the purchase price for such acquisitions using
borrowings under the Senior Credit Facility, cash flow from operations and the
proceeds of the Outstanding Notes. In addition, the Company may use shares of
its common stock in such acquisitions where appropriate. However, there can be
no assurance that the Company will be able to consummate such acquisitions or
that acquisitions consummated will be or become profitable. See "Risk
Factors."
The Company has announced a stock repurchase program of up to $15.0 million
of common stock. As of April 21, 1998, the Company has repurchased 154,000
shares of common stock for a total aggregate consideration of approximately
$1.8 million. From time to time, the Company may purchase additional shares of
its common stock where, in the judgment of management, market valuations of
its stock do not accurately reflect the Company's past and projected results
of operations. The Company intends to fund any such purchases using available
cash, cash flow from operations and borrowings under the Senior Credit
Facility.
The Company's ability to make scheduled payments of principal of, or to pay
the interest or Liquidated Damages, if any, on, or to refinance, its
indebtedness (including the Notes), or to fund planned capital expenditures
will depend on its future performance, which, to a certain extent, is subject
to general economic, financial, competitive, legislative, regulatory and other
factors that are beyond its control. Based upon the current level of
operations and anticipated cost savings and revenue growth, management
believes that cash flow from operations and available cash, together with
available borrowings under the Senior Credit Facility, will be adequate to
meet the Company's future liquidity needs for at least the next several years.
The Company may, however, need to refinance all or a portion of the principal
of the Notes on or prior to maturity. There can be no assurance that the
Company's business will generate sufficient cash flow from operations, that
anticipated revenue growth and operating improvements will be realized or that
future borrowings will be available under the Senior Credit Facility in an
amount sufficient to enable the Company to service its indebtedness, including
the Notes, or to fund its other liquidity needs. In addition, there can be no
assurance that the Company will be able to effect any such refinancing on
commercially reasonable terms or at all. See "Risk Factors."
INFLATION
The assets of the Company are not affected by inflation because the Company
is not required to make large investments in fixed assets. However, the rate
of inflation will affect certain of the Company's expenses, such as employee
compensation and benefits.
YEAR 2000 COMPLIANCE
The Company is aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "year 2000 problem"
is pervasive and complex as virtually every computer operation will be
affected in some way by the rollover of the two digit year value to 00. The
issue is whether computer systems will properly recognize date sensitive
information when the year changes to 2000. Systems that do not properly
recognize such information could generate erroneous data or cause a system to
fail. The Company does not anticipate that it will incur significant operating
expenses or be required to invest heavily in computer systems improvements to
be year 2000 compliant. However, significant uncertainty exists concerning the
potential costs and effects associated with any year 2000 compliance. Any year
2000 compliance problem of either the Company or its vendors, third party
payors or customers could have a material adverse effect on the Company's
business, results of operations, financial condition and prospects.
41
<PAGE>
BUSINESS
THE COMPANY
The Company is the largest provider of lithotripsy services in the United
States. Lithotripsy is a non-invasive procedure for the treatment of kidney
stones, typically performed on an outpatient basis, that eliminates the need
for lengthy hospital stays and extensive recovery periods associated with
surgery. The Company has 62 lithotripters of which 55 are mobile and seven are
fixed site. The Company's lithotripters performed approximately 36,000, or
20%, of the estimated 180,000 lithotripsy procedures in the United States in
1997 through its network of approximately 450 hospitals and surgery centers in
34 states. Approximately 2,300 urologists utilized the Company's lithotripters
in 1997, representing 30% of the estimated 7,700 urologists in the U.S. Of
these physicians, approximately 1,150 also own minority interests in certain
of the Company's lithotripters. In addition, the Company has over 270
contracts with managed care organizations.
Lithotripters fragment kidney stones by use of extracorporeal shock wave
lithotripsy. The Company provides services related to the operation of the
lithotripters, including scheduling, staffing, training, quality assurance,
maintenance, regulatory compliance and contracting with payors, hospitals and
surgery centers. Medical care is rendered by the urologists utilizing the
lithotripters. Management believes that the Company has collected the
industry's largest and most comprehensive lithotripsy database, containing
detailed treatment and outcomes data on over 120,000 lithotripsy procedures.
The Company and its associated urologists utilize this database in seeking to
provide the highest quality of lithotripsy services as efficiently as
possible.
From 1992 through 1997, the Company completed 12 acquisitions involving 57
lithotripter operations and internally developed five new operations. Forty-
eight of the Company's 62 lithotripsy operations were formed by the Company's
current directors and managers prior to the Company's acquisition of such
operations. Since 1992, the Company has substantially divested its original
non-lithotripsy businesses. Lithotripsy revenues have grown from $4.3 million
in 1992 to $93.1 million in 1997, representing a compound annual growth rate
of approximately 85%. The Company had total revenues and EBITDA of
approximately $96.0 million and $33.7 million, respectively, for the year
ended December 31, 1997.
INDUSTRY OVERVIEW
Kidney stones develop from crystals made up primarily of calcium which
separate from urine and build up on the inner surfaces of the kidney. The
exact cause of kidney stone formation is unclear, and there is no known
preventative cure in the vast majority of cases. Approximately 25% of all
kidney stones do not pass spontaneously and therefore require medical or
surgical treatment. Kidney stone treatments used by urologists include
lithotripsy, drug therapy, endoscopic extraction or open surgery. While the
nature and location of a kidney stone impacts the choice of treatment, the
Company believes the majority of all kidney stones that require treatment are
treated with lithotripsy because it is non-invasive, typically requires no
general anesthesia, and rarely requires hospital stays. After fragmentation by
lithotripsy, the resulting kidney stone fragments pass out of the body
naturally. Recovery from the procedure is usually a matter of hours. The
Company believes the incidence of kidney stone disease is growing in the
United States due to overall growth in the population, the increase in the
population of males ages 45-64 years old who experience kidney stones most
frequently, and the increasing population in the southern U.S. where kidney
stones are most prevalent.
The market for lithotripsy services is highly fragmented and is comprised of
independent service providers (like the Company), hospitals and small
physician affiliated partnerships. While the Company operates approximately
17% of the estimated 350 lithotripters currently in use in the United States,
the Company believes that the next six largest lithotripsy service companies
collectively account for approximately 21% of the country's lithotripters. A
substantial percentage of all remaining lithotripters currently in operation
are owned through partnerships comprised of professional managers and groups
of urologists serving specific geographic markets.
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KIDNEY STONE DISEASE
The exact cause of kidney stone formation is unclear, although it has been
attributed to genetics, diet, climate, metabolism and certain medications.
While certain life-style and diet modifications may decrease the incidence of
kidney stones, there is no known preventative cure in the vast majority of
cases. Approximately 25% of all kidney stones do not pass spontaneously and
therefore require medical or surgical treatment. These patients suffer from
extreme pain and, without treatment, may develop serious adverse health
consequences that, in extreme cases, may lead to renal failure, loss of a
kidney or even death. However, through the use of pain medication and other
techniques, treatment can be postponed in nearly all cases for several weeks
without adverse consequences.
Kidney stone disease is most prevalent in the southern United States. Men
are afflicted with kidney stones more than twice as frequently as women, with
the highest incidence occurring in men 45 to 64 years of age.
TREATMENT METHODS
A number of kidney stone treatments are used by urologists ranging from non-
invasive procedures, such as drug therapy or lithotripsy, to invasive
procedures, such as endoscopic extraction or open surgery. The type of
treatment a urologist chooses depends on a number of factors, such as the size
and chemical make-up of the stone, the stone's location in the urinary system
and whether the stone is contributing to other urinary complications such as
blockage or infection.
Certain types of less common kidney stones may be dissolved by drugs which
allow normal passage from the urinary system. Stones located in certain areas
of the urinary tract may be extracted endoscopically. These procedures
commonly require general or local anesthesia and can injure the involved areas
of the urinary tract. Frequently, kidney stones are located where they are not
accessible by an endoscopic procedure. Prior to the development of
lithotripsy, stones lodged in the upper urinary tract were often treated by
open surgery or percutaneous stone removal, both major operations requiring an
incision to gain access to the stone. After such procedures, the patient
typically spends several days in the hospital followed by a convalescence
period of three to six weeks. As the technology for treating kidney stones has
improved, there has been a shift from more expensive and complicated invasive
procedures to safer, more cost efficient and less painful non-invasive
procedures, such as lithotripsy.
EXTRACORPOREAL SHOCK WAVE LITHOTRIPSY
General. The lithotripter has dramatically changed the course of kidney
stone disease treatment since lithotripsy is normally performed on an
outpatient basis, often without general anesthesia. Recovery times are
generally only a few hours, and most patients can return to work the next day.
There are three basic types of lithotripsy treatment currently available:
electromagnetic, spark-gap and piezoelectric. A decision regarding which type
is used in any instance may depend on several factors, among which are the
treating physician's preferences, treatment times, stone location, and
anesthesia considerations. The Company has 40 electromagnetic machines, 20
spark-gap machines and one piezoelectric machine.
Electromagnetic Technology. Most new lithotripters utilize an
electromagnetic shock wave component that eliminates the need for disposable
electrodes. The use of lithotripters employing electromagnetic technology
allows for more precise focusing of shock wave energy and more predictable
energy delivery than other lithotripsy technologies, which eliminates the need
for anesthesia in most cases. Utilization of systems employing electromagnetic
technology usually results in fragmentation of the kidney stone in between 60
and 90 minutes.
Spark Gap Technology. With these lithotripsy systems, shock waves generated
by a disposable high-voltage spark electrode are focused on a kidney stone.
Utilization of systems employing spark gap technology usually results in
fragmentation of the kidney stone in less than 60 minutes. The use of spark-
gap technology often requires the administration of sedatives or intravenous
anesthesia care and in some cases requires general anesthesia.
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Piezoelectric Technology. Lithotripters applying piezoelectric technology
focus shock waves on the kidney stone using a linear array of ceramic
elements. This technology has not been widely adopted, and there are only a
few lithotripters utilizing piezoelectric technology operating in the United
States.
BUSINESS STRATEGY
The Company's objective is to become the leading provider of medical related
services to urologists in the United States. The Company believes that its
reputation and position as the leading provider of lithotripsy services has
allowed it to establish strong relationships with physicians, equipment
manufacturers, managed care organizations and hospital groups which have
strategically positioned it to grow through the introduction of additional
services to the urological community. The Company has consistently pursued a
policy of growth through acquisitions since it entered the lithotripsy
business in 1992 and believes its acquisition experience and ability to
leverage its existing infrastructure will allow it to continue to take
advantage of future acquisition opportunities. The primary components of the
Company's business strategy are as follows:
GROWTH THROUGH ACQUISITIONS.
The Company intends to continue to aggressively pursue acquisitions of both
large and small lithotripsy service providers. Since October 1995 the Company
has acquired two of the three other largest lithotripsy service companies in
the United States, and since 1992 the Company has made 12 acquisitions
representing a total of 57 lithotripters. The Company believes that the
fragmented nature of the lithotripsy industry, combined with operational
challenges created by increasing regulatory and business complexities,
including Stark II, the Illegal Remuneration Statute and similar state laws,
will provide it with significant lithotripsy acquisition opportunities. The
Company believes that it is viewed as the preferred acquirer of physician-
owned lithotripters because of its focus on the needs of the urological
community and its reputation for providing quality service.
PROVIDE SUPERIOR SERVICE.
The Company seeks to provide the highest level of service possible to its
customers. This includes consistently providing: (i) high quality lithotripter
facilities, properly staffed with trained personnel; (ii) convenient
scheduling for hospitals and physicians; (iii) proper billing; and (iv)
contracting with managed care entities. In addition, the Company offers
services not typically provided in the industry including physician training,
regulatory compliance, quality assurance and the Company's proprietary
outcomes database. Management believes that providing superior service will
enable the Company to maintain its existing relationships with hospitals and
urologists and attract new relationships.
MAINTAIN STATE OF THE ART EQUIPMENT.
The Company has a policy of routine maintenance and periodic upgrades to its
lithotripters, which both ensures consistent quality service and maintains its
reputation with hospitals and urologists as the leading provider of
lithotripsy services. During 1996 and 1997, the Company spent approximately $2
million on a system wide upgrade of substantially all of its 40
electromagnetic lithotripters, which improved performance and decreased
average treatment time by up to 30%. This benefited patients by shortening
treatment times and benefited hospitals, attending urologists and the Company
by effectively increasing capacity.
LEVERAGE RELATIONSHIPS WITH UROLOGISTS.
The Company currently provides services to approximately 30% of the
estimated 7,700 urologists in the United States and seeks to maintain close
relationships with the medical community through its network of local
physician advisory boards. The Company believes that it can utilize these
relationships and its management expertise to develop new opportunities
resulting from technological and other advances in affiliated urology
businesses, including new therapeutic services relating to prostate disease
and other urological disorders. As an example, in October 1997, the Company
began providing thermotherapy services for the treatment of non-cancerous
enlargement of the prostate through a mobile service operation located in
North Carolina.
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ACQUISITIONS
The Company's rapid growth has resulted primarily from acquisitions of or
investments in businesses engaged in providing lithotripsy services. During
the period from April 1, 1992 to December 31, 1997, the Company completed 12
acquisitions involving 57 lithotripter operations and developed four
operations. The Company's growth strategy has historically focused on the
acquisition of profitable and well managed lithotripsy operations. The Company
believes that the fragmented nature of the lithotripsy industry and the
changing regulatory environment, including Stark II, the Illegal Remuneration
Statute and similar state laws, will likely result in future acquisition
opportunities.
Because its operations are spread over 34 states and given the importance of
maintaining positive relationships with local urologists and hospitals, the
Company generally retains local management and related functions where no
clear economies of scale exist. However, certain functions, such as managed
care contracting, vendor relations, maintenance and supply contracting, and
accounting, have been centralized where obvious benefits have been identified.
Furthermore, the Company has implemented a regional management structure
whereby a senior manager oversees all related business functions in each of
the Company's four geographic service areas, enhancing oversight, operating
efficiencies and profitability.
LITHOTRIPSY OPERATIONS
The Company manages the operation of 57 of its 62 lithotripters and the
remaining five are operated by certain of the founding physician-investors in
these operations. All of its lithotripters are operated in connection with
hospitals or surgery centers. The Company operates its lithotripters either as
the general partner or managing member of a limited partnership or limited
liability company, or through a wholly-owned subsidiary. The Company provides
a full range of management and other non-medical support services to the
lithotripsy operations, while medical care is provided by urologists utilizing
the facilities and certain medical support services are provided by the
hospital or surgery center. Urologists are investors in 44 of the 62
operations. See "Government Regulation and Supervision."
MANAGEMENT SERVICES
In general, the Company provides turn-key management services to its
lithotripsy operations, including the following:
. routing and scheduling of mobile lithotripters;
. centralized patient scheduling;
. pre-procedure insurance verification and post procedure billing and
collection;
. arranging for the hiring, training and continuing education of
lithotripsy nurses and radiology technicians;
. negotiating contracts with hospitals, surgery centers and all types of
payors;
. monitoring regulatory, legal and legislative issues affecting operations
and arranging Certificate of Need preparation, testimony and support;
. performing satisfaction surveys with hospitals, physicians and patients;
. providing patient education materials;
. arranging for consultation services from leading lithotripsy experts to
treating physicians via a toll free telephone number;
. as necessary, providing for the training and certification of urologists
in the use of lithotripters;
. maintaining the Company's proprietary outcomes database; and
. providing quality assurance, utilization review and continuing medical
education for hospitals and physicians.
The breadth of these services greatly differentiates the Company from its
competitors and helps to strengthen relationships with urologists, hospitals
and managed care providers.
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LITHOTRIPSY FACILITIES
The Company currently outsources its equipment maintenance needs and has not
experienced significant interruptions in operations. In addition, the Company
continues to upgrade its lithotripters as technological advances are developed
and proven to enhance the quality of care and increase efficiency in
operations. The Company's recent upgrades to its electromagnetic lithotripters
allow for use of higher energy levels reducing the usual treatment time by up
to 30% which has significantly increased capacity on these machines. The
Company does not anticipate that any of its existing machines will need to be
replaced or will become obsolete in the foreseeable future.
Mobile Lithotripsy. Of the Company's 62 lithotripters, 55 are mobile units
mounted in tractor-trailers or self-contained coaches serving locations in 34
states. The typical cost of a mobile lithotripter (including the coach) can
range from $400,000 to $1,200,000. Mobile lithotripsy services are widely
accepted and are utilized by most physicians, hospitals and patients. The
increased convenience of bringing the mobile unit to the physician and patient
has greatly enhanced the use of lithotripsy over alternative invasive
treatment methods. In addition, few hospitals in the United States have the
patient volume to justify the purchase and operation of an in-house system.
Typically, a mobile unit will have a scheduled route of stops, visiting each
hospital or surgery center from one to eight times per month. Most lithotripsy
patients can delay the need for immediate treatment through the use of pain
medication and can be scheduled to have their procedure in a timely manner
without risk. In some locations, the Company has developed a flexible schedule
that allows units to move between locations more than once per day, providing
for greater flexibility to accommodate both physicians and patients.
Fixed Site Lithotripsy. The Company also operates seven fixed site
lithotripters in six states. All of the Company's fixed lithotripsy units are
located and operated in conjunction with a hospital or surgery center. Most of
these locations are in major metropolitan markets where the population can
support such an operation. Fixed site lithotripters generally cannot be
economically justified in other locations.
PROPRIETARY OUTCOMES DATABASE
The Company believes that it maintains the most comprehensive quality
outcomes database and information system in the lithotripsy services industry.
The Company has detailed information on over 120,000 procedures covering
patient demographic information and medical condition prior to treatment, the
clinical and technical parameters of the procedure and resulting outcomes.
Information is collected before, during and up to three months after the
procedure through internal data collection by doctors, nurses and technicians
and through patient questionnaires. Because consistency is a key factor in
organizing and evaluating this data, it is collected at a centralized location
which disperses results to management and affiliated urologists on a regular
basis.
This information benefits the physician and patient by giving them
comparable information that helps to establish standard treatments and improve
the quality of their care. Hospitals value the availability of clinical and
regulatory information which improves the effectiveness of their quality
assurance programs. Consequently, the Company is able to strengthen its
relationships with referring physicians and hospitals and become more
efficient in its contract negotiations with both hospitals and managed care
organizations.
PHYSICIAN RELATIONS AND MARKETING
Of the 2,300 urologists which utilized the Company's lithotripters in 1997,
approximately 1,150 have invested in 44 of the Company's 62 lithotripsy
operations. The Company markets its services to urologists by providing (i)
top quality, well-maintained facilities and equipment, (ii) well-trained
lithotripsy nurses and radiology technicians, (iii) professional management
and a full range of support services and (iv) convenient scheduling, all of
which enable the urologists to focus on the practice of medicine. The Company
believes that its reputation and management experience, as well as "word-of-
mouth" marketing from urologists currently utilizing its facilities, also play
a significant role in attracting and retaining urologists.
In all of its operations, the Company seeks to maintain strong relationships
with its referring physicians. In most locations, the Company has established
local physician advisory boards that meet periodically to discuss
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the provision and quality of services, financial performance and other factors
with management that may impact operations.
CONTRACTS FOR LITHOTRIPSY SERVICES
The Company contracts for its lithotripsy services with hospitals and
surgery centers for utilization by urologists practicing at these facilities.
The Company markets to such facilities by providing well-maintained and
conveniently scheduled equipment for the use of the facility's doctors and
patients and by providing a full range of administrative and support services
that enable the facility to provide higher quality and more efficient care.
The Company believes that its reputation and management experience, together
with input from urologists who wish to utilize the Company's facilities, also
provide significant incentives for hospitals and surgery centers to contract
with the Company.
The Company's service agreements, which generally have initial terms of one
to five years with automatic renewal provisions, provide for the three basic
types of billing arrangements described below. Because approximately 47% of
the Company's billings are directly to hospitals or surgery centers, the
Company has historically recorded a rate of collection and days sales
outstanding of receivables that is more favorable than those typically
associated with other segments of the healthcare industry. In all instances,
urologists who perform lithotripsy procedures bill separately for their
professional fees.
WHOLESALE CONTRACTS
Under a wholesale contract, the Company bills and collects from the hospital
or surgery center for lithotripsy services provided by the Company to
patients. The rates charged under these arrangements vary and may be based on
the number of procedures performed in a specific period or may be based on
different rates depending on whether the patient is covered by private
insurance or government payment plans or is a private pay patient. The
hospital or surgery center is responsible for billing and collecting from the
patient or third-party payor directly. Approximately 42% of the Company's fee
revenue comes from wholesale contracts.
RETAIL CONTRACTS
Under a retail contract, the Company bills the patient or the patient's
third-party payor a combined fee, which includes all aspects of the procedure,
excluding the treating urologist's fee. The Company then pays the hospital or
surgery center a percentage of the collected amount for its services.
Contracts of this type are advantageous to the Company because they provide it
with considerable market feedback concerning reimbursement rates, which the
Company utilizes when negotiating with hospitals, surgery centers and managed
care organizations. Approximately 53% of the Company's fee revenue comes from
retail contracts.
TRUE-UP CONTRACTS
Under a true-up contract, the Company bills and collects a negotiated fee
from the hospital or surgery center, which is then retrospectively reviewed
and adjusted based on the payments received by the hospital or surgery center
for the corresponding treatments. The hospital or surgery center is
responsible for billing and collecting from the patient or third-party payor
directly, which forms the basis for any true-up. Approximately 5% of the
Company's fee revenue comes from true-up contracts.
COMPETITION
The market to provide lithotripsy services is highly fragmented and
competitive. The Company competes with other private facilities and medical
centers that offer lithotripsy services and with hospitals, clinics and
individual medical practitioners that offer conventional medical treatment for
kidney stones. Certain of the Company's current and potential competitors have
substantially greater financial resources than the Company and may compete
with the Company for acquisitions and development of operations in markets
targeted by the Company. A decrease in the purchase price of lithotripters as
a result of the development of less expensive lithotripsy equipment could
decrease the Company's competitive advantage. Most of the Company's
lithotripsy services agreements have matured past their initial terms and are
now in annual renewal terms or are on a month-
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to-month basis. Another significant provider of lithotripsy services is also a
manufacturer of lithotripsy equipment, which may create different incentives
for such provider in pricing lithotripsy services. Moreover, while the Company
believes that lithotripsy has emerged as the superior treatment for kidney
stone disease, the Company competes with alternative kidney stone disease
treatments. See "Business--Industry Overview" and "Risk Factors--Competition."
NEW LINES OF BUSINESS
In September 1997, the Company, through its acquisition of a 75% interest in
AK, began providing manufacturing services and installation, upgrade,
refurbishment and repair of major medical equipment for mobile medical
services providers. This acquisition increases the Company's ability to ensure
access to quality mobile medical facilities, and refurbishment of its
currently owned facilities, at competitive prices. The acquisition also allows
the Company to explore the market for providing products and services for
major medical equipment manufacturers. The Company did not receive significant
revenues from AK during 1997.
In October 1997, the Company began providing thermotherapy services for the
treatment of benign prostatic hyperplasia ("BPH"). BPH is the non-cancerous
enlargement of the prostate, a condition common in men over age 60.
Thermotherapy uses microwaves to apply heat to the prostate, resulting in
relief of the symptoms of BPH without damaging surrounding tissues.
Thermotherapy relieves the symptoms of BPH without incurring the risks of
complications often associated with surgery and more invasive procedures. The
Company operates one mobile thermotherapy device servicing hospitals and
surgery centers in eastern North Carolina, and has been granted an
unrestricted license to provide thermotherapy services with a second mobile
system in southern California. The Company intends to evaluate the success of
its thermotherapy operations and may expand such operations in the future. The
Company did not receive significant revenues from this activity during 1997.
The Company also is evaluating business opportunities involving physician
practice management services. Management believes that the skills and
expertise required to manage its lithotripsy business are very similar to
those required for the management of physician practices.
GOVERNMENT REGULATION AND SUPERVISION
The Company is subject to extensive regulation by both the federal
government and the states in which the Company conducts its business. The
Company is subject to the Illegal Remuneration Statute, which imposes civil
and criminal sanctions on persons who solicit, offer, receive or pay any
remuneration, directly or indirectly, for referring, or arranging for the
referral of, a patient for treatment that is paid for in whole or in part by
Medicare, Medicaid or similar government programs. The federal government has
published regulations that provide exceptions or a "safe harbor" for certain
business transactions. Transactions that are structured within the safe
harbors are deemed not to violate the Illegal Remuneration Statute.
Transactions that do not satisfy all elements of a relevant safe harbor do not
necessarily violate the Illegal Remuneration Statute, but may be subject to
greater scrutiny by enforcement agencies. The arrangements between the Company
and the partnerships and other entities in which it owns an indirect interest
and through which the Company provides most of its lithotripsy services (and
the corresponding arrangements between such partnerships and other entities
and the treating physicians who own interests therein and who use the
lithotripsy facilities owned by such partnerships and other entities) could
potentially be questioned under the illegal remuneration prohibition and may
not fall within the protection afforded by these safe harbors. Many states
also have laws similar to the Federal Illegal Remuneration Statute. While
failure to fall within the safe harbors may subject the Company to scrutiny
under the Illegal Remuneration Statute, such failure does not constitute a
violation of the Illegal Remuneration Statute. Nevertheless, these illegal
remuneration laws, as applied to activities and relationships similar to those
of the Company, have been subjected to limited judicial and regulatory
interpretation, and the Company has not obtained or applied for any opinion of
any regulatory or judicial authority that its business operations and
affiliations are in compliance with these laws. Therefore, no assurances can
be given that the Company's activities will be found to be in compliance with
these laws if scrutinized by such authorities.
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In addition to the Illegal Remuneration Statute, Stark II imposes certain
restrictions upon referring physicians and providers of certain designated
health services under the Government Programs. Subject to certain exceptions,
Stark II provides that if a physician (or a family member of a physician) has
a financial relationship with an entity: (i) the physician may not make a
referral to the entity for the furnishing of designated health services
reimbursable under the Government Programs; and (ii) the entity may not bill
Government Programs, any individual or any third-party payor for designated
health services furnished pursuant to a prohibited referral. The prohibitions
of Stark II only apply to the treatment of Government Program patients, and
have no application to services performed for non-government program patients.
Entities and physicians committing an act in violation of Stark II will be
required to refund amounts collected in violation of the statute and also are
subject to civil money penalties and exclusion from the Government Programs.
Of the Company's lithotripsy revenues for the year ended December 31, 1997,
77% were attributable to affiliates of the Company having referring physician-
investors. Urologists are investors in 44 of the Company's 62 lithotripsy
operations, and the two Company affiliates engaged in thermotherapy services
have referring physician-investors.
Many key terms in Stark II are not adequately defined and the statute is
silent regarding its application to vendors, such as the Company Physician
Entities, contracting "under arrangements" with hospitals for the provision of
outpatient services. Since the passage of Stark II, the Company, interpreted
Stark II consistent with the informal view of the General Counsel for Health
and Human Services, and concluded that the statute did not apply to its method
of conducting business. Based upon a reasonable interpretation of Stark II, by
referring a patient to a hospital furnishing the outpatient lithotripsy or
thermotherapy services "under arrangements" with the Company Physician Entity,
a physician investor in a Company Physician Entity is not making a referral to
an entity (the hospital) in which they have an ownership interest.
On January 9, 1998, the federal government published the Proposed Stark
Regulations. By clarifying certain ambiguities and defining certain statutory
terms, the Proposed Stark Regulations and accompanying commentary apply the
physician referral prohibitions of Stark II to the Company Physician Entities'
practice of contracting "under arrangements" with hospitals for treatment and
billing of Government Program patients. Only hospitals can bill the Government
Programs for lithotripsy and thermotherapy services; thus contracting under
arrangements with hospitals was the way the Company Physician Entities
economically participated in the treatment of Government Program patients.
Absent a restructuring of traditional operations, to comply with the
government's interpretation of Stark II, the physician-investors will be
prohibited from referring Government Program patients to the hospitals
contracting with the Company Physician Entities. The Company cannot predict
when final Stark II regulations will be issued or the substance of the final
regulations, but the interpretive provisions of the Proposed Stark Regulations
may be viewed as the federal government's interim enforcement position until
final regulations are issued. Restructuring traditional operations may reduce
Company revenues and limit future growth by (i) reducing or eliminating
revenues attributable to the treatment of Government Program patients by
Company Physician Entities, (ii) reducing revenues from the treatment of non-
government patients by Company Physician Entities due to physician, hospital
and third-party payor anxiety and concern created by the Proposed Stark
Regulations, (iii) requiring the Company Physician Entities to restructure
their operations to comply with Stark II and the Proposed Stark Regulations,
(iv) restricting the acquisition or development of additional lithotripsy or
thermotherapy operations that will both treat Government Program patients and
have referring physician-investors, (v) impairing the Company's relationship
with urologists and (vi) otherwise materially adversely impacting the Company.
In addition, upon the occurrence of changes in the law that may adversely
affect operations, the Company is required to purchase the interests of
physician-investors for certain of the Company Physician Entities. These
mandatory purchase obligations require the payment by the Company of a
multiple of earnings similar to multiples used by the Company in pricing the
original acquisition of such interests. The Company estimates that, as of
December 31, 1997, the aggregate potential cost of all such mandatory
purchases would not exceed $6 million. To the extent the Company is required
to purchase such interests, such purchases might cause a default under the
terms of the Company's Senior Credit Facility, impair the Company's
relationship with urologists and otherwise have a material adverse impact on
the Company. Regulatory developments, such as Stark II, might
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also dictate that the Company purchase all the interests of its physician-
investors, regardless of any contractual requirements to do so, or
substantially alter its business and operations to remain in compliance with
applicable laws. Accordingly, there can be no assurance that the Company will
not be required to change its business practices or its investment
relationships with urologists or that the Company will not experience a
material adverse effect as a result of any challenge made by a federal or
state regulatory agency. In addition, there can be no assurance that
physician-investors who, voluntarily or otherwise, divest of their interests
in Company Physician Entities will continue to refer patients at the same rate
or at all. See "Business--Lithotripsy Operations," "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources," and "Description of Other Indebtedness."
Many states currently have laws similar to Stark II that restrict a
physician with a financial relationship with an entity from referring patients
to that entity. Often these laws contain statutory exceptions for
circumstances where the referring physician, or a member of his practice
group, treats their own patients. States also commonly require physicians to
disclose to patients their financial relationship with an entity. The Company
believes that it is in material compliance with these state laws.
Nevertheless, these state self-referral laws, as applied to activities and
relationships similar to those of the Company, have been subjected to limited
judicial and regulatory interpretation, and the Company has not obtained or
applied for any opinion of any regulatory or judicial authority that its
business operations and affiliations are in compliance with these laws.
Therefore, no assurances can be given that the Company's activities will be
found to be in compliance with these laws if scrutinized by such authorities.
Some states require approval, usually in the form of a certificate of need
("CON"), prior to the purchase of major medical equipment exceeding a
predesignated capital expenditure threshold or for the commencement of certain
clinical health services. Such approval is generally based upon the
anticipated utilization of the service and the projected need for the service
in the relevant geographical area of the state where the service is to be
provided. CON laws differ in many respects, and not every state's CON law
applies to the Company. Most of the Company's operations originated in states
which did not require a CON for lithotripsy services, and the Company has
obtained a CON in states where one is required. Some states also require
registration of lithotripters with the state agency which administers its CON
program. Such registration is not subject to any required approval, but rather
is an administrative matter imposed so that the state will be aware of all
existing clinical health services. The Company registers in those states which
require these filings.
All states in which the Company operates require registration of the
fluoroscopic x-ray tubes which are utilized to locate the kidney stones
treated with the Company's lithotripters. The registration requirements are
imposed in order to facilitate periodic inspection of the fluoroscopic tubes.
Some states have regulations that require facilities such as mobile
lithotripters to be licensed and to have appropriate emergency care resources
and qualified staff meeting the stated educational and experience criteria.
The Company's lithotripsy equipment is subject to regulation by the U.S. Food
& Drug Administration, and the motor vehicles utilized to transport the
Company's mobile lithotripsy equipment are subject to safety regulation by the
U.S. Department of Transportation and the states in which the Company conducts
its mobile lithotripsy business. The Company believes that it is in material
compliance with these regulations.
Except as provided herein, the Company believes it complies in all material
respects with the foregoing laws and regulations, and all other applicable
regulatory requirements; however, these laws are complex and have been broadly
construed by courts and enforcement agencies. Thus, there can be no assurance
that the Company will not be required to change its practices or its
relationships with treating physicians who are investors in the Company
Physician Entities, or that the Company will not experience material adverse
effects as a result of any investigations or enforcement actions by a federal
or state regulatory agency. Further, the Company acknowledges that the
Proposed Stark Regulations apply the physician referral prohibitions of Stark
II to the Company Physician Entities' practice of contracting under
arrangements with hospitals for the treatment and billing of Medicare and
Medicaid patients. As a consequence, the Company Physician Entities will have
to restructure or modify their business practices in order to comply with the
Stark II statute as interpreted by the Proposed Stark Regulations.
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A number of proposals for healthcare reform have been made in recent years,
some of which have included radical changes in the healthcare system. Health
care reform could result in material changes in the financing and regulation
of the healthcare business, and the Company is unable to predict the effect of
such changes on its future operations. It is uncertain what legislation on
healthcare reform, if any, will ultimately be implemented or whether other
changes in the administration or interpretation of governmental healthcare
programs will occur. There can be no assurance that future healthcare
legislation or other changes in the administration or interpretation of
governmental healthcare programs will not have a material adverse effect on
the results of operations of the Company.
REGULATORY BUSINESS CONSIDERATIONS
The Company is currently evaluating its alternatives in light of the
Proposed Stark Regulations. While these regulations may have a material
adverse effect on the Company, the Company believes the changing regulatory
environment may benefit the Company by creating new lithotripsy acquisition
opportunities at attractive prices and by creating opportunities for the
Company to pursue physician practice acquisitions and practice management
services.
The Proposed Stark Regulations may create acquisition opportunities with
respect to both non-affiliated physician owned operations and the interests of
physician-investors in the Company Physician Entities. Additionally, the
regulatory restrictions could lessen competition from treating physicians who
might otherwise seek to acquire their own lithotripsy facilities. However, due
to the Proposed Stark Regulations, the Company is reevaluating its historical
model for providing lithotripsy and thermotherapy services through operations
which include physician-investors and has delayed the organization of
physician partnerships that were in various stages of development.
The Proposed Stark Regulations contain certain exceptions for large
integrated physician practice groups and the Company is evaluating
opportunities to develop and expand working relationships with such groups. In
addition, the Company will continue to evaluate opportunities to provide
lithotripsy and thermotherapy services through operations that do not involve
physician-investors. If the Proposed Stark Regulations are not enacted, or are
enacted in a form which allows for the interests of referring physician-
investors, the Company will continue to develop and acquire new lithotripsy
and thermotherapy operations in partnership with urologists.
LEGAL PROCEEDINGS
From time to time, the Company may be named as a party to litigation
proceedings incidental to its business. The Company does not believe the
outcome of any such litigation is likely to have a material adverse effect on
its business, financial condition or results of operations.
PROPERTIES
The Company leases approximately 5,575 square feet of office space for its
executive offices in Austin, Texas, under a lease expiring in 1999 and
approximately 11,000 square feet of office space in Fayetteville, North
Carolina, under two leases expiring in 2001. The Company believes its
facilities are adequate for its reasonably foreseeable needs. The Company
leases approximately 24,000 square feet of manufacturing and office space for
AK under a lease expiring in 2000.
EMPLOYEES
The Company has approximately 330 employees. None of these employees are
subject to a collective bargaining agreement and the Company has experienced
no work stoppages. The Company believes that its employee relations are good.
51
<PAGE>
MANAGEMENT
The following table sets forth certain information regarding the Company's
directors and executive officers including their respective ages, as of April
29, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Kenneth S. Shifrin............ 49 Chairman of the Board
Joseph Jenkins, M.D., J.D. ... 50 President, Chief Executive Officer and
Director
Michael Madler................ 39 Sr. Vice President--Operations
Dan Myers, M.D. .............. 49 Sr. Vice President--Development
Cheryl Williams............... 46 Chief Financial Officer, Vice President--
Finance and Secretary
Stan D. Johnson............... 44 Vice President
Paul R. Butrus................ 57 Director
William E. Foree, M.D. ....... 66 Director
Irwin Katz.................... 78 Director
John A. McEntire.............. 36 Director
William A. Searles............ 55 Director
Michael J. Spalding, M.D. .... 57 Director
</TABLE>
Mr. Shifrin has been Chairman of the Board and a director of the Company
since October 1989. In addition, Mr. Shifrin has served in various capacities
with APS since February 1985, and is currently Chairman of the Board and Chief
Executive Officer of APS.
Dr. Jenkins has been President and Chief Executive Officer and a director of
the Company since April 1996. From May 1990 until December 1991, Dr. Jenkins
was a Vice President of Lithotripters, Inc. Since January 1992, Dr. Jenkins
has been President of Lithotripters, Inc. Dr. Jenkins is a board certified
urologist and is a founding member, a past president and currently a director
of the American Lithotripsy Society.
Mr. Madler has been Sr. Vice President--Operations of the Company since
August 1996. From July 1993 to August 1996, Mr. Madler was Vice President--
Operations of the Company. Previously, Mr. Madler was Vice President of
Operations of American Health Services Corp., a diagnostic imaging company,
from July 1991 to June 1993. He was employed by the Company from 1985 to 1991,
most recently as its Vice President of Operations.
Dr. Myers has been Sr. Vice President--Development of the Company since
August 1996. Dr. Myers is a board certified urologist and was a Vice President
of Lithotripters, Inc. from January 1990 until it was acquired by the Company
in April 1996.
Ms. Williams has been Chief Financial Officer, Vice President--Finance and
Secretary of the Company since October 1989. Ms. Williams was Controller of
Fairchild Aircraft Corporation from August 1988 to October 1989. From 1985 to
1988, Ms. Williams served as the Chief Financial Officer of APS Systems, Inc.,
a wholly-owned subsidiary of APS.
Mr. Johnson has been a Vice President of the Company and President of Sun
Medical Technologies, Inc. ("Sun"), a wholly-owned subsidiary of the Company,
since November 1995. Mr. Johnson was the Chief Financial Officer of Sun from
1990 to 1995.
Mr. Butrus has been a director of the Company since September 1992. Mr.
Butrus is also an Executive Vice President and a director of MAIC Holdings,
Inc. ("MAIC") and its wholly-owned subsidiary, Mutual Assurance, Inc. ("Mutual
Assurance"), and has served in such positions since 1991. Mutual Assurance is
a property and casualty insurance company.
52
<PAGE>
Dr. Foree has been a director of the Company since October 1993. Dr. Foree
is a board certified urologist and has been practicing medicine since 1965.
Mr. Katz has been a director of the Company since 1986. From 1952 until his
retirement in January 1987, Mr. Katz was a partner with Katz, Sapper & Miller,
Certified Public Accountants.
Mr. McEntire has been a director of the Company since September 1996. Mr.
McEntire is currently managing partner of M2 Capital Partners, a private
equity investment firm. From August 1994 to December 1996, Mr. McEntire served
as Vice President of Strategic Planning and Corporate Development for Parker
and Parsley Petroleum, Inc., an oil and gas exploration company. Prior to
1994, Mr. McEntire spent ten years in commercial banking and corporate
finance.
Mr. Searles has been a director of the Company since October 1989. He is an
independent business consultant and from 1981 to 1989 was associated with
Bear, Stearns & Co., Inc., an investment banking firm, most recently as an
Associate Director/Limited Partner. He currently serves as a director of APS.
Dr. Spalding has been a director of the Company since October 1993. Dr.
Spalding is a board certified urologist and has been practicing medicine since
1973. Dr. Spalding was the Chairman of Tennessee Valley Lithotripters, which
was acquired by the Company in 1993.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of the Company has established an Audit Committee, a
Compensation Committee and a Nominating Committee. The Audit Committee's
functions include recommending to the Board of Directors the engagement of the
Company's independent public accountants, reviewing with such accountants the
plans for and the results and scope of their auditing engagement and certain
other matters relating to their services to the Company, including matters
relating to the independence of such accountants. The Compensation Committee
makes recommendations to the Board of Directors with respect to the
compensation of executive officers, including issuance of options under the
Option Plan. The Nominating Committee has primary responsibility for
nominating persons for election to the Board of Directors. Mr. Katz and Dr.
Foree serve on the Audit Committee, Dr. Spalding and Mr. Searles serve on the
Compensation Committee, and Mr. Katz, Mr. Butrus and Mr. Searles serve on the
Nominating Committee.
53
<PAGE>
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE
Set forth below is information concerning aggregate compensation paid during
each of the Company's last three fiscal years to the Company's Chief Executive
Officer and each of the Company's other most highly compensated executive
officers who received in excess of $100,000 in salary and bonuses during any
of the last three fiscal years (collectively, the "Named Executives").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES
--------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#)(2) COMPENSATION($)(3)
- --------------------------- ---- --------- ----------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Kenneth S. Shifrin........ 1997 183,336 327,709 25,000 696
Chairman of the Board 1996 115,225 178,947 100,000 696
1995 112,500 68,425 -- 696
Joseph Jenkins, M.D.(4)... 1997 325,000 90,000 25,000 4,750
President and Chief
Executive Officer 1996 243,750 -- 75,000 --
Michael Madler............ 1997 150,000 158,758 25,000 5,014
Sr. Vice President--
Operations 1996 150,000 178,947 50,000 2,268
1995 150,000 68,425 -- 37,081
Dan Myers, M.D. .......... 1997 180,000 50,000 25,000 4,750
Sr. Vice President--
Development 1996 135,000 -- 50,000 --
Cheryl Williams........... 1997 100,000 178,533 25,000 5,272
Chief Financial Officer, 1996 83,653 178,947 90,000 2,407
Vice President--Finance
and Secretary 1995 80,736 68,425 -- 228
Stan Johnson.............. 1997 165,006 -- 5,000 4,750
Vice President 1996 173,733 -- -- 5,029
</TABLE>
- -----------------
(1) Reflects bonuses paid during the year.
(2) Options to acquire common stock.
(3) Consists of life insurance premiums paid and Company contributions to
401(k) plan during the fiscal year. Also reflects moving expenses
reimbursed to Mr. Madler in the amount of $36,905.
(4) Dr. Joseph Jenkins was elected to the Board of Directors and appointed
President and Chief Executive Officer of the Company in April 1996. Under
his employment agreement with the Company, Dr. Jenkins will receive an
annual salary of not less than $325,000 and will be entitled to receive a
performance bonus and stock options at the discretion of the Company's
Board of Directors.
54
<PAGE>
OPTION GRANTS DURING 1997
The following table provides information related to options granted to the
Named Executives during 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
NUMBER OF PERCENT OF ANNUAL RATES OF STOCK
SECURITIES TOTAL OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE(2) EXPIRATION ----------------------
NAME GRANTED(#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
---- ---------- ------------- -------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Kenneth S. Shifrin..... 25,000 6% $10.50 07/01/02 72,524 160,259
Chairman of the Board
Joseph Jenkins, M.D.... 25,000 6% $10.50 07/01/02 72,524 160,259
President and Chief
Executive Officer
Michael Madler......... 25,000 6% $14.31 09/11/02 98,840 218,410
Sr. Vice President--
Operations
Dan Myers, M.D......... 25,000 6% $14.31 09/11/02 98,840 218,410
Sr. Vice President--
Development
Cheryl Williams........ 25,000 6% $14.31 09/11/02 98,840 218,410
Chief Financial
Officer,
Vice President--
Finance and
Secretary
Stan Johnson........... 5,000 1% $10.50 03/19/03 14,505 32,052
Vice President
</TABLE>
- -----------------
(1) The dollar amounts in these columns represent potential value that might
be realized upon exercise of the options immediately prior to the
expiration of their term, assuming that the market price of the Company's
common stock appreciates in value from the date of grant at the 5% and 10%
annual appreciation rates prescribed by the regulation, and therefore are
not intended to forecast possible future appreciation, if any, of the
price of the Company's common stock.
(2) The exercise price of the option was equal to the fair market value of the
common stock on the date of the grant.
55
<PAGE>
OPTION EXERCISES DURING 1997 AND OPTION VALUES AT DECEMBER 31, 1997
The following table provides information related to options exercised by the
Named Executives during 1997 and the value of options held at December 31,
1997. The Company does not have any outstanding stock appreciation rights.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
ACQUIRED YEAR-END YEAR-END($)(2)
ON VALUE ------------------------------- -------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE(#) UNEXERCISABLE(#) EXERCISABLE UNEXERCISABLE
---- ----------- -------------- -------------- ---------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Kenneth S. Shifrin...... -- -- 150,000 75,000 1,387,500 118,750
Joseph Jenkins, M.D..... -- -- 12,500 87,500 12,500 93,750
Stan Johnson............ 8,000 57,500 8,000 29,000 62,080 202,490
Michael Madler.......... -- -- 60,833 74,167 417,500 215,000
Dan Myers, M.D. ........ -- -- 12,500 62,500 12,500 12,500
Cheryl Williams......... -- -- 85,333 76,667 694,788 92,150
</TABLE>
- -----------------
(1) Calculated by subtracting the per share exercise price of the option from
the closing price for the Company's common stock on the date of exercise
and multiplying the difference by the number of shares of common stock
purchased upon the exercise of the option.
(2) Calculated by subtracting the per share exercise price of the option from
the closing price for the Company's common stock on December 31, 1997
($13.75) and multiplying the difference by the number of shares of common
stock underlying the option.
COMPENSATION OF DIRECTORS
The Company pays Dr. Foree, Mr. Katz, Mr. McEntire, Mr. Searles and Dr.
Spalding a monthly fee of $1,250 for serving as directors. The Company's
directors are also eligible to receive stock options under the Company's
Option Plan. The Company's directors receive reimbursement of all ordinary and
necessary expenses incurred in attending any meeting of the Board of Directors
or any committee of the Board of Directors.
OTHER COMPENSATION AND RELATED ARRANGEMENTS
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Joseph Jenkins,
M.D., President and Chief Executive Officer of the Company and Stan D.
Johnson, a Vice President of the Company. Dr. Jenkins is currently paid
$325,000 per year and Mr. Johnson is currently paid $165,000 per year under
such agreements. Each of these agreements provides for the payment of basic
salary amounts, performance bonuses and other customary benefits. Dr. Jenkins'
employment agreement provides for his employment through April 30, 1998 and
Mr. Johnson's employment agreement provides for his employment through
September 30, 1998. The Company currently anticipates that Dr. Jenkins will
remain with the Company in the same capacity and at the same compensation
level after the expiration of his employment agreement. Each of the agreements
entitles such individual to receive severance payments if the Company
terminates such individual's employment without cause. Mr. Johnson would be
entitled to receive an amount equal to the lesser of $165,000 or the amount of
salary otherwise payable to Mr. Johnson through September 30, 1998. Dr.
Jenkins and Mr. Johnson may terminate their employment agreements with the
Company with or without cause by providing sixty days prior written notice to
the Board of Directors.
56
<PAGE>
NONCOMPETITION AGREEMENTS
The Company has entered into noncompetition agreements with Dr. Jenkins, Mr.
Johnson, Dr. Foree, Dr. Spalding, and Dr. Myers. While the terms of such
agreements vary, they generally provide that each such person, during the
period specified in his agreement, will not own, manage or control any
business that competes with the Company and will not advise a customer or
supplier of the Company to cancel or curtail its dealings with, or influence
any employee of the Company to terminate his or her employment with, the
Company.
INDEMNITY AGREEMENTS
The Company has entered into indemnity agreements with a number of persons
who either are or have been officers, directors or key employees of the
Company, including Mr. Shifrin, who is Chairman of the Board and a director of
the Company; Dr. Jenkins, who is President and Chief Executive Officer and a
director of the Company; Mr. Butrus, Dr. Foree, Mr. Katz, Mr. McEntire, Mr.
Searles, and Dr. Spalding, who are directors of the Company; and Mr. Johnson,
Ms. Williams, Mr. Madler, and Dr. Myers, who are officers of the Company. The
agreements generally provide that, to the extent permitted by law, the Company
must indemnify each such person for judgments, expenses, fines, penalties and
amounts paid in settlement of claims that result from the fact that such
person was an officer, director or employee of the Company. In addition, the
Company's and certain of its subsidiaries' certificates of incorporation
provide for certain limitations on director liability.
OPTION PLAN
The Company's Option Plan provides for the issuance of incentive and non-
qualified stock options to purchase up to 2,500,000 shares of common stock.
Non-qualified stock options may be granted to employees (including officers
and directors) of the Company or its affiliates or to persons performing
services for the Company or its affiliates. Incentive stock options may only
be granted to employees of the Company. The Company has granted options to
purchase 2,372,500 shares of common stock under the Option Plan, of which
options covering 992,000 shares of common stock have been exercised, and
options covering 493,365 shares of common stock were vested (but had not been
exercised) as of April 27, 1998.
57
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the common stock as of April 29, 1998, by (i) each person known
by the Company to own beneficially more than 5% of the Company's common stock,
(ii) each of the Company's directors, (iii) each current director and
executive officer of the Company, and (iv) all current directors and executive
officers of the Company as a group. Unless otherwise indicated, the Company
believes that each person or entity named below has sole voting and investment
power with respect to all shares shown as beneficially owned by such person or
entity, subject to community property laws where applicable and the
information set forth in the footnotes to the table below.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
----------------------
NUMBER OF
NAME SHARES PERCENT
- ---- ------------ ---------
<S> <C> <C>
American Physicians Service Group, Inc. ............... 3,064,503 15.9%
1301 Capital of Texas Highway
Austin, Texas 78746
Paul R. Butrus(1)...................................... 182,675 *
William E. Foree, M.D.(1).............................. 225,760 1.2%
Joseph Jenkins, M.D.(1)................................ 82,273 *
Stan Johnson(1)........................................ 1,000 *
Irwin Katz(1).......................................... 42,600 *
Michael Madler(1)...................................... 72,666 *
John McEntire(1)....................................... 18,333 *
Dan Myers, M.D.(1)..................................... 72,841 *
William A. Searles(1)(2)............................... 20,933 *
Kenneth S. Shifrin(1)(2)............................... 272,400 1.4%
Michael J. Spalding, M.D.(1)........................... 68,998 *
Cheryl Williams(1)..................................... 111,235 *
All directors and executive officers as a group (12
persons).............................................. 1,171,714 5.9%
</TABLE>
- -----------------
* less than one percent
(1) Includes the following number of shares subject to options that are
presently exercisable or exercisable within 60 days after April 29, 1998:
Mr. Butrus, 37,500; Dr. Foree, 25,000; Dr. Jenkins, 25,000; Mr. Johnson,
1,000; Mr. Katz, 37,500; Mr. Madler, 69,166; Mr. McEntire, 8,333; Dr.
Myers, 18,750; Mr. Searles, 20,833; Mr. Shifrin, 162,500; Dr. Spalding,
20,833; and Ms. Williams, 93,666.
(2) Mr. Searles and Mr. Shifrin are each directors of APS and, together with
the other officers and directors of APS, may share in the voting and
investment power with respect to the shares of common stock of the Company
owned by APS. Each of such persons disclaims the beneficial ownership of
any such shares.
APS, the Company's largest stockholder, is a management and financial
services firm which, through its subsidiaries, provides medical malpractice
insurance services for doctors and investment services to institutions and
individuals. APS is headquartered in Austin, Texas and maintains offices in
Dallas and Houston.
Mr. Shifrin and Mr. Searles are each directors of both the Company and APS
and, together with the other officers and directors of APS, may share in the
voting and investment power with respect to the shares of common stock of the
Company owned by APS. Each of such persons disclaims the beneficial ownership
of any such shares. Mr. Shifrin has been Chairman of the Board, Chief
Executive Officer and a director of APS since March 1990, March 1989 and
February 1987, respectively. Mr. Searles has been a director of APS since July
1989.
The Company occupies approximately 5,575 square feet of office space owned
by APS and also shares certain personnel with APS. The Company pays APS rent
and personnel cost reimbursements of approximately $7,500 per month. As of
April 29, 1998, the Company owned 50,000 shares of common stock of APS.
On February 17, 1998, the Company filed a registration statement on Form S-3
to register, on a continuous basis, all shares of the Company's stock held by
APS. APS has indicated that it has no present intention to sell such shares
and that such registration was requested primarily to facilitate the pledge of
such shares by APS to secure a bank line of credit.
58
<PAGE>
DESCRIPTION OF OTHER INDEBTEDNESS
On April 20, 1998, the Company entered into a syndicated Senior Credit
Facility consisting of a $100.0 million, five-year revolving line of credit.
Advances under the Senior Credit Facility will be used to fund future
acquisitions and to finance capital expenditures and working capital needs of
the Company. All amounts owing under the Senior Credit Facility will be
guaranteed by the Company's wholly-owned subsidiaries and will be secured by
security interests in substantially all of the assets of the Company and its
wholly-owned subsidiaries.
Amounts outstanding under the Senior Credit Facility will bear interest at
LIBOR plus a specified margin ranging from one percent to two percent; or at
the Company's option at a rate based on a specified margin of up to 0.5% plus
the higher of (i) a specified prime rate or (ii) 0.5% over the federal funds
rate. Interest will be payable quarterly. The Company will pay a commitment
fee on the unused portion of the Senior Credit Facility which will be payable
quarterly in arrears. The amount of the commitment fee will range from 0.25%
to 0.375%.
The obligations of the lenders under the Senior Credit Facility are subject
to the satisfaction of certain conditions precedent, including, without
limitation, repayment of certain outstanding indebtedness of the Company and
the absence of a material adverse change in the business of the Company. The
Company and each of its existing and future subsidiaries are subject to
certain affirmative and negative covenants contained in the Senior Credit
Facility, including without limitation covenants that restrict, subject to
specified exceptions: (i) the incurrence of additional indebtedness and other
obligations and the granting of additional liens; (ii) mergers, acquisitions,
investments and acquisitions and dispositions of assets; (iii) the incurrence
of capitalized lease obligations; (iv) dividends and stock redemptions; (v)
prepayments or repurchases of other indebtedness and amendments to certain
agreements governing indebtedness, including the Indenture and the Notes; (vi)
engaging in transactions with affiliates and formation of subsidiaries; (vii)
the use of proceeds; (viii) changes of lines of business; (ix) investments;
and (x) other customary covenants. There are also covenants relating to
compliance with ERISA and environmental and other laws, acquisitions, payment
of taxes, maintenance of corporate existence and rights, maintenance of
insurance and financial reporting. Certain of these covenants are more
restrictive than those set forth in the Indenture. In addition, the Senior
Credit Facility requires the Company to maintain compliance with certain
specified financial covenants, including covenants relating to minimum
consolidated net worth, minimum debt service coverage ratio, debt to total
capitalization ratio, maximum debt to EBITDA ratio and maximum senior debt to
EBITDA ratio.
The Senior Credit Facility includes customary events of default. The
occurrence of any of such events of default could result in acceleration of
the Company's obligations under the Senior Credit Facility and foreclosure on
the collateral securing such obligations, which could have a material adverse
effect on holders of the Notes.
59
<PAGE>
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Outstanding Notes were, and the Exchange Notes will be, issued pursuant
to the Indenture among the Company, the Subsidiary Guarantors and the Trustee.
The terms of the Notes include those stated in the Indenture and those made
part of the Indenture by reference to the Trust Indenture Act of 1939 (the
"Trust Indenture Act"). The Notes are subject to all such terms, and holders
of Notes are referred to the Indenture and the Trust Indenture Act for a
statement thereof. The following summary of the material provisions of the
Indenture does not purport to be complete and is qualified in its entirety by
reference to the Indenture, including the definitions therein of certain terms
used below. Copies of the Indenture and Registration Rights Agreement are
available as set forth below under "--Additional Information." The definitions
of certain terms used in the following summary are set forth below under "--
Certain Definitions." For purposes of this summary, the term "Company" refers
only to Prime Medical Services, Inc. and not to any of its Subsidiaries.
The Outstanding Notes are, and the Exchange Notes will be, general unsecured
obligations of the Company, subordinated in right of payment to all Senior
Debt of the Company, including Senior Debt under the Senior Credit Facility,
and senior in rank or pari passu in right of payment with all existing and
future subordinated indebtedness of the Company. As of December 31, 1997, on a
pro forma basis after giving effect to the Initial Offering and the
application of the net proceeds therefrom and the establishment of the Senior
Credit Facility, the aggregate principal amount of Senior Debt of the Company
and the Subsidiary Guarantors would have been approximately $0.2 million and
the Company would have had $100.0 million available to be borrowed under the
Senior Credit Facility. The terms of the Indenture limit the ability of the
Company and its subsidiaries to incur additional Indebtedness.
As of the date of the Indenture, all of the Company's Subsidiaries are
Restricted Subsidiaries. However, under certain circumstances, the Company
will be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries are not subject to many of the
restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $100.0 million and
will mature on April 1, 2008. Interest on the Notes will accrue at the rate of
8 3/4% per annum and will be payable semi-annually in arrears on April 1 and
October 1, commencing on October 1, 1998, to holders of record on the
immediately preceding March 15 and September 15. Interest on the Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
Principal, premium, if any, and interest and Liquidated Damages on the Notes
will be payable at the office or agency of the Company maintained for such
purpose within the City and State of New York or, at the option of the
Company, payment of interest and Liquidated Damages may be made by check
mailed to the holders of the Notes at their respective addresses set forth in
the register of holders of Notes; provided that all payments of principal,
premium, interest and Liquidated Damages with respect to Notes the holders of
which have given wire transfer instructions to the Company will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the holders thereof. Until otherwise designated by the Company,
the Company's office or agency in New York will be the office of the Trustee
maintained for such purpose. The Outstanding Notes were, and the Exchange
Notes will be, issued in denominations of $1,000 and integral multiples
thereof.
SUBORDINATION
The payment of principal, premium, if any, and interest and Liquidated
Damages, if any, on the Notes is subordinated in right of payment, as set
forth in the Indenture, to the prior payment in full of all Senior Debt,
whether outstanding on the date of the Indenture or thereafter incurred.
60
<PAGE>
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, in
an assignment for the benefit of creditors or any marshaling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full of all Obligations due in respect of such Senior Debt
(including interest after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) before the holders of Notes will be
entitled to receive any payment with respect to the Notes, and until all
Obligations with respect to Senior Debt are paid in full, any distribution to
which the holders of Notes would be entitled shall be made to the holders of
Senior Debt (except that, in each case, holders of Notes may receive and
retain Permitted Junior Securities and payments made from the trust described
under the caption "--Legal Defeasance and Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under the
caption "--Legal Defeasance and Covenant Defeasance") if (i) a default in the
payment of the principal of, premium, if any, or interest on Designated Senior
Debt occurs and is continuing beyond any applicable period of grace or (ii)
any other default occurs and is continuing with respect to Designated Senior
Debt that permits holders of the Designated Senior Debt as to which such
default relates to accelerate its maturity and the Trustee receives a notice
of such default (a "Payment Blockage Notice") from the Company or the holders
of any Designated Senior Debt. Payments on the Notes may and shall be resumed
(a) in the case of a payment default, upon the date on which such default is
cured or waived and (b) in case of a nonpayment default, the earlier of the
date on which such nonpayment default is cured or waived or 179 days after the
date on which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt has been accelerated. No new period of
payment blockage may be commenced unless and until (i) 360 days have elapsed
since the effectiveness of the immediately prior Payment Blockage Notice and
(ii) all scheduled payments of principal, premium, if any, interest and
Liquidated Damages, if any, on the Notes that have come due have been paid in
full in cash. No nonpayment default that existed or was continuing on the date
of delivery of any Payment Blockage Notice to the Trustee shall be, or be
made, the basis for a subsequent Payment Blockage Notice.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event of
a liquidation or insolvency, Holders of Notes may recover less ratably than
creditors of the Company who are holders of Senior Debt. As of December 31,
1997, on a pro forma basis after giving effect to the Initial Offering and the
application of the proceeds therefrom and the establishment of a new $100.0
million line of credit, the aggregate principal amount of Senior Debt of the
Company and the Subsidiary Guarantors would have been approximately $0.2
million and the Company would have had $100.0 million available to be borrowed
under the Senior Credit Facility. The Indenture limits, subject to certain
financial tests, the amount of additional Indebtedness, including Senior Debt,
that the Company and its Subsidiaries can incur. See " --Certain Covenants --
Incurrence of Indebtedness and Issuance of Preferred Stock."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes are jointly and severally
guaranteed on a senior subordinated basis (the "Subsidiary Guarantees") by the
Subsidiary Guarantors. The Company has caused each Wholly Owned Restricted
Subsidiary (other than not-for-profit subsidiaries) to become a Subsidiary
Guarantor. The Subsidiary Guarantees are subordinated in right of payment to
all existing and future Senior Debt of the Subsidiary Guarantors, including
all obligations of the Subsidiary Guarantors under the Senior Credit Facility
and rank senior or pari passu in right of payment with any subordinated
indebtedness of the Subsidiary Guarantors. The obligation of each Subsidiary
Guarantor under its Subsidiary Guarantee is limited so as not to constitute a
fraudulent conveyance under applicable law. See "Risk Factors--Fraudulent
Conveyance."
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person), another corporation, Person or entity whether or not affiliated with
such Subsidiary Guarantor unless (i) subject to the provisions of the
following paragraph, the
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Person formed by or surviving any such consolidation or merger (if other than
such Subsidiary Guarantor) assumes all the obligations of such Subsidiary
Guarantor pursuant to a supplemental indenture in form and substance
reasonably satisfactory to the Trustee, under the Notes and the Indenture and
(ii) immediately after giving effect to such transaction, no Default or Event
of Default exists.
The Indenture provides that in the event of a sale or other disposition of
all of the assets of any Subsidiary Guarantor, by way of merger, consolidation
or otherwise, or a sale or other disposition of all of the capital stock of
any Subsidiary Guarantor, then such Subsidiary Guarantor (in the event of a
sale or other disposition, by way of such a merger, consolidation or
otherwise, of all of the capital stock of such Subsidiary Guarantor) or the
corporation acquiring the property (in the event of a sale or other
disposition of all of the assets of such Subsidiary Guarantor) will be
released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied
in accordance with the applicable provisions of the Indenture. See "--
Repurchase at the Option of Holders--Asset Sales."
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to April 1, 2003.
Thereafter, the Notes are subject to redemption at any time at the option of
the Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated
Damages thereon to the applicable redemption date, if redeemed during the
twelve-month period beginning on April 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................................................... 104.375%
2004........................................................... 102.917%
2005........................................................... 101.458%
2006 and thereafter............................................ 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or before, April 1, 2001, the
Company may redeem up to 35% of the aggregate principal amount of Notes
originally issued under the Indenture at a redemption price of 108.75% of the
principal amount thereof, plus accrued and unpaid interest and Liquidated
Damages thereon, if any, to the redemption date, with the net cash proceeds to
the Company of one or more public offerings of common stock; provided that at
least $65.0 million in aggregate principal amount of Notes remain outstanding
immediately after the occurrence of such redemption (excluding Notes held by
the Company or any of its Subsidiaries); and provided, further, that such
redemption shall occur within 90 days of the date of the closing of such
public offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which
the Notes are listed, or, if the Notes are not so listed, on a pro rata basis,
by lot or by such method as the Trustee shall deem fair and appropriate;
provided that no Notes of $1,000 or less shall be redeemed in part. Notices of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each holder of Notes to be redeemed at
its registered address. Notices of redemption may not be conditional. If any
Note is to be redeemed in part only, the notice of redemption that relates to
such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in principal amount equal to the unredeemed portion
thereof will be issued in the name of the holder thereof upon cancellation of
the original Note. Notes called for redemption become due on the date fixed
for redemption. On and after the redemption date, interest ceases to accrue on
Notes or portions of them called for redemption.
MANDATORY REDEMPTION
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
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REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to repurchase all or any part (equal to
$1,000 or an integral multiple thereof) of such holder's Notes pursuant to the
offer described below (the "Change of Control Offer") at an offer price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest and Liquidated Damages thereon, if any, to the date of
purchase (the "Change of Control Payment"). Within 30 days following any
Change of Control, the Company will mail a notice to each holder describing
the transaction or transactions that constitute the Change of Control and
offering to repurchase Notes on the date specified in such notice, which date
shall be no earlier than 30 days and no later than 60 days from the date such
notice is mailed (the "Change of Control Payment Date"), pursuant to the
procedures required by the Indenture and described in such notice. The Company
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of Notes in
connection with a Change of Control and, to the extent inconsistent with the
provisions of the Indenture, such laws and regulations shall govern.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail to each holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Indenture
provides that, prior to complying with the provisions of this covenant, but in
any event within 90 days following a Change of Control, the Company will
either repay all outstanding Senior Debt or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Debt to permit the
repurchase of Notes required by this covenant. The Company will publicly
announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as
described above with respect to a Change of Control, the Indenture does not
contain provisions that permit the holders of the Notes to require that the
Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar transaction.
The Senior Credit Facility provides that certain change of control events
with respect to the Company would constitute a default thereunder. Any future
credit agreements or other agreements relating to Senior Debt to which the
Company becomes a party may contain similar restrictions and provisions. In
the event a Change of Control occurs at a time when the Company is prohibited
under the Senior Credit Facility from repurchasing Notes, the Company could
seek the consent of its lenders under the Senior Credit Facility to the
repurchase of Notes or could attempt to refinance the borrowings that contain
such prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from repurchasing Notes. In
such case, the Company's failure to repurchase tendered Notes would constitute
an Event of Default under the Indenture which would, in turn, constitute a
default under the Senior Credit Facility. In such circumstances, the
subordination provisions in the Indenture would likely restrict payments to
holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the Indenture applicable to a Change of Control Offer made by the
Company and purchases all Notes validly tendered and not withdrawn under such
Change of Control Offer.
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The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under
applicable law. Accordingly, the ability of a holder of Notes to require the
Company to repurchase such Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary
is in the form of cash and Cash Equivalents; provided that the amount of (x)
any liabilities (as shown on the Company's or such Restricted Subsidiary's
most recent balance sheet), of the Company or any Restricted Subsidiary (other
than contingent liabilities and liabilities that are by their terms
subordinated to the Notes or any guarantee thereof) that are assumed by the
transferee of any such assets pursuant to a customary novation agreement that
releases the Company or such Restricted Subsidiary from further liability and
(y) any securities, notes or other obligations received by the Company or any
such Restricted Subsidiary from such transferee that are contemporaneously
(subject to ordinary settlement periods) converted by the Company or such
Restricted Subsidiary into cash or Cash Equivalents (to the extent of the cash
and Cash Equivalents received), shall be deemed to be cash for purposes of
this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds, at its option, (a) to repay Senior
Debt of the Company or a Subsidiary Guarantor, (b) to the acquisition of a
majority of the assets of, or a majority of the Voting Stock of, another
Permitted Business, the making of a capital expenditure or the acquisition of
other long-term assets that are used or useful in a Permitted Business or (c)
to the acquisition by the Company or a Restricted Subsidiary of Equity
Interests in any Restricted Subsidiary of the Company, which Equity Interests
are owned by a Person other than the Company or an Affiliate of the Company.
Pending the final application of any such Net Proceeds, the Company may
temporarily reduce revolving credit borrowings or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess
Proceeds." When the aggregate amount of Excess Proceeds exceeds $5.0 million,
the Company will be required to make an offer to all holders of Notes and all
holders of other Indebtedness containing provisions similar to those set forth
in the Indenture with respect to offers to purchase or redeem with the
proceeds of sales of assets (an "Asset Sale Offer") to purchase the maximum
principal amount of Notes and such other Indebtedness that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to
100% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon, if any, to the date of purchase, in accordance
with the procedures set forth in the Indenture and such other Indebtedness. To
the extent that any Excess Proceeds remain after consummation of an Asset Sale
Offer, the Company may use such Excess Proceeds for any purpose not otherwise
prohibited by the Indenture. If the aggregate principal amount of Notes and
such other Indebtedness tendered into such Asset Sale Offer surrendered by
holders thereof exceeds the amount of Excess Proceeds, the Trustee shall
select the Notes and such other Indebtedness to be purchased on a pro rata
basis. Upon completion of such offer to purchase, the amount of Excess
Proceeds shall be reset at zero.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay any
dividend or make any other similar payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation,
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any payment in connection with any merger or consolidation involving the
Company or any of its Restricted Subsidiaries) or to the direct or indirect
holders of the Company's or any of its Restricted Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or
dividends or other distributions payable to the Company or a Restricted
Subsidiary of the Company); (ii) purchase, redeem or otherwise acquire or
retire for value (including, without limitation, in connection with any merger
or consolidation involving the Company) any Equity Interests of the Company
(other than any such Equity Interests owned by the Company or any Wholly Owned
Restricted Subsidiary of the Company); (iii) make any payment on or with
respect to, or purchase, redeem, defease or otherwise acquire or retire for
value any Indebtedness that is subordinated to the Notes, except a payment of
interest or principal at Stated Maturity; or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i)
through (iv) above being collectively referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(a)no Default or Event of Default shall have occurred and be continuing
or would occur as a consequence thereof; and
(b)the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been
made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant
to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described below under the caption "--
Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(c)such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Restricted
Subsidiaries after the date of the Indenture (excluding Restricted
Payments permitted by clauses (ii), (iii) and (iv) of the next
succeeding paragraph), is less than the sum, without duplication, of
(i) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus (ii) 100% of the aggregate
net cash proceeds received by the Company since the date of the
Indenture as a contribution to its common equity capital or from the
issue or sale of Equity Interests of the Company (other than
Disqualified Stock) or from the issue or sale of Disqualified Stock or
debt securities of the Company that have been converted into such
Equity Interests (other than Equity Interests (or Disqualified Stock or
convertible debt securities) sold to a Subsidiary of the Company), plus
(iii) to the extent that any Restricted Investment that was made after
the date of the Indenture is sold for cash and Cash Equivalents or
otherwise liquidated or repaid for cash and Cash Equivalents, the
lesser of (A) the cash return of capital with respect to such
Restricted Investment (less the cost of disposition, if any) and (B)
the initial amount of such Restricted Investment, plus (iv) to the
extent that any Unrestricted Subsidiary is redesignated as a Restricted
Subsidiary after the Issue Date not in violation of the Indenture the
lesser of (A) the fair market value of the Investment of the Company
and its Restricted Subsidiaries in such Subsidiary as of the date of
such redesignation or (B) such fair market value as of the date on
which such Subsidiary was originally designated as an Unrestricted
Subsidiary, plus (v) $15.0 million.
The foregoing provisions will not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness or Equity Interests of the
Company in exchange for, or out of the net cash proceeds of (x) the
substantially concurrent sale (other than to a Restricted Subsidiary of the
Company) of, other Equity Interests of the Company (other than any
Disqualified Stock) or (y) a substantially concurrent contribution of cash to
the common equity of the Company; provided that the amount of any such net
cash proceeds that are utilized for any such redemption, repurchase,
retirement, defeasance or other acquisition shall be excluded from clause (c)
(ii) of the preceding paragraph; (iii) the defeasance, redemption, repurchase
or other acquisition of subordinated Indebtedness with the net cash proceeds
from an incurrence of Permitted Refinancing Indebtedness; (iv) the
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payment of any dividend by a Restricted Subsidiary of the Company to the
holders of its common Equity Interests on a pro rata basis; and (v) the
repurchase, redemption or other acquisition or retirement for value of any
Equity Interests of the Company held by any member of the Company's (or any of
its Restricted Subsidiaries') management (or any estate, heir or legatee of
any such member); provided that the aggregate price paid for all such
purchased, redeemed, acquired or retired Equity Interests shall not exceed
$250,000 in any twelve-month period and no Default or Event of Default shall
have occurred and be continuing immediately after such transaction.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash)
in the Subsidiary so designated will be deemed to be Restricted Payments or,
at the election of the Company Permitted Investments (if in compliance with
such definition) at the time of such designation and will reduce the amount
available for Restricted Payments under the first paragraph of this covenant
or Permitted Investments as applicable. All such outstanding Investments will
be deemed to constitute Investments in an amount equal to the fair market
value of such Investments at the time of such designation. Such designation
will only be permitted if such Restricted Payment or Permitted Investments, as
applicable, would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
The fair market value of any non-cash Restricted Payment shall be determined
by the Board of Directors whose resolution with respect thereto shall be
delivered to the Trustee, such determination to be based upon an opinion or
appraisal issued by an accounting, appraisal or investment banking firm of
national standing if such fair market value exceeds $5.0 million. Not later
than the date of making any Restricted Payment, the Company shall deliver to
the Trustee an Officers' Certificate stating that such Restricted Payment is
permitted and setting forth the basis upon which the calculations required by
the covenant "Restricted Payments" were computed, together with a copy of any
fairness opinion or appraisal required by the Indenture.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt), and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred
stock; provided, however, that the Company may incur Indebtedness (including
Acquired Debt) or issue shares of Disqualified Stock and the Subsidiary
Guarantors may incur Indebtedness or issue preferred stock if the Fixed Charge
Coverage Ratio for the Company's most recently ended four full fiscal quarters
for which internal financial statements are available immediately preceding
the date on which such additional Indebtedness is incurred or such
Disqualified Stock or preferred stock is issued would have been at least 2.5
to 1, determined on a pro forma basis (including a pro forma application of
the net proceeds therefrom), as if the additional Indebtedness had been
incurred, or the Disqualified Stock or preferred stock had been issued, as the
case may be, at the beginning of such four-quarter period.
The foregoing provisions will not apply to the incurrence of any of the
following items of Indebtedness (collectively, "Permitted Debt"):
(i)the incurrence by the Company or the Subsidiary Guarantors of
Indebtedness (including letters of credit, with letters of credit being
deemed to have a principal amount equal to the maximum potential liability
of the Company and its Restricted Subsidiaries thereunder) under the Senior
Credit Facility; provided that the aggregate principal amount of all
Indebtedness (including letters of credit) outstanding under the Senior
Credit Facility after giving effect to such incurrence does not exceed an
amount equal to
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$100.0 million less the aggregate amount of all Net Proceeds of Asset Sales
applied to permanently repay any such Indebtedness pursuant to the covenant
described above under the caption "Repurchase at the Option of Holders--
Asset Sales;"
(ii)the incurrence by the Company and its Restricted Subsidiaries of the
Existing Indebtedness;
(iii)the incurrence by the Company of Indebtedness represented by the Notes
and the incurrence by the Subsidiary Guarantors of Indebtedness represented
by the Subsidiary Guarantees;
(iv)the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or purchase money obligations, in each case incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property, plant or equipment used in the business of the
Company or such Subsidiary, in an aggregate principal amount not to exceed
$5.0 million at any time outstanding;
(v)the incurrence by the Company or any of its Restricted Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to refund, refinance or replace Indebtedness (other than
intercompany Indebtedness) that is either the Existing Indebtedness or was
permitted by the Indenture to be incurred under the first paragraph hereof
or clauses (ii), (iii), (iv), (v) or (ix) of this paragraph;
(vi)the incurrence by the Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that (i) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinated
to the prior payment in full in cash of all Obligations with respect to the
Notes and (ii)(A) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other than the
Company or a Restricted Subsidiary thereof and (B) any sale or other
transfer of any such Indebtedness to a Person that is not either the
Company or a Restricted Subsidiary thereof shall be deemed, in each case,
to constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be, that was not permitted by this
clause (vi);
(vii)the incurrence by the Company or a Subsidiary Guarantor of Hedging
Obligations that are incurred for the purpose of fixing or hedging interest
rate risk with respect to any floating rate Indebtedness that is permitted
by the terms of the Indenture to be outstanding;
(viii)the guarantee by the Company or any of the Subsidiary Guarantors of
Indebtedness of the Company or a Subsidiary Guarantor that was permitted to
be incurred by another provision of this covenant;
(ix)the incurrence by the Company or any of its Restricted Subsidiaries of
Indebtedness in connection with the acquisition by the Company or a
Restricted Subsidiary of assets or a new Restricted Subsidiary; provided
that such Indebtedness was incurred by the prior owner of such assets or
such Restricted Subsidiary prior to such acquisition by the Company or a
Restricted Subsidiary and was not incurred in connection with, or in
contemplation of, such acquisition by the Company or a Restricted
Subsidiary; and provided further that the principal amount of such
Indebtedness does not exceed $5.0 million at any time outstanding;
(x)the incurrence by the Company or any of its Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount (or accreted
value, as applicable) at any time outstanding, including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (x), not to exceed $10.0
million; and
(xi)the incurrence by the Company's Unrestricted Subsidiaries of Non-
Recourse Debt, provided, however, that if any such Indebtedness ceases to
be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company that was not permitted by this clause (xi).
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For purposes of determining compliance with this covenant, in the event that
an item of Indebtedness meets the criteria of more than one of the categories
of Permitted Debt described in clauses (i) through (x) above or is entitled to
be incurred pursuant to the first paragraph of this covenant, the Company
shall, in its sole discretion, classify such item of Indebtedness in any
manner that complies with this covenant. Accrual of interest, accretion or
amortization of original issue discount, the payment of interest on any
Indebtedness in the form of additional Indebtedness with the same terms, and
the payment of dividends on Disqualified Stock in the form of additional
shares of the same class of Disqualified Stock will not be deemed to be an
incurrence of Indebtedness or an issuance of Disqualified Stock for purposes
of this covenant; provided, in each such case, that the amount thereof is
included in Fixed Charges of the Company as accrued.
Liens
The Indenture provides that the Company will not, and will not permit any of
its Subsidiaries to, directly or indirectly, create, incur, assume or suffer
to exist any Lien securing Indebtedness or trade payables on any asset now
owned or hereafter acquired, or any income or profits therefrom or assign or
convey any right to receive income therefrom, except Permitted Liens, unless
all payments due under the Indenture and the Notes are secured on an equal and
ratable basis with the Indebtedness so secured until such time as such is no
longer secured by a Lien; provided that if such Indebtedness is by its terms
expressly subordinated to the Notes or any Subsidiary Guarantee, the Lien
securing such Indebtedness shall be subordinate and junior to the Lien
securing the Notes and the Subsidiary Guarantees with the same relative
priority as such subordinate or junior Indebtedness shall have with respect to
the Notes and the Subsidiary Guarantees.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, enter into any sale and leaseback transaction;
provided that the Company and its Restricted Subsidiaries may enter into a
sale and leaseback transaction if (i) the Company or such Restricted
Subsidiary, as the case may be, could have (a) incurred Indebtedness in an
amount equal to the Attributable Debt relating to such sale and leaseback
transaction pursuant to the covenant described above under the caption "--
Incurrence of Additional Indebtedness and Issuance of Preferred Stock" and (b)
incurred a Lien to secure such Indebtedness pursuant to the covenant described
above under the caption "--Liens," (ii) the gross cash proceeds of such sale
and leaseback transaction are at least equal to the fair market value (which,
if such proceeds exceed $1.0 million, shall be determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such sale and leaseback
transaction and (iii) the transfer of assets in such sale and leaseback
transaction is permitted by, and the Company applies the proceeds of such
transaction in compliance with, the covenant described above under the caption
"--Asset Sales."
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1)
on its Capital Stock or (2) with respect to any other interest or
participation in, or measured by, its profits, or (b) pay any indebtedness
owed to the Company or any of its Restricted Subsidiaries, (ii) make loans or
advances to the Company or any of its Restricted Subsidiaries or (iii)
transfer any of its properties or assets to the Company or any of its
Restricted Subsidiaries. However, the foregoing restrictions will not apply to
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the Indenture and
the Notes, (c) applicable law, (d) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries as in effect at the time of such acquisition (except to the
extent such Indebtedness was incurred in connection with or in contemplation
of such acquisition), which encumbrance or restriction is not applicable to
any Person, or the properties or assets of any Person, other than the Person,
or the property or assets of the Person, so acquired, provided that, in the
case of Indebtedness, such Indebtedness was permitted by
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the terms of the Indenture to be incurred, (e) customary non-assignment
provisions in leases and licenses entered into in the ordinary course of
business and consistent with past practices, (f) purchase money obligations
for property acquired in the ordinary course of business that impose
restrictions of the nature described in clause (iii) above on the property so
acquired, (g) any agreement for the sale of a Restricted Subsidiary or an
asset that restricts distributions by that Restricted Subsidiary or transfers
of such asset pending its sale, (h) Permitted Refinancing Indebtedness,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive, taken as a whole,
than those contained in the agreements governing the Indebtedness being
refinanced (whether or not such prior agreements remain outstanding),
(i) secured Indebtedness otherwise permitted to be incurred pursuant to the
provisions of the covenant described above under the caption "--Liens" that
limit the right of the debtor to dispose of the assets securing such
Indebtedness, (j) customary provisions in partnership agreements, limited
liability company organizational governance documents, joint venture
agreements and other similar agreements entered into in the ordinary course of
business, (k) restrictions on cash or other deposits or net worth imposed by
customers under contracts entered into in the ordinary course of business and
(l) the Senior Credit Facility as in effect from time to time, provided that
the restrictions contained therein shall be no more restrictive, taken as a
whole, than those contained in the Senior Credit Facility as in effect on the
Issue Date.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with or
into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially
all of its properties or assets in one or more related transactions, to
another corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United
States, any state thereof or the District of Columbia; (ii) the entity or
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Registration Rights Agreement, the Notes
and the Indenture pursuant to a supplemental indenture in a form reasonably
satisfactory to the Trustee; (iii) immediately after such transaction no
Default or Event of Default exists; and (iv) except in the case of a merger of
the Company with or into a Wholly Owned Restricted Subsidiary of the Company,
the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will have Consolidated Net Worth immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at
the beginning of the applicable four-quarter period, be permitted to incur at
least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described above
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any of
its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or the relevant Restricted Subsidiary than those
that would have been obtained in a comparable transaction by the Company or
such Restricted Subsidiary with an unrelated Person and (ii) the Company
delivers to the Trustee (a) with respect to any Affiliate Transaction or
series of related Affiliate Transactions involving aggregate consideration in
excess of $1.0 million, a resolution of the Board of Directors set forth in an
Officers' Certificate
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certifying that such Affiliate Transaction complies with clause (i) above and
that such Affiliate Transaction has been approved by a majority of the
disinterested members of the Board of Directors and (b) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $5.0 million, an opinion as to the
fairness to the Holders of such Affiliate Transaction from a financial point
of view issued by an accounting, appraisal or investment banking firm of
national standing. Notwithstanding the foregoing, the following items shall
not be deemed to be Affiliate Transactions: (i) any employment agreement
entered into by the Company or any of its Restricted Subsidiaries in the
ordinary course of business and consistent with the past practice of the
Company or such Restricted Subsidiary; (ii) transactions between or among the
Company and/or its Restricted Subsidiaries; (iii) payment of reasonable
directors fees to Persons who are not otherwise Affiliates of the Company; and
(iv) Restricted Payments (other than Restricted Investments) that are
permitted by the provisions of the Indenture described above under the caption
"--Restricted Payments," and Permitted Investments described in clause (g) of
the definition thereof.
Limitation on Issuances and Sales of Equity Interests in Wholly Owned
Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey,
sell, lease or otherwise dispose of any Equity Interests in any Wholly Owned
Restricted Subsidiary of the Company to any Person (other than the Company or
a Wholly Owned Restricted Subsidiary of the Company), unless (a) such
transfer, conveyance, sale, lease or other disposition is of all the Equity
Interests in such Wholly Owned Restricted Subsidiary and (b) the cash Net
Proceeds from such transfer, conveyance, sale, lease or other disposition are
applied in accordance with the covenant described above under the caption "--
Asset Sales," and (ii) will not permit any Wholly Owned Restricted Subsidiary
of the Company to issue any of its Equity Interests (other than, if necessary,
shares of its Capital Stock constituting directors' qualifying shares) to any
Person other than to the Company or a Wholly Owned Restricted Subsidiary of
the Company. For purposes of this covenant, the grant of any Lien permitted to
be incurred under the Indenture (and any foreclosure thereon conducted in a
commercially reasonable manner) shall be deemed not to be a transfer,
conveyance, sale, lease or other disposition.
Business Activities
The Company will not, and will not permit any Restricted Subsidiary to,
engage in any business other than Permitted Businesses, except to such extent
as would not be material to the Company and its Restricted Subsidiaries taken
as a whole.
Limitation on Other Senior Subordinated Debt
The Indenture provides that neither the Company nor a Subsidiary Guarantor
will incur, or permit to remain outstanding, any Indebtedness (including
Acquired Debt and Permitted Debt) other than the Notes or the Subsidiary
Guarantee of such Subsidiary Guarantor, as the case may be, that is
subordinated in right of payment to any Indebtedness, unless such Indebtedness
is either (i) pari passu with the Notes or the Subsidiary Guarantee of such
Subsidiary Guarantor, as the case may be, pursuant to subordination provisions
(including related definitions) substantially similar to those contained in
the Indenture (which provides for the subordination of such Indebtedness to
substantially the same extent as the Notes and the Subsidiary Guarantees are
subordinated to Senior Debt), or (ii) subordinated in right of payment to the
Notes and the Subsidiary Guarantees, as the case may be.
Payments for Consent
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration,
whether by way of interest, fee or otherwise, to any holder of any Notes for
or as an inducement to any consent, waiver or amendment of any of the terms or
provisions of the Indenture or the Notes unless such consideration is offered
to be paid or is paid to all holders of the Notes that consent, waive or agree
to amend in the time frame set forth in the solicitation documents relating to
such consent, waiver or agreement.
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Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the
Company will furnish to the holders of Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report thereon by the Company's certified independent
accountants and (ii) all current reports that would be required to be filed
with the Commission on Form 8-K if the Company were required to file such
reports, in each case within the time periods specified in the Commission's
rules and regulations. In addition, following the consummation of this
Exchange Offer, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability within the time periods specified
in the Commission's rules and regulations (unless the Commission will not
accept such a filing) and make such information available to securities
analysts and prospective investors upon request. In addition, the Company and
the Subsidiary Guarantors have agreed that, for so long as any Notes remain
outstanding, they will furnish to the Holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
Guarantees of Certain Indebtedness
The Indenture provides that (i) the Company will not permit any of its
Restricted Subsidiaries that is not a Subsidiary Guarantor to incur, Guarantee
or secure through the granting of Liens the payment of any Indebtedness of the
Company or any other Restricted Subsidiary and (ii) the Company will not and
will not permit any of its Restricted Subsidiaries to pledge any intercompany
notes representing obligations of any of its Restricted Subsidiaries, to
secure the payment of any Indebtedness of the Company or any other Restricted
Subsidiary, in each case unless such Subsidiary, the Company and the Trustee
execute and deliver a supplemental indenture evidencing such Subsidiary's
Subsidiary Guarantee (providing for the unconditional Guarantee by such
Restricted Subsidiary, on a senior subordinated basis, of the Notes).
Notwithstanding the foregoing, any Subsidiary Guarantee issued pursuant to
this covenant by any Restricted Subsidiary may provide by its terms that it
shall be automatically and unconditionally released upon the release or
discharge of the incurrence, Guarantee or grant of Lien which required the
issuance of such Subsidiary Guarantee under this covenant (other than a
release or discharge by or as a result of payment under such Guarantee);
provided that such release shall be deemed to be an incurrence by such
Restricted Subsidiary of all its outstanding Indebtedness and Liens and such
release shall only be permitted if before and after giving pro forma effect to
such release (i) all such Indebtedness and such Liens would be permitted to be
incurred by such Restricted Subsidiary under the Indenture as of the time of
such release and (ii) no Default or Event of Default shall have occurred and
is continuing.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (ii) default in payment when
due of the principal of or premium, if any, on the Notes (whether or not
prohibited by the subordination provisions of the Indenture); (iii) failure by
the Company or any of its Subsidiaries to comply with the provisions described
under the captions "--Change of Control," "--Asset Sales," "--Restricted
Payments" or "--Incurrence of Indebtedness and Issuance of Preferred Stock;"
(iv) failure by the Company or any of its Restricted Subsidiaries for 60 days
after notice to comply with any of its other agreements in the Indenture or
the Notes; (v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any of
its Restricted Subsidiaries) whether such Indebtedness or guarantee now
exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of or
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premium, if any, or interest on such Indebtedness prior to the expiration of
the grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (b) results in the acceleration of such Indebtedness
prior to its express maturity and, in each case, the principal amount of any
such Indebtedness, together with the principal amount of any other such
Indebtedness under which there has been a Payment Default or the maturity of
which has been so accelerated, aggregates $5.0 million or more; (vi) failure
by the Company or any of its Restricted Subsidiaries to pay final judgments
aggregating in excess of $5.0 million, which judgments are not paid,
discharged or stayed for a period of 60 days; (vii) except as permitted by the
Indenture, any Subsidiary Guarantee shall be held in any judicial proceeding
to be unenforceable or invalid or shall cease for any reason to be in full
force and effect or any Subsidiary Guarantor, or any Person acting on behalf
of any Subsidiary Guarantor, shall deny or disaffirm its obligations under its
Subsidiary Guarantee; and (viii) certain events of bankruptcy or insolvency
with respect to the Company or any of its Restricted Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the then outstanding Notes may declare
all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Restricted Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Restricted Subsidiary, all
outstanding Notes will become due and payable without further action or
notice. Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of the Notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest) if it determines that withholding notice is in their interest.
In the event of a declaration of acceleration because an Event of Default
set forth in clause (v) above has occurred and is continuing, such declaration
of acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (v) shall be
remedied or cured or waived by the holders of the relevant Indebtedness within
30 days after such event of default; provided that no judgment or decree for
the payment of the money due on the Notes has been obtained by the Trustee as
provided in the Indenture and (a) the annulment of the acceleration of such
Notes would not conflict with any judgment or decree of a court of competent
jurisdiction and (b) all existing Events of Default, except nonpayment of
principal or interest on the Notes that became due solely because of the
acceleration of the Notes, have been cured or waived.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have
had to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to
April 1, 2003 by reason of any willful action (or inaction) taken (or not
taken) by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the Notes prior to April 1, 2003 then the premium
specified in the Indenture shall also become immediately due and payable to
the extent permitted by law upon the acceleration of the Notes.
The holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the holders of all of
the Notes waive an existing Default or Event of Default and its consequences
under the Indenture except a continuing Default or Event of Default in the
payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
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NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of the Company and the Subsidiary Guarantors under the Notes, the
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations and the obligations of the Subsidiary Guarantors discharged with
respect to the outstanding Notes ("Legal Defeasance") except for (i) the
rights of holders of outstanding Notes to receive payments in respect of the
principal of, premium, if any, and interest and Liquidated Damages on such
Notes when such payments are due from the trust referred to below, (ii) the
Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and
the maintenance of an office or agency for payment and money for security
payments held in trust, (iii) the rights, powers, trusts, duties and
immunities of the Trustee, and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company and the Subsidiary Guarantors released with respect
to certain covenants that are described in the Indenture ("Covenant
Defeasance") and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the Notes. In the
event Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described
under "Events of Default" will no longer constitute an Event of Default with
respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance: (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient,
in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest and
Liquidated Damages on the outstanding Notes on the stated maturity or on the
applicable redemption date, as the case may be, and the Company must specify
whether the Notes are being defeased to maturity or to a particular redemption
date; (ii) in the case of Legal Defeasance, the Company shall have delivered
to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that (A) the Company has received from,
or there has been published by, the Internal Revenue Service a ruling or (B)
since the date of the Indenture, there has been a change in the applicable
federal income tax law, in either case to the effect that, and based thereon
such opinion of counsel shall confirm that, the holders of the outstanding
Notes will not recognize income, gain or loss for federal income tax purposes
as a result of such Legal Defeasance and will be subject to federal income tax
on the same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred; (iii) in the case of
Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the holders of the outstanding Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Covenant Defeasance had not occurred; (iv) no Default or Event of
Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of
funds to be applied to such deposit) or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance will not result in a breach or violation of, or constitute
a default under any material agreement or instrument (other than the
Indenture) to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company must
have delivered to the Trustee an opinion of counsel to the effect that after
the 91st day following the deposit, the trust funds will not be subject to the
effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (vii) the
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Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the holders
of Notes over the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and
(viii) the Company must deliver to the Trustee an Officers' Certificate and an
opinion of counsel, each stating that all conditions precedent provided for
relating to the Legal Defeasance or the Covenant Defeasance have been complied
with.
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note
selected for redemption. Also, the Company is not required to transfer or
exchange any Note for a period of 15 days before a selection of Notes to be
redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the holders of a majority in principal amount of the then
outstanding Notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment,
supplement or waiver; (ii) reduce the principal of or change the fixed
maturity of any Note or alter the provisions with respect to the redemption of
the Notes (other than provisions relating to the covenants described above
under the caption "--Repurchase at the Option of Holders"); (iii) reduce the
rate of or change the time for payment of interest on any Note; (iv) waive a
Default or Event of Default in the payment of principal of or premium, if any,
or interest on the Notes (except a rescission of acceleration of the Notes by
the holders of at least a majority in aggregate principal amount of the Notes
and a waiver of the payment default that resulted from such acceleration); (v)
make any Note payable in money other than that stated in the Notes; (vi) make
any change in the provisions of the Indenture relating to waivers of past
Defaults or the rights of holders of Notes to receive payments of principal of
or premium, if any, or interest on the Notes; (vii) waive a redemption payment
with respect to any Note (other than a payment required by one of the
covenants described above under the caption "--Repurchase at the Option of
Holders"); (viii) release any Subsidiary Guarantor from any of its obligations
under its Subsidiary Guarantee or the Indenture, except in accordance with the
terms of the Indenture; or (ix) make any change in the foregoing amendment and
waiver provisions. In addition, any amendment to the provisions of Article 10
of the Indenture (which relate to subordination) will require the consent of
the holders of at least 75% in aggregate principal amount of the Notes then
outstanding if such amendment would adversely affect the rights of holders of
Notes.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company, the Subsidiary Guarantors and the Trustee may amend or supplement
the Indenture or the Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's or any Subsidiary
Guarantor's obligations to holders of Notes in the case of a merger or
consolidation or sale of all or substantially all of the Company's assets, to
make any change that would provide any additional rights or benefits to the
holders of Notes or that does not adversely affect the legal rights under the
Indenture of any such holder, or to comply with requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act.
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CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any
such claim as security or otherwise. The Trustee will be permitted to engage
in other transactions; however, if it acquires any conflicting interest it
must eliminate such conflict within 90 days, apply to the Commission for
permission to continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the
Indenture at the request of any holder of Notes, unless such holder shall have
offered to the Trustee security and indemnity satisfactory to it against any
loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
Registration Rights Agreement without charge by writing to Prime Medical
Services, Inc., 1301 Capital of Texas Highway, Suite C-300, Austin, Texas,
78746-6550, Attention: Chief Financial Officer.
BOOK-ENTRY, DELIVERY AND FORM
The Exchange Notes for which QIBs initially exchange their Outstanding Notes
will be represented by a Global Exchange Note. The Global Exchange Note will
be deposited on the Exchange Date with DTC and registered in the name of Cede
& Co., as nominee of DTC. Except as set forth below, the Global Notes may be
transferred, in whole and not in part, only to another nominee of DTC or to a
successor of DTC or its nominee. Beneficial interests in the Global Notes may
not be exchanged for Notes in certificated form except in the limited
circumstances described below. See "-- Exchange of Book-Entry Notes for
Certificated Notes." Except in the limited circumstances described below,
owners of beneficial interests in the Global Notes will not be entitled to
receive physical delivery of Certificated Notes (as defined below).
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks,
trust companies, clearing corporations and certain other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly (collectively,
the "Indirect Participants"). Persons who are not Participants may
beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
The Company expects that, pursuant to procedures established by the DTC, (i)
upon deposit of the Global Exchange Note, the DTC will credit on its internal
system the principal amounts of the Exchange Notes of the individual
beneficial interests represented by such Global Exchange Note to the
respective accounts of exchanging holders who have account with the DTC and
(ii) ownership of such interest in the Global Exchange Notes will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by the DTC (with respect to the interests of the DTC's
Participants), the DTC's Participants and the DTC's Indirect Participants.
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EXCEPT AS DESCRIBED BELOW, OWNERS OF INTEREST IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal of, and premium, if any, Liquidated
Damages, if any, and interest on a Global Note registered in the name of DTC
or its nominee will be payable to DTC in its capacity as the registered Holder
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee will treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
the Company, the Trustee nor any agent of the Company or the Trustee has or
will have any responsibility or liability for (i) any aspect of DTC's records
or any Participant's or Indirect Participant's records relating to or payments
made on account of beneficial ownership interest in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in the Global Notes or (ii) any other matter relating to
the actions and practices of DTC or any of its Participants or Indirect
Participants. DTC has advised the Company that its current practice, upon
receipt of any payment in respect of securities such as the Notes (including
principal and interest), is to credit the accounts of the relevant
Participants with the payment on the payment date, in amounts proportionate to
their respective holdings in the principal amount of beneficial interest in
the relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of Notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will
not be the responsibility of DTC, the Trustee or the Company. Neither the
Company nor the Trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the Notes, and the
Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee for all purposes.
EXCHANGE OF BOOK-ENTRY NOTES FOR CERTIFICATED NOTES
A Global Note is exchangeable for definitive Notes in registered
certificated form ("Certificated Notes") if (i) DTC (x) notifies the Company
that it is unwilling or unable to continue as depositary for the Global Notes
and the Company thereupon fails to appoint a successor depositary or (y) has
ceased to be a clearing agency registered under the Exchange Act, (ii) the
Company, at its option, notifies the Trustee in writing that it elects to
cause the issuance of the Certificated Notes or (iii) there shall have
occurred and be continuing a Default or Event of Default with respect to the
Notes. In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon request but only upon prior written notice given to
the Trustee by or on behalf of DTC in accordance with the Indenture. In all
cases, Certificated Notes delivered in exchange for any Global Note or
beneficial interests therein will be registered in the names, and issued in
any approved denominations, requested by or on behalf of the depositary (in
accordance with its customary procedures) and will bear any applicable
restrictive legend, unless the Company determines otherwise in compliance with
applicable law.
EXCHANGE OF CERTIFICATED NOTES FOR BOOK-ENTRY NOTES
Notes issued in certificated form may not be exchanged for beneficial
interests in any Global Note unless the transferor first delivers to the
Trustee a written certificate (in the form provided in the Indenture) to the
effect that such transfer will comply with the appropriate transfer
restrictions applicable to such Notes.
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and
Liquidated Damages, if any) be made by wire transfer of immediately
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available funds to the accounts specified by the Global Note Holder in New
York, New York or as otherwise specified by the Global Note Holder. With
respect to Notes in certificated form, the Company will make all payments of
principal, premium, if any, interest and Liquidated Damages, if any, by wire
transfer of immediately available funds to the accounts specified by the
Holders thereof in New York, New York or as otherwise specified by such
Holders or, if no such account is specified, by mailing a check to each such
Holder's registered address. The Notes represented by the Global Notes are
expected to be eligible to trade in the PORTAL market and to trade in the
Depositary's Same-Day Funds Settlement System, and any permitted secondary
market trading activity in such Notes will, therefore, be required by the
Depositary to be settled in immediately available funds. The Company expects
that secondary trading in any certificated Notes will also be settled in
immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any Person,
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of such Person, whether
through the ownership of voting securities, by agreement or otherwise;
provided that beneficial ownership of 10% or more of the Voting Stock of a
Person shall be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets or rights (including, without limitation, by way of a sale and
leaseback) other than sales of inventory and dispositions of Cash Equivalents,
in each case, in the ordinary course of business (provided that the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company and its Restricted Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described above under the caption
"--Change of Control" and/or the provisions described above under the caption
"--Merger, Consolidation or Sale of Assets" and not by the provisions of the
Asset Sale covenant), and (ii) the issue by any Restricted Subsidiaries of the
Company of any Equity Interests of such Restricted Subsidiary and the sale by
the Company or any of its Restricted Subsidiaries of Equity Interest of any of
the Company's Subsidiaries, in the case of either clause (i) or (ii), whether
in a single transaction or a series of related transactions (a) that have a
fair market value in excess of $1.0 million or (b) for net proceeds in excess
of $1.0 million. Notwithstanding the foregoing, the following items shall not
be deemed to be Asset Sales: (i) a transfer of assets by the Company to a
Restricted Subsidiary or by a Restricted Subsidiary to the Company or to
another Restricted Subsidiary, (ii) an issuance of Equity Interests by a
Restricted Subsidiary to the Company or to another Restricted Subsidiary,
(iii) a Restricted Payment that is permitted by the covenant described above
under the caption "Certain Covenants--Restricted Payments" and (iv) the grant
of any Lien permitted to be incurred under the Indenture (and any foreclosure
thereon conducted in a commercially reasonable manner).
"Attributable Debt" in respect of a sale and leaseback transaction means, at
the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
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"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of,
the issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof (provided that the full faith and credit
of the United States is pledged in support thereof) having maturities of not
more than six months from the date of acquisition, (iii) certificates of
deposit and eurodollar time deposits with maturities of six months or less
from the date of acquisition, demand deposits, bankers' acceptances with
maturities not exceeding six months and overnight bank deposits, in each case
with any lender party to the Senior Credit Facility or with any domestic
commercial bank having capital and surplus in excess of $500 million and a
Thompson Bank Watch Rating of "B" or better, or foreign branches thereof,
having capital and surplus in excess of $500.0 million or any commercial bank
of any other country that is a member of the Organization for Economic
Cooperation and Development ("OECD") and has total assets in excess of $500.0
million and has one of the two highest ratings available from Moody's
Investors Service, Inc. or Standard & Poor's Ratings Group, (iv) repurchase
obligations with a term of not more than seven days for underlying securities
of the types described in clauses (ii) and (iii) above entered into with any
financial institution meeting the qualifications specified in clause (iii)
above, (v) commercial paper having the highest rating obtainable from Moody's
Investors Service, Inc. or Standard & Poor's Ratings Group and in each case
maturing within six months after the date of acquisition and (vi) money market
funds the assets of which constitute Cash Equivalents of the kinds described
in clauses (i)--(v) of this definition.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all
or substantially all of the assets of the Company and its Restricted
Subsidiaries taken as a whole to any "person" (as such term is used in Section
13(d)(3) of the Exchange Act); (ii) the adoption of a plan relating to the
liquidation or dissolution of the Company; (iii) the consummation of any
transaction (including, without limitation, any merger or consolidation) the
result of which is that any "person" (as defined above) becomes the
"beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under
the Exchange Act, except that a person shall be deemed to have "beneficial
ownership" of all securities that such person has the right to acquire,
whether such right is currently exercisable or is exercisable only upon the
occurrence of a subsequent condition), directly or indirectly, of more than
50% of the Voting Stock of the Company (measured by voting power rather than
number of shares); (iv) the first day on which a majority of the members of
the Board of Directors of the Company are not Continuing Directors; or (iv)
the Company consolidates with, or merges with or into, any Person, or any
Person consolidates with, or merges with or into, the Company, in any such
event pursuant to a transaction in which any of the outstanding Voting Stock
of the Company is converted into or exchanged for cash, securities or other
property, other than any such transaction where the Voting Stock of the
Company outstanding immediately prior to such transaction is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving or
transferee Person constituting a majority of the outstanding shares of such
Voting Stock of such surviving or transferee Person (immediately after giving
effect to such issuance).
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with
an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such
Consolidated Net
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Income, plus (iii) consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether
or not capitalized (including, without limitation, amortization or write-off
of debt issuance costs and original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts and
other fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net payments (if any) pursuant to Hedging
Obligations), to the extent that any such expense was deducted in computing
such Consolidated Net Income, plus (iv) depreciation, amortization (including
amortization of goodwill and other intangibles but excluding amortization of
prepaid cash expenses that were paid in a prior period) and other non-cash
expenses (excluding any such depreciation, amortization and other non-cash
charges attributable to minority interests and any other non-cash expense to
the extent that it represents an accrual of or reserve for cash expenses in
any future period or amortization of a prepaid cash expense that was paid in a
prior period) of such Person and its Restricted Subsidiaries for such period
to the extent that such depreciation, amortization and other non-cash expenses
were deducted in computing such Consolidated Net Income, minus (v) non-cash
items increasing such Consolidated Net Income for such period (excluding any
items which represent the reversal of any accrual of, or cash reserves for,
anticipated cash charges in any prior period), in each case, on a consolidated
basis and determined in accordance with GAAP. Notwithstanding the foregoing,
the provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash expenses of, a Restricted Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that
the Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount
would be permitted at the date of determination to be dividended to the
Company by such Restricted Subsidiary without prior governmental approval
(that has not been obtained), and without direct or indirect restriction
pursuant to the terms of its charter and all agreements, instruments,
judgments, decrees, orders, statutes, rules and governmental regulations
applicable to that Restricted Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof, (ii) the Net Income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or
the holders of its Equity Interests, (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the
date of such acquisition shall be excluded and (iv) the cumulative effect of a
change in accounting principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date
with respect to any series of preferred stock (other than Disqualified Stock)
that by its terms is not entitled to the payment of dividends unless such
dividends may be declared and paid only out of net earnings in respect of the
year of such declaration and payment, but only to the extent of any cash
received by such Person upon issuance of such preferred stock, less (x) all
write-ups (other than write-ups resulting from foreign currency translations
and write-ups of tangible assets of a going concern business made within 12
months after the acquisition of such business) subsequent to the date of the
Indenture in the book value of any asset owned by such Person or a
consolidated Subsidiary of such Person, (y) all investments as of such date in
unconsolidated Subsidiaries and in Persons that are not Subsidiaries (except,
in each case, Permitted Investments), and (z) all unamortized debt discount
and expense and unamortized deferred charges as of such date, all of the
foregoing determined in accordance with GAAP.
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"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
"Debt to Cash Flow Ratio" means, with respect to any Person as of any date
of determination (the "Calculation Date") the ratio of (a) the consolidated
Indebtedness of such Person and its Restricted Subsidiaries as of the
Calculation Date to (b) the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for the most recent four full fiscal quarters ending
immediately prior to the Calculation Date for which internal financial
statements are available determined on a pro forma basis after giving effect
to all financing transactions and acquisitions or dispositions of assets made
by such Person and its Restricted Subsidiaries from the beginning of such
four-quarter period through and including the Calculation Date as if such
transactions had occurred at the beginning of such quarter. In addition, for
purposes of making the computation referred to above, (i) acquisitions that
have been made by such Person or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the reference period or subsequent to such reference
period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the reference period and Consolidated Cash Flow
for such reference period shall be calculated without giving effect to clause
(iii) of the proviso set forth in the definition of Consolidated Net Income,
and (ii) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed
of prior to the Calculation Date, shall be excluded.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Obligations outstanding under the
Senior Credit Facility and (ii) any other Senior Debt permitted under the
Indenture the aggregate principal amount of which is $10.0 million or more and
that has been designated by the Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, at the option of the holder thereof), or upon the happening of
any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date that is 91 days after the date on
which the Notes mature; provided, however, that any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the
right to require the Company to repurchase such Capital Stock upon the
occurrence of a Change of Control or an Asset Sale shall not constitute
Disqualified Stock if the terms of such Capital Stock provide that the Company
may not repurchase or redeem any such Capital Stock pursuant to such
provisions unless such repurchase or redemption complies with the covenant
described above under the caption "--Certain Covenants--Restricted Payments."
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the Senior Credit Facility) in
existence on the Issue Date, including without limitation obligations to make
earn-out or other contingent payments arising under agreements in existence on
the Issue Date, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication (and determined in each case an accordance with GAAP), of
(i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization or write-off of debt issuance costs and original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and
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charges incurred in respect of letter of credit or bankers' acceptance
financings, and net payments (if any) pursuant to Hedging Obligations) and
(ii) the consolidated interest of such Person and its Restricted Subsidiaries
that was capitalized during such period, and (iii) any interest expense on
Indebtedness of another Person that is Guaranteed by such Person or one of its
Restricted Subsidiaries or secured by a Lien on assets of such Person or one
of its Restricted Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (a) all dividend payments, whether or not
in cash, on any series of preferred stock of such Person or any of its
Restricted Subsidiaries, other than dividend payments on Equity Interests
payable solely in Equity Interests of the Company (other than Disqualified
Stock) or to the Company or a Restricted Subsidiary of the Company, times (b)
a fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person
and its Restricted Subsidiaries for such period. In the event that the
referent Person or any of its Restricted Subsidiaries incurs, assumes,
Guarantees or repays or redeems any Indebtedness (other than revolving credit
borrowings) or issues or redeems preferred stock subsequent to the
commencement of the period for which the Fixed Charge Coverage Ratio is being
calculated but prior to the date on which the event for which the calculation
of the Fixed Charge Coverage Ratio is made (the "Calculation Date"), then the
Fixed Charge Coverage Ratio shall be calculated giving pro forma effect to
such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that
have been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to
have occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated without
giving effect to clause (iii) of the proviso set forth in the definition of
Consolidated Net Income, and (ii) the Consolidated Cash Flow attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded,
and (iii) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
prior to the Calculation Date, shall be excluded, but only to the extent that
the obligations giving rise to such Fixed Charges will not be obligations of
the referent Person or any of its Restricted Subsidiaries following the
Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the Issue Date.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements and (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced
by bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of
the purchase price of any property or representing any Hedging Obligations,
except any such balance that constitutes an accrued expense or trade payable,
if and to the
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extent any of the foregoing (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) (provided that in the case of any such
Lien, if the obligations so secured have not been assumed by such Person or
are not otherwise such Person's legal liability, such obligations shall be
deemed to be in an amount equal to the fair market value of such properties or
assets (which, if such value is in excess of $1.0 million, shall be determined
in good faith by the Board of Directors of such Person, which determination
shall be evidenced by a Board Resolution)) and, to the extent not otherwise
included, the Guarantee by such Person of any Indebtedness of any other Person
(to the extent of such Guarantee). The amount of any Indebtedness outstanding
as of any date shall be (i) the accreted value thereof, in the case of any
Indebtedness issued with original issue discount, and (ii) the principal
amount thereof, together with any interest thereon that is more than 45 days
past due, in the case of any other Indebtedness. Indebtedness shall not
include open payables owed by the Company to any Subsidiary arising in the
ordinary course of business solely from the collection by the Company of
amounts due to such Subsidiary.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including Guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers, directors and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or
would be classified as investments on a balance sheet prepared in accordance
with GAAP. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect
Restricted Subsidiary of the Company such that, after giving effect to any
such sale or disposition, such Person is no longer a Restricted Subsidiary of
the Company, the Company shall be deemed to have made an Investment on the
date of any such sale or disposition equal to the fair market value of the
Equity Interests of such Restricted Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "--Certain Covenants--Restricted Payments."
"Issue Date" means the closing date for the sale and original issuance of
the Notes under the Indenture.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but
not loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b)
the disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any
of its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain
(but not loss), together with any related provision for taxes on such
extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of
any non-cash consideration received in any Asset Sale), net of (without
duplication) the direct costs relating to such Asset Sale (including, without
limitation, legal, accounting and investment banking fees, and sales
commissions) and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof (after taking into account any available
tax credits or deductions and any tax sharing arrangements), amounts required
to be applied to the repayment of Indebtedness (other than debt under the
Senior Credit Facility) secured by a Lien on the asset or assets that were the
subject of such Asset Sale, any reserve for
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adjustment in respect of the sale price of such asset or assets established in
accordance with GAAP, all distributions and other payments required to be made
pursuant to customary partnership agreements, limited liability company
organizational documents, joint venture agreements or similar agreements
entered into in the ordinary course of business to minority interest holders
in Restricted Subsidiaries as a result of such Asset Sale, and appropriate
amounts to be provided by the seller as a reserve, in accordance with GAAP,
against any liabilities associated with the assets disposed of in such Asset
Sale and retained by the Company or any Restricted Subsidiary after such Asset
Sale.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or payable
prior to its stated maturity; and (iii) as to which the lenders have been
notified in writing that they will not have any recourse to the stock or
assets of the Company or any of its Restricted Subsidiaries.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Permitted Business" means the business conducted by the Company and its
Restricted Subsidiaries on the Issue Date and businesses reasonably related
thereto.
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) any Investment by the Company or any Restricted Subsidiary of the Company
in a Person, if as a result of such Investment (i) such Person becomes a
Restricted Subsidiary of the Company or (ii) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary of the Company; (d) any Investment made as a result of
the receipt of non-cash consideration from an Asset Sale that was made
pursuant to and in compliance with the covenant described above under the
caption "--Repurchase at the Option of Holders--Asset Sales"; (e) any
acquisition of Equity Interests, assets or Investments in a Person solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock)
of the Company; (f) any acquisition by the Company or a Restricted Subsidiary
of outstanding Equity Interests in any Restricted Subsidiary; (g) working
capital advances on fair and reasonable terms to the Company (in the good
faith judgment of senior management of the Company) to Unrestricted
Subsidiaries in the ordinary course of business on a basis consistent with
past practice, provided that such advances are not outstanding for more than
ninety days; (h) stock, obligations or securities received in settlement of
debts created in the ordinary course of business and owing to the Company or
any of its Restricted Subsidiaries or in satisfaction of judgments or pursuant
to any plan of reorganization or similar arrangement upon the bankruptcy or
insolvency of any debtor, (i) accounts receivable created or acquired, and
prepaid expenses arising, in the ordinary course of business; (j) the
endorsements of negotiable instruments for collection or deposit in the
ordinary course of business; (k) the incurrence, assumption or creation of
Hedging Obligations entered into in compliance with the Indenture in the
ordinary course of business; and (l) other Investments in Persons (other than
Restricted Subsidiaries) engaged primarily in lithotripsy operations, which
Investments have an aggregate fair market value (measured on the date each
such Investment was made and without giving effect to subsequent changes in
value), when taken together with all other Investments made pursuant to this
clause (l) that are at the time outstanding (it being understood that an
Investment shall be deemed not to be outstanding for purposes of this clause
(l) if such Person subsequently becomes a Restricted Subsidiary), not to
exceed $50.0 million if both before and after giving pro forma effect to any
such Investment (i) no Default or Event of Default shall have occurred and is
continuing, (ii) the Company's Fixed Charge Coverage Ratio for the Company's
most recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date of such proposed
Investment would have been at least 3.5 to 1 and (iii) the Company's Debt to
Cash Flow Ratio for the Company's most
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recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date of such proposed
Investment would have been no greater than 3.5 to 1.
"Permitted Junior Securities" means Equity Interests in the Company or a
Subsidiary Guarantor or debt securities that are subordinated to all Senior
Debt (and any debt securities issued in exchange for Senior Debt) to
substantially the same extent as, or to a greater extent than, the Notes, or
such Subsidiary Guarantor's Subsidiary Guarantee, as appropriate, are
subordinated to Senior Debt pursuant to the Indenture.
"Permitted Liens" means (i) Liens on assets of the Company or any of the
Subsidiary Guarantors securing Senior Debt under the Senior Credit Facility
that were permitted by the terms of the Indenture to be incurred; (ii) Liens
in favor of the Company or a Subsidiary Guarantor; (iii) Liens on property of
a Person existing at the time such Person is merged into or consolidated with
the Company or any Subsidiary of the Company or becomes a Subsidiary of the
Company; provided that such Liens were in existence prior to the contemplation
of such transaction and do not extend to any assets other than those of such
Person; (iv) Liens on property existing at the time of acquisition thereof by
the Company or any Subsidiary of the Company, provided that such Liens were in
existence prior to the contemplation of such acquisition; (v) Landlord's Liens
or Liens to secure the performance of statutory obligations, surety or appeal
bonds, performance bonds or other obligations of a like nature incurred in the
ordinary course of business; (vi) Liens to secure Indebtedness (including
Capital Lease Obligations) permitted by clauses (iv) or (x) of the second
paragraph of the covenant entitled "Incurrence of Indebtedness and Issuance of
Preferred Stock" covering only the assets acquired with such Indebtedness;
(vii) Liens existing on the date of the Indenture; (viii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with GAAP shall have
been made therefor; (ix) Liens incurred in the ordinary course of business of
the Company or any Subsidiary of the Company with respect to obligations that
do not exceed $5.0 million at any one time outstanding and that (a) are not
incurred in connection with the borrowing of money or the obtaining of
advances or credit (other than trade credit in the ordinary course of
business) and (b) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof in the operation of business
by the Company or such Subsidiary; (x) Liens on assets of Unrestricted
Subsidiaries that secure Non-Recourse Debt of Unrestricted Subsidiaries; (xi)
Liens on assets of the Company securing Senior Debt of the Company that was
permitted to be incurred by the terms of the Indenture and Liens on assets of
a Subsidiary Guarantor securing Senior Debt of such Subsidiary Guarantor that
was permitted to be incurred by the terms of the Indenture; (xii) Liens
securing Permitted Refinancing Indebtedness which is incurred to refinance any
Indebtedness which has been secured by a Lien permitted under the Indenture
and which has been incurred in accordance with the provisions of the
Indenture, provided, however, that such Liens (A) are not materially less
favorable to the Holders and are not materially more favorable to the
lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being refinanced and (B) do not extend to or cover any property
or assets of the Company or any of its Restricted Subsidiaries not securing
the Indebtedness so refinanced (other than improvements to such property or
assets); (xiii) Liens arising under the Indenture in favor of the Trustee for
its own benefit and similar Liens in favor of other trustees arising under
instruments governing Indebtedness permitted to be incurred under the
Indenture; (xiv) judgment Liens not giving rise to an Event of Default so long
as such Lien is adequately bonded and any appropriate legal proceedings which
may have been duly initiated for the review of such judgment shall not have
finally terminated or other period within which such proceedings may be
initiated shall not have expired; (xv) Liens resulting from the deposit of
funds or government securities in trust for the purpose of discharging or
defeasing Indebtedness of the Company and its Restricted Subsidiaries so long
as such deposit of funds or government securities and such discharging or
defeasing of Indebtedness are permitted under the "Restricted Payments"
covenant; (xvi) setoff, chargeback and other rights of depository and
collecting banks and other regulated financial institutions with respect to
money or instruments of the Company or its Restricted Subsidiaries on deposit
with or in the possession of such institutions; (xvii) pledges or deposits
made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other social security legislation;
and (xviii) Liens securing Hedging Obligations otherwise permitted under the
Indenture.
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"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund, in whole or in part, other Indebtedness of the Company or any of its
Restricted Subsidiaries (other than intercompany Indebtedness); provided that:
(i) the principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount of (or accreted
value, if applicable), plus accrued interest on, the Indebtedness so extended,
refinanced, renewed, replaced, defeased or refunded (plus the amount of
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Notes, such Permitted
Refinancing Indebtedness is subordinated in right of payment to the Notes on
terms at least as favorable to the Holders of Notes as those contained in the
documentation governing the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; and (iv) such Indebtedness is incurred either
by the Company or by the Restricted Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Credit Facility" means that certain credit agreement existing on the
Issue Date by and among the Company, certain lending parties thereto and Bank
Boston, N.A. and NationsBank of Texas, N.A., as agents, including any related
notes, guarantees (by Subsidiaries or otherwise), collateral documents,
instruments and agreements executed in connection therewith, as such credit
agreement and/or related documents may be amended, restated, supplemented,
renewed, replaced or otherwise modified from time to time (in each case, in
whole or in part, and without limitation as to amount, terms, conditions,
covenants and other provisions), with the same or other agents, trustees,
representative lenders or holders, irrespective of any changes in the terms
and conditions thereof. Without limiting the generality of the foregoing, the
term "Senior Credit Facility" shall include any amendment, amendment and
restatement, renewal, extension, restructuring, supplement or modification to
any Senior Credit Facility and all refundings, refinancings and replacements
of any Senior Credit Facility, including any agreement (i) extending the
maturity of any Obligations incurred thereunder or contemplated thereby, (ii)
adding or deleting borrowers or guarantors thereunder, so long as borrowers
and guarantors include one or more of the Company and its Subsidiaries and
their respective successors and assigns, or (iii) increasing the amount of
Indebtedness incurred thereunder or available to be borrowed thereunder.
"Senior Debt" means (i) all Obligations of the Company or any Subsidiary
Guarantors outstanding under the Senior Credit Facility and all Hedging
Obligations with respect thereto, (ii) any other Indebtedness permitted to be
incurred by the Company or any Subsidiary Guarantors under the terms of the
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes or any Subsidiary Guarantor's Subsidiary Guarantee of the
Notes and (iii) all Obligations with respect to the foregoing. Notwithstanding
anything to the contrary in the foregoing, Senior Debt will not include (v)
any liability for federal, state, local or other taxes owed or owing by the
Company or any of its Subsidiaries, (w) any Indebtedness of the Company or any
of its Subsidiaries to any Subsidiary or other Affiliate, (x) any trade
payables, (y) any Indebtedness that is incurred in violation of the Indenture
or (z) any Indebtedness which is, by its express terms, subordinated in right
of payment to any other Indebtedness of the Company.
"Significant Restricted Subsidiary" means any Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date of the Indenture.
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"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original documentation
governing such Indebtedness, and shall not include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the
date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total
voting power of shares of Capital Stock entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers
or trustees thereof is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership or limited
liability company (a) the sole general partner, the managing general partner
or the managing member, as the case may be, of which is such Person or a
Subsidiary of such Person or (b) the only general partners or managing
members, as the case may be, of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantors" means (i) each Wholly Owned Restricted Subsidiary of
the Company on the Issue Date and (ii) any other subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture, and
their respective successors and assigns.
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary (and any Subsidiary of such
Unrestricted Subsidiary) pursuant to a Board Resolution; but only to the
extent that such Subsidiary: (a) has no Indebtedness other than Non-Recourse
Debt; (b) is not party to any agreement, contract, arrangement or
understanding with the Company or any Restricted Subsidiary of the Company
unless the terms of any such agreement, contract, arrangement or understanding
are no less favorable to the Company or such Restricted Subsidiary than those
that might be obtained at the time from Persons who are not Affiliates of the
Company (other than (x) open payables owed by the Company to such Subsidiary
arising in the ordinary course of business solely from the collection by the
Company of amounts due to such Subsidiary and (y) working capital advances on
fair and reasonable terms to the Company (in the good faith judgment of senior
management of the Company) to such Subsidiary in the ordinary course of
business on a basis consistent with past practice, provided that such advances
are not outstanding for more than 90 days); (c) is a Person with respect to
which neither the Company nor any of its Restricted Subsidiaries has any
direct or indirect obligation (x) to subscribe for additional Equity Interests
or (y) to maintain or preserve such Person's financial condition or to cause
such Person to achieve any specified levels of operating results; and (d) has
not guaranteed or otherwise directly or indirectly provided credit support for
any Indebtedness of the Company or any of its Restricted Subsidiaries. Any
such designation by the Board of Directors shall be evidenced to the Trustee
by filing with the Trustee a certified copy of the Board Resolution giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the caption "--Certain Covenants--Restricted
Payments." If, at any time, any Unrestricted Subsidiary would fail to meet the
foregoing requirements as an Unrestricted Subsidiary, it shall thereafter
cease to be an Unrestricted Subsidiary for purposes of the Indenture and any
Indebtedness of such Subsidiary shall be deemed to be incurred by a Restricted
Subsidiary of the Company as of such date (and, if such Indebtedness is not
permitted to be incurred as of such date under the covenant described under
the caption "Incurrence of Indebtedness and Issuance of Preferred Stock," the
Company shall be in default of such covenant). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a
Restricted Subsidiary; provided that such designation shall be deemed to be an
incurrence of Indebtedness by a Restricted Subsidiary of the Company of any
outstanding Indebtedness of such Unrestricted Subsidiary and such designation
shall only be permitted if (i) such Indebtedness is permitted under the
covenant described under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock," calculated on a pro forma basis
as if such designation had occurred at the beginning of the four-quarter
reference period and (ii) no Default or Event of Default would be in existence
following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
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"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (ii) the then outstanding
principal amount of such Indebtedness.
"Wholly-Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall
at the time be owned by such Person or by one or more Wholly-Owned Restricted
Subsidiaries of such Person.
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain United States federal income tax
consequences resulting from the acquisition, ownership and disposition of the
Exchange Notes which may be relevant to a holder or prospective purchaser of
one or more of such Exchange Notes. The following summary is of a general
nature only and is not intended to be, and should not be construed to be,
legal or tax advice to any prospective investor and no representation with
respect to the tax consequences of any particular investor is made.
Accordingly, prospective investors should consult with their own tax advisors
for advice with respect to the income tax consequences to them having regard
to their own particular circumstances, including any consequences of an
investment in the Exchange Notes arising under state, provincial or local tax
laws or tax laws of jurisdictions outside the United States.
IN ADDITION, PERSONS CONSIDERING THE ACQUISITION OF THE EXCHANGE NOTES
SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF U.S.
FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN
TAXING JURISDICTION, TO THEIR PARTICULAR SITUATIONS AND THE POSSIBLE EFFECT OF
CHANGES IN U.S. FEDERAL OR OTHER TAX LAWS.
The legal conclusions expressed in this summary are based upon current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury regulations ("Regulations"), judicial authority and
administrative rulings and practice, all as in effect as of the date of this
Prospectus, and all of which are subject to change, either prospectively or
retroactively. There can be no assurance that the Internal Revenue Service
(the "Service") will not take a contrary view, and no rulings from the Service
have been or will be sought with respect to any matter involving the tax
aspects of the purchase, ownership or exchange or other disposition of the
Notes. Legislative, judicial or administrative changes or interpretations may
be forthcoming that could alter or modify the statements and conclusions set
forth herein. Any such changes or interpretations may or may not be
retroactive and could affect the tax consequences to holders.
This summary deals only with persons who will hold the Exchange Notes as
capital assets within the meaning of Section 1221 of the Code, and does not
address tax considerations applicable to investors who may be subject to
special tax rules, such as financial institutions, tax-exempt organizations,
foreign corporations, foreign individuals, insurance companies, dealers in
securities or currencies, persons who hold Exchange Notes as a hedge or as a
position in a "straddle" for tax purposes, and persons who have a "functional
currency" other than the U.S. dollar.
In addition, the description does not consider the effect of any applicable
foreign, state, local or other tax laws or estate or gift tax considerations.
U.S. HOLDERS
The following discussion is limited to the United States federal income tax
consequences relevant to a holder of the Notes that is a U.S. Holder. The term
"U.S. Holder" refers to a person that is classified for U.S. federal tax
purposes as a United States person. For this purpose, a United States person
includes (i) a resident (within the meaning of Section 7701(b) of the Code) or
current or former citizen of the United States, (ii) a corporation, limited
liability company, partnership or other business entity created or organized
in the United States or under the laws of the United States or of any state or
political subdivision thereof (iii) an estate or trust whose income is
includable in gross income for U.S. federal income tax purposes regardless of
its source or (iv) a person whose worldwide income or gain is otherwise
subject to U.S. federal income taxation on a net basis.
The Exchange Offer. Pursuant to recently finalized Regulations, the exchange
of Outstanding Notes for Exchange Notes pursuant to the Exchange Offer should
not constitute a significant modification of the terms of the Outstanding
Notes and, accordingly, such exchange should be treated as a "non-event" for
federal income tax purposes. Therefore, such exchange should have no federal
income tax consequences to U.S. Holders of Outstanding Notes who exchange such
notes for Exchange Notes, the holding period of an Exchange Note should
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include the holding period of the Outstanding Note for which it was exchanged,
the basis of an Exchange Note should be the same as the basis of the
Outstanding Note for which it was exchanged, and each U.S. Holder of Exchange
Notes should continue to be required to include interest on the Outstanding
Notes in its gross income in accordance with its method of accounting for
federal income tax purposes.
Payment of Interest. Interest on a Note generally will be includable in the
income of a U.S. Holder as ordinary income at the time such interest is
received or accrued, in accordance with such U.S. Holder's method of
accounting for United States federal income tax purposes.
The Company is obligated to pay additional interest amounts in the event of
a Registration Default (as defined). Under the Regulations, certain contingent
payments on debt instruments must be accrued into gross income by a holder
(regardless of such holder's method of accounting). However, any payment
subject to a remote or incidental contingency (i.e., there is a remote
likelihood that the contingency will occur or the potential amount of the
contingent payment is insignificant relative to the total expected amount of
remaining payments) is not treated as a contingent payment and is ignored
until payment, if any, is actually made. The Company intends to take the
position that the additional interest payments resulting from a Registration
Default are subject to a remote or incidental contingency. Accordingly, a U.S.
Holder of a Note should report any additional interest payments resulting from
a Registration Default as ordinary income in accordance with such holder's
method of accounting for United States federal income tax purposes.
Original Issue Discount. If the Notes are not issued at a discount or are
deemed to be issued with no discount because such discount is de minimis, a
U.S. Holder will include in income as ordinary interest income the gross
amount of interest paid or payable in respect of the Notes as provided above
in "--Payment of Interest."
Market Discount. If a U.S. Holder purchases a Note for less than the stated
redemption price at maturity (the sum of all payments on the Note other than
qualified stated interest), the difference is considered "market discount,"
unless such difference is de minimis. A discount will be considered de minimis
if it is less than one-fourth ( 1/4) of one percent of the Note Issue Price
multiplied by the number of complete years to maturity (after the holder
acquires the Note). Under the market discount rules, any gain realized by the
U.S. Holder on a taxable disposition of a Note having "market discount," as
well as on any partial principal payment made with respect to such Note, will
be treated as ordinary income to the extent of the then "accrued market
discount" of the Note. An overview of the rules concerning the calculation of
"accrued market discount" is set forth in the paragraph immediately below. In
addition, a U.S. Holder of such Note may be required to defer the deduction of
all or a portion of the interest expense on any indebtedness incurred or
continued to purchase or carry a Note.
Any market discount will accrue ratably from the date of acquisition to the
maturity date of the Note, unless the U.S. Holder elects, irrevocably, to
accrue market discount on a constant interest rate method. The constant
interest rate method generally accrues interest at times and in amounts
equivalent to the result which would have occurred had the market discount
been original issue discount computed from the U.S. Holder's acquisition of
the Note through the maturity date. The election to accrue market discount on
a constant interest rate method is irrevocable but may be made separately as
to each Note held by the U.S. Holder. Accrual of market discount will not
cause the accrued amounts to be included currently in a U.S. Holder's taxable
income, in the absence of a disposition of, or principal payment on, the Note.
However, a U.S. Holder of a Note may elect to include market discount in
income currently as it accrues on either a ratable or constant interest rate
method. In such event, interest expense relating to the acquisition of a Note
which would otherwise be deferred would be currently deductible to the extent
otherwise permitted by the Code. The election to include market discount in
income currently, once made, applies to all market discount obligations
acquired by such holder on or after the first day of the first taxable year to
which the election applies, and may not be revoked without the consent of the
Service. Accrued market discount which is included in a U.S. Holder's gross
income will increase the adjusted tax basis of the Note in the hands of the
U.S. Holder.
Amortizable Bond Premium. If a subsequent U.S. Holder acquires a Note for an
amount which is greater than the amount payable at maturity, such holder will
be considered to have purchased such Note with "amortizable bond premium"
equal to the amount of such excess. The U.S. Holder may elect to amortize the
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premium, using a constant yield method employing six-month compounding, over
the period from the acquisition date to the maturity date of the Note. The
"amount payable at maturity" will be determined as of an earlier call date,
using the call price payable on such earlier date if the combination of such
earlier date and call price will produce a smaller amortizable bond premium
than would result from using the scheduled maturity date and its amount
payable. If an earlier call date is used and the Note is not called, the Note
will be treated as having matured on such earlier call date and then as having
been reissued on such date for the amount so payable. Amortized amounts may be
offset only against interest payments due under the Note and will reduce the
U.S. Holder's adjusted tax basis in the Note to the extent so used.
Once made, an election to amortize and offset interest on bonds, such as the
Notes, will apply to all bonds in respect of which the election was made that
were owned by the taxpayer on the first day of the taxable year to which the
election relates and to all bonds of such class or classes subsequently
acquired by such taxpayer. Such election may only be revoked with the consent
of the Service. If a U.S. Holder of a Note does not elect to amortize the
premium, the premium will decrease the gain or increase the loss which would
otherwise be recognized upon disposition of the Note.
Sale, Exchange or Retirement of Notes. Upon the sale, exchange, redemption,
retirement, or other disposition of a Note, other than the exchange of a Note
for an Exchange Note (see "The Exchange Offer" above), a U.S. Holder of a Note
generally will recognize gain or loss in an amount equal to the difference
between the amount of cash and the fair market value of any property received
on the sale, exchange or retirement of the Note (other than in respect of
accrued and unpaid interest on the Note, which such amounts are treated as
ordinary interest income) and such U.S. Holder's adjusted tax basis in the
Note. If a U.S. Holder holds the Note as a capital asset, such gain or loss
will be capital gain or loss, except to the extent of any accrued market
discount (see "--Market Discount" above), and will be long-term capital gain
or loss if the Note has a holding period of more than one year at the time of
sale, exchange or retirement (and may be subject to lower tax rates applicable
to capital gains depending on the U.S. Holder's status and the length of the
holding period of the Note).
Backup Withholding and Information Reporting. In general, information
reporting requirements will apply to interest payments on the Notes made to
U.S. Holders other than certain exempt recipients (such as corporations) and
to proceeds realized by such U.S. Holders on dispositions of Notes. A 31%
backup withholding tax will apply to such amounts if the U.S. Holder (i) fails
to furnish its social security or other taxpayer identification number ("TIN")
within a reasonable time after request therefor, (ii) furnishes an incorrect
TIN, (iii) fails to report properly interest or dividend income, or (iv)
fails, under certain circumstances, to provide a certified statement, signed
under penalty of perjury, that the TIN provided is its correct number and that
it is not subject to backup withholding. Any amount withheld from a payment to
a U.S. Holder under the backup withholding rules is allowable as a refund or
as a credit against such U.S. Holder's federal income tax liability, provided
that the required information is furnished to the Service. U.S. Holders of
Notes should consult their tax advisors as to their qualification for
exemption from backup withholding and the procedure for obtaining such an
exemption.
NON-U.S. HOLDERS
This Section summarizes certain U.S. federal tax consequences of the
ownership and disposition of Notes by "Non-U.S. Holders." The term "Non-U.S.
Holder" refers to a person that is not classified for U.S. federal tax
purposes as a "United States person," as defined in "--U.S. Holders" above.
Interest on Notes. In general, a Non-U.S. Holder will not be subject to U.S.
federal income tax or regular withholding tax with respect to stated interest
received or accrued on the Notes so long as (a) such interest is not
effectively connected with the conduct of a trade or business within the
United States, (b) the Non-U.S. Holder does not actually or constructively own
10% or more of the total combined voting power of all classes of stock of the
Company entitled to vote, (c) the Non-U.S. Holder is not controlled by a
foreign corporation that is related to the Company actually or constructively
through stock ownership, and (d) either (i) the beneficial owner of the Note
certifies to the Company or its agent, under penalties of perjury, that it is
not a U.S. Holder and provides
90
<PAGE>
its name and address on U.S. Treasury Form W-8 (or on a suitable substitute
form) or (ii) the Note is held by a securities clearing organization, bank or
other financial institution that holds customers' securities in the ordinary
course of its trade or business (a "financial institution") on behalf of such
Non-U.S. Holder and such financial institution certifies under penalties of
perjury that such a Form W-8 (or suitable substitute form) has been received
from the beneficial owner by it or by a financial institution between it and
the beneficial owner and furnishes the payor with a copy thereof.
If interest received on the Notes by a Non-U.S. Holder is effectively
connected with the conduct by such Non-U.S. Holder of a trade or business
within the United States, such interest will be subject to U.S. federal income
tax on a net basis at the rates applicable to U.S. persons generally (and,
with respect to corporate holders under certain circumstances, may also be
subject to a 30% branch profits tax). If payments are subject to U.S. federal
income tax on a net basis in accordance with the rules described in the
preceding sentence, such payments will not be subject to U.S. withholding tax
so long as the Non-U.S. Holder provides the Company or their paying agent with
a properly executed Form 4224.
Non-U.S. Holders should consult any applicable income tax treaties, which
may provide for a lower rate of withholding tax, or other rules different from
those described above.
Gain on Disposition of Notes. Non-U.S. Holders generally will not be subject
to U.S. federal income taxation on gain recognized on a disposition of Notes
so long as (i) the gain is not effectively connected with the conduct by the
Non-U.S. Holder of a trade or business within the United States and (ii) in
the case of a Non-U.S. Holder who is an individual, either such Non-U.S.
Holder is not present in the United States for 183 days or more in the taxable
year of disposition or such Non-U.S. Holder does not have a "tax home" (within
the meaning of section 911(d)(3) of the Code) in the United States.
U.S. Information Reporting Requirements and Backup Withholding. Generally,
payments of interest, OID, premium or principal on the Notes to Non-U.S.
Holders will not be subject to information reporting or backup withholding if
the Non-U.S. Holder complies with the certification requirements set forth in
clause (d) under "--Interest on Notes" above.
Non-U.S. Holders will not be subject to information reporting or backup
withholding with respect to the payment of proceeds from the disposition of
Notes, effected by, to or through the foreign office of a broker; provided,
however, that if the broker is a U.S. person or a U.S.-related person,
information reporting (but not backup withholding) would apply unless the
broker has documentary evidence in its records as to the Non-U.S. Holder's
foreign status (and has not actual knowledge to the contrary), or the Non-U.S.
Holder certifies as to its non-U.S. status under penalty of perjury or
otherwise establishes an exemption. Non-U.S. Holders will be subject to
information reporting and back withholding at a rate of 31% with respect to
the payment of proceeds from the disposition of Notes effected by, to or
through the U.S. office of a broker, unless the Non-U.S. Holder certifies as
to its Non-U.S. Holder status under penalty of perjury or otherwise
establishes an exemption.
The Service has proposed Regulations that, if issued as final Regulations,
would require Non-U.S. Holders to provide additional information in order to
establish an exemption from, or reduce the rate of, withholding tax or backup
withholding tax and, in particular, would require certain Non-U.S. Holders,
and foreign partners of partnerships that are Non-U.S. Holders, to provide
certain information and comply with certain certification requirements not
required under existing law, including requirements that the Non-U.S. Holder
furnish its name, address and taxpayer identification number. Such proposed
Regulations are proposed to be effective generally for payments made after
December 31, 1997. It is not possible to predict whether, or in what form, the
proposed Regulations ultimately will be adopted.
Amounts withheld under the backup withholding rules do not constitute a
separate U.S. federal income tax. Rather, amounts withheld under the backup
withholding rules from a payments to a Non-U.S. Holder will be allowed as a
credit against such Non-U.S. Holder's U.S. federal income tax liability and
any amounts withheld in excess of such Non-U.S. Holder's U.S. federal income
tax liability would be refunded, provided that the required information is
furnished to the Service.
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<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. The Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for
Outstanding Notes where such Outstanding Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with such resale. In addition, until 25 days after the
Expiration Date, all dealers effecting transactions in the Exchange Notes may
be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commission or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a Prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of 180 days after the Expiration Date the Company will promptly
send additional copies of this Prospectus and any amendment or supplement to
this Prospectus to any broker-dealer that requests such documents in the
Letter of Transmittal. The Company has agreed to pay all expenses incident to
the Exchange Offer (including, only with respect to certain provisions under
the Registration Rights Agreement, the expenses of one counsel for the holders
of the Notes) other than commissions or concessions of any brokers or dealers
and will indemnify the holders of the Notes (including any broker-dealers)
against certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Exchange Notes and the Subsidiary Guarantees will be
passed upon for the Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P.,
Austin, Texas.
EXPERTS
The consolidated financial statements of Prime Medical Services, Inc. and
its subsidiaries as of December 31, 1997 and 1996, and for each of the years
in the three-year period ended December 31, 1997, have been incorporated by
reference herein in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, incorporated by reference herein,
and upon the authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Lithotripters, Inc. and its
subsidiaries as of December 31, 1994 and 1995 for each of the years in the
three-year period ended December 31, 1995, have been incorporated by reference
herein in reliance upon the reports of Arthur Andersen LLP, independent public
accountants, upon the authority of said firm as experts in accounting and
auditing.
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<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPEC-
TUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO
BUY, THE NOTES IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UN-
LAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 4
Prospectus Summary....................................................... 6
Risk Factors............................................................. 17
The Exchange Offer....................................................... 26
Use of Proceeds.......................................................... 34
Capitalization........................................................... 34
Selected Historical Consolidated Financial and Operating Data............ 35
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 37
Business................................................................. 42
Management............................................................... 52
Principal Stockholders................................................... 58
Description of Other Indebtedness........................................ 59
Description of Exchange Notes............................................ 60
Certain Federal Income Tax Considerations................................ 88
Plan of Distribution..................................................... 92
Legal Matters............................................................ 92
Experts.................................................................. 92
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
---------------
PROSPECTUS
---------------
[LOGO OF PRIME MEDICAL SERVICES, INC. APPEARS HERE]
PRIME MEDICAL SERVICES, INC.
$100,000,000
8 3/4% SENIOR SUBORDINATED NOTESDUE 2008
FOR
8 3/4% SENIOR SUBORDINATED NOTESDUE 2008
MAY 22, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Company provides that the Company
shall indemnify any person who was or is a party or is threatened to be made a
party to a proceeding by reason of the fact that he or she (i) is or was a
director or officer of the Company or (ii) while a director or officer of the
Company, is or was serving at the request of the Company as a director,
officer, partner, venturer, proprietor, trustee, employee, agent, or similar
functionary of another foreign or domestic corporation, partnership, joint
venture, sole proprietorship, trust, employee benefit plan, or other
enterprise, to the fullest extent permitted under the Delaware General
Corporation Law, as the same exists or may hereafter be amended.
Pursuant to Section 145 of the Delaware Corporation Law, the Company
generally has the power to indemnify its present and former directors and
officers against expenses and liabilities incurred by them in connection with
any suit to which they are, or are threatened to be made, a party by reason of
their serving in those positions so long as they acted in good faith and in a
manner they reasonably believed to be in, or not opposed to, the best
interests of the Company, and with respect to any criminal action, so long as
they had no reasonable cause to believe their conduct was unlawful. With
respect to suits by or in the right of the Company, however, indemnification
is generally limited to attorneys' fees and other expenses and is not
available if the person is adjudged to be liable to the Company, unless the
court determines that indemnification is appropriate. The statute expressly
provides that the power to indemnify authorized thereby is not exclusive of
any rights granted under any bylaws, agreement, vote of stockholders or
disinterested directors, or otherwise. The Company also has the power to
purchase and maintain insurance for its directors and officers and has
obtained such insurance.
The preceding discussion of the Company's Certificate of Incorporation and
Section 145 of the Delaware General Corporation Law is not intended to be
exhaustive and is qualified in its entirety by the Certificate of
Incorporation and Section 145 of the Delaware General Corporation Law.
The Company has entered into indemnity agreements with certain of its
directors and officers. Pursuant to these agreements, the Company will, to the
extent permitted under applicable law, indemnify these persons against all
judgments, expenses, fines and penalties incurred in connection with the
defense or the settlement of any actions brought against them by reason of the
fact that they are or were directors or officers of the Company or that they
assumed certain responsibilities at the direction of the Company.
ITEM 21. EXHIBITS.
<TABLE>
<C> <S>
(4)(a)* Indenture, dated as of March 27, 1998, between Prime Medical
Services, Inc. and certain of its subsidiaries and State Street
Bank and Trust Company of Missouri, National Association, with
form of 8 3/4% Senior Subordinated Notes due 2008 attached as
exhibit
(4)(b)* Registration Rights Agreement, dated as of March 27, 1998,
between Prime Medical Services, Inc. and certain of its
subsidiaries and Nationsbanc Montgomery Securities LLC,
Donaldson, Lufkin & Jenrette Securities Corporation, Prudential
Securities Incorporated, and J.C. Bradford & Co.
(5)* Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(10)* Purchase Agreement, dated as of March 24, 1998 between Prime
Medical Services, Inc. and certain of its subsidiaries and
Nationsbanc Montgomery Securities LLC, Donaldson, Lufkin &
Jenrette Securities Corporation, Prudential Securities
Incorporated, and J.C. Bradford & Co.
(12)* Computation of Ratio of Earnings to Fixed Charges
(23)(a)* Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in
Exhibit 5)
(b)* Consent of KPMG Peat Marwick LLP
(c)* Consent of Arthur Andersen LLP
</TABLE>
II-1
<PAGE>
<TABLE>
<C> <S>
(24)* Powers of Attorney (included in the signature pages of this
Registration Statement)
(25)* Statement of Eligibility of Trustee on Form T-1 of State Street
Bank and Trust Company of Missouri, National Association
(99)** Letter of Transmittal
</TABLE>
- --------
*Previously filed
**Filed herewith
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required in Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to Section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(5) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be
deemed to be part of the Registration Statement as of the time it was
declared effective.
(6) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(7) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Company pursuant to the foregoing provisions, or otherwise,
the Company has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its
II-2
<PAGE>
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(8) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Item 4.10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Sstatement through the date of
responding to the request.
(9) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Prime Medical Services, Inc.
/s/ Cheryl Williams
By: _________________________________
CHERYL WILLIAMS,VICE PRESIDENT--
FINANCE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Chairman of the
/s/ Kenneth S. Shifrin* Board and Director May 22, 1998
- -------------------------------------
KENNETH S. SHIFRIN
President, Chief
/s/ Joseph Jenkins, M.D.* Executive Officer May 22, 1998
- ------------------------------------- and Director
JOSEPH JENKINS, M.D.
Chief Financial
/s/ Cheryl Williams* Officer, Vice May 22, 1998
- ------------------------------------- President--Finance
CHERYL WILLIAMS and Secretary
(Chief Accounting
Officer)
Director
/s/ Paul R. Butrus* May 22, 1998
- -------------------------------------
PAUL R. BUTRUS
II-4
<PAGE>
SIGNATURE TITLE DATE
Director
/s/ William E. Foree, M.D.* May 22, 1998
- ------------------------------------
WILLIAM E. FOREE, M.D.
Director
/s/ Irwin Katz* May 22, 1998
- ------------------------------------
IRWIN KATZ
Director
/s/ John A. Mcentire IV* May 22, 1998
- ------------------------------------
JOHN A. MCENTIRE IV
Director
/s/ William A. Searles* May 22, 1998
- ------------------------------------
WILLIAM A. SEARLES
Director
/s/ Michael J. Spalding, M.D.* May 22, 1998
- ------------------------------------
MICHAEL J. SPALDING, M.D.
*By: /s/ Cheryl Williams Attorney-in-Fact May 22, 1998
--------------------------------
CHERYL WILLIAMS
II-5
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Prime Medical Operating, Inc.
/s/ Cheryl Williams
By: __________________________________
CHERYL WILLIAMS,CHIEF FINANCIAL
OFFICER, TREASURER AND DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Chairman of the
/s/ Kenneth S. Shifrin* Board, President May 22, 1998
- ------------------------------------ and Director
KENNETH S. SHIFRIN
/s/ Cheryl Williams Chief Financial
- ------------------------------------ Officer, Treasurer May 22, 1998
CHERYL WILLIAMS and Director
(Chief Accounting
Officer)
Vice President and
/s/ Michael Madler* Director May 22, 1998
- ------------------------------------
MICHAEL MADLER
*By: /s/ Cheryl Williams Attorney-in-Fact May 22, 1998
--------------------------------
CHERYL WILLIAMS
II-6
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Prime Management, Inc.
/s/ Cheryl Williams
By: __________________________________
CHERYL WILLIAMS,TREASURER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
President,
/s/ Stan Johnson* Secretary and May 22, 1998
- ------------------------------------ Director
STAN JOHNSON
/s/ Cheryl Williams Treasurer (Chief
- ------------------------------------ Financial and May 22, 1998
CHERYL WILLIAMS Accounting
Officer)
Assistant Secretary
/s/ Janice George* and Director May 22, 1998
- ------------------------------------
JANICE GEORGE
*By: /s/ Cheryl Williams Attorney-in-Fact May 22, 1998
--------------------------------
CHERYL WILLIAMS
II-7
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Prime Cardiac Rehabilitation
Services, Inc.
/s/ Cheryl Williams
By: _________________________________
CHERYL WILLIAMS,CHIEF FINANCIAL
OFFICER, TREASURER AND VICE
PRESIDENT
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
President and
/s/ Michael Madler* Director May 22, 1998
- -------------------------------------
MICHAEL MADLER
/s/ Cheryl Williams Chief Financial
- ------------------------------------- Officer, Treasurer May 22, 1998
CHERYL WILLIAMS and Vice President
(Chief Accounting
Officer)
Director
/s/ Kenneth S. Shifrin* May 22, 1998
- -------------------------------------
KENNETH S. SHIFRIN
*By: /s/ Cheryl Williams Attorney-in-Fact May 22, 1998
---------------------------------
CHERYL WILLIAMS
II-8
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Prime Diagnostic Services, Inc.
/s/ Cheryl Williams
By: _________________________________
CHERYL WILLIAMS,CHIEF FINANCIAL
OFFICER AND TREASURER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
President and
/s/ Kenneth S. Shifrin* Director May 22, 1998
- -------------------------------------
KENNETH S. SHIFRIN
Vice President
/s/ Michael Madler* May 22, 1998
- -------------------------------------
MICHAEL MADLER
/s/ Cheryl Williams Chief Financial
- ------------------------------------- Officer and May 22, 1998
CHERYL WILLIAMS Treasurer (Chief
Accounting Officer)
*By: /s/ Cheryl Williams Attorney-in-Fact May 22, 1998
---------------------------------
CHERYL WILLIAMS
II-9
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Prime Lithotripsy Services, Inc.
/s/ Cheryl Williams
By: _________________________________
CHERYL WILLIAMS,TREASURER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Chairman of the
/s/ Kenneth S. Shifrin* Board and Director May 22, 1998
- -------------------------------------
KENNETH S. SHIFRIN
President and
/s/ Michael Madler* Director May 22, 1998
- -------------------------------------
MICHAEL MADLER
/s/ Cheryl Williams Treasurer (Chief
- ------------------------------------- Financial and May 22, 1998
CHERYL WILLIAMS Accounting Officer)
*By: /s/ Cheryl Williams Attorney-in-Fact May 22, 1998
---------------------------------
CHERYL WILLIAMS
II-10
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Prime Kidney Stone Treatment, Inc.
/s/ Cheryl Williams
By: __________________________________
CHERYL WILLIAMS,VICE PRESIDENT
AND DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
President and
/s/ Michael Madler* Director May 22, 1998
- ------------------------------------
MICHAEL MADLER
/s/ Cheryl Williams Vice President and
- ------------------------------------ Director (Chief May 22, 1998
CHERYL WILLIAMS Financial and
Accounting
Officer)
*By: /s/ Cheryl Williams Attorney-in-Fact May 22, 1998
--------------------------------
CHERYL WILLIAMS
II-11
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Prime Diagnostic Corp. of Florida
/s/ Cheryl Williams
By: _________________________________
CHERYL WILLIAMS,CHIEF FINANCIAL
OFFICER AND TREASURER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
President
/s/ Michael Madler* May 22, 1998
- -------------------------------------
MICHAEL MADLER
/s/ Cheryl Williams Chief Financial
- ------------------------------------- Officer and May 22, 1998
CHERYL WILLIAMS Treasurer (Chief
Accounting Officer)
Director
/s/ Kenneth S. Shifrin* May 22, 1998
- -------------------------------------
KENNETH S. SHIFRIN
*By: /s/ Cheryl Williams Attorney-in-Fact May 22, 1998
---------------------------------
CHERYL WILLIAMS
II-12
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Prime Lithotripter Operations, Inc.
/s/ Cheryl Williams
By: _________________________________
CHERYL WILLIAMS,TREASURER AND
DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Michael Madler* President May 22, 1998
- -------------------------------------
MICHAEL MADLER
/s/ Cheryl Williams Treasurer and
- ------------------------------------- Director (Chief May 22, 1998
CHERYL WILLIAMS Financial and
Accounting Officer)
*By: /s/ Cheryl Williams Attorney-in-Fact May 22, 1998
---------------------------------
CHERYL WILLIAMS
II-13
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Prime Practice Management, Inc.
/s/ Cheryl Williams
By: _________________________________
CHERYL WILLIAMS,PRESIDENT,
TREASURER AND DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Cheryl Williams President, Treasurer
- ------------------------------------- and Director (Chief May 22, 1998
CHERYL WILLIAMS Financial and
Accounting Officer)
II-14
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Texas Litho, Inc.
/s/ Cheryl Williams
By: _________________________________
CHERYL WILLIAMS,VICE PRESIDENT AND
DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Chairman of the
/s/ Michael Madler* Board and Director May 22, 1998
- -------------------------------------
MICHAEL MADLER
President and
/s/ Kenneth S. Shifrin* Director May 22, 1998
- -------------------------------------
KENNETH S. SHIFRIN
/s/ Cheryl Williams Vice President and
- ------------------------------------- Director (Chief May 22, 1998
CHERYL WILLIAMS Financial and
Accounting Officer)
*By:
/s/ Cheryl Williams Attorney-in-Fact May 22, 1998
---------------------------------
CHERYL WILLIAMS
II-15
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
R.R. Litho, Inc.
/s/ Cheryl Williams
By: __________________________________
CHERYL WILLIAMS,CHIEF FINANCIAL
OFFICER AND TREASURER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
President and
/s/ Kenneth S. Shifrin* Director May 22, 1998
- ------------------------------------
KENNETH S. SHIFRIN
Vice President and
/s/ Michael Madler* Director May 22, 1998
- ------------------------------------
MICHAEL MADLER
/s/ Cheryl Williams Chief Financial
- ------------------------------------ Officer and May 22, 1998
CHERYL WILLIAMS Treasurer (Chief
Accounting
Officer)
*By:
/s/ Cheryl Williams Attorney-in-Fact May 22, 1998
--------------------------------
CHERYL WILLIAMS
II-16
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Ohio Litho, Inc.
/s/ Cheryl Williams
By: _________________________________
CHERYL WILLIAMS,PRESIDENT AND
DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Chairman of the
/s/ Kenneth S. Shifrin* Board and Director May 22, 1998
- -------------------------------------
KENNETH S. SHIFRIN
/s/ Cheryl Williams President and
- ------------------------------------- Director (Chief May 22, 1998
CHERYL WILLIAMS Financial and
Accounting Officer)
Vice President and
/s/ Michael Madler* Director May 22, 1998
- -------------------------------------
MICHAEL MADLER
*By:
/s/ Cheryl Williams Attorney-in-Fact May 22, 1998
---------------------------------
CHERYL WILLIAMS
II-17
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Alabama Renal Stone Institute, Inc.
/s/ Cheryl Williams
By: _________________________________
CHERYL WILLIAMS,TREASURER AND
DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
President and
/s/ Michael Madler* Director May 22, 1998
- -------------------------------------
MICHAEL MADLER
/s/ Cheryl Williams Treasurer and
- ------------------------------------- Director (Chief May 22, 1998
CHERYL WILLIAMS Financial and
Accounting Officer)
*By:
/s/ Cheryl Williams Attorney-in-Fact May 22, 1998
---------------------------------
CHERYL WILLIAMS
II-18
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Sun Medical Technologies, Inc.
/s/ Cheryl Williams
By: _________________________________
CHERYL WILLIAMS,ASSISTANT
SECRETARY AND DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
President and
/s/ Stan Johnson* Director May 22, 1998
- -------------------------------------
STAN JOHNSON
/s/ Cheryl Williams Assistant Secretary
- ------------------------------------- and Director (Chief May 22, 1998
CHERYL WILLIAMS Financial and
Accounting Officer)
/s/ Kenneth S. Shifrin* Director May 22, 1998
- -------------------------------------
KENNETH S. SHIFRIN
/s/ Michael Madler* Director May 22, 1998
- -------------------------------------
MICHAEL MADLER
*By:
/s/ Cheryl Williams Attorney-in-Fact May 22, 1998
---------------------------------
CHERYL WILLIAMS
II-19
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Sun Acquisition, Inc.
/s/ Cheryl Williams
By: _________________________________
CHERYL WILLIAMS,ASSISTANT
SECRETARY AND DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
President and
/s/ Stan Johnson* Director May 22, 1998
- -------------------------------------
STAN JOHNSON
/s/ Cheryl Williams Assistant Secretary
- ------------------------------------- and Director (Chief May 22, 1998
CHERYL WILLIAMS Financial and
Accounting Officer)
/s/ Kenneth S. Shifrin* Director May 22, 1998
- -------------------------------------
KENNETH S. SHIFRIN
/s/ Michael Madler* Director May 22, 1998
- -------------------------------------
MICHAEL MADLER
*By:
/s/ Cheryl Williams Attorney-in-Fact May 22, 1998
---------------------------------
CHERYL WILLIAMS
II-20
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Lithotripters, Inc.
/s/ Cheryl Williams
By: _________________________________
CHERYL WILLIAMS,VICE PRESIDENT AND
DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
President, Chief
/s/ Joseph Jenkins, M.D.* Executive Officer May 22, 1998
- ------------------------------------- and Director
JOSEPH JENKINS, M.D.
/s/ Cheryl Williams Vice President and
- ------------------------------------- Director (Chief May 22, 1998
CHERYL WILLIAMS Financial and
Accounting Officer)
/s/ Kenneth S. Shifrin* Director May 22, 1998
- -------------------------------------
KENNETH S. SHIFRIN
*By:
/s/ Cheryl Williams Attorney-in-Fact May 22, 1998
---------------------------------
CHERYL WILLIAMS
II-21
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Prime Medical Management, L.P.
By: Prime Medical Operating, Inc.,
General Partner
/s/ Cheryl Williams
By: ___________________________
CHERYL WILLIAMS,
CHIEF FINANCIAL OFFICER,
TREASURER AND DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
Chairman of the
/s/ Kenneth S. Shifrin* Board, President May 22, 1998
- ------------------------------------- and Director of
KENNETH S. SHIFRIN Prime Medical
Operating, Inc.
/s/ Cheryl Williams Chief Financial
- ------------------------------------- Officer, Treasurer May 22, 1998
CHERYL WILLIAMS and Director of
Prime Medical
Operating, Inc.
Vice President and
/s/ Michael Madler* Director of Prime May 22, 1998
- ------------------------------------- Medical Operating,
MICHAEL MADLER Inc.
*By:
/s/ Cheryl Williams Attorney-in-Fact May 22, 1998
---------------------------------
CHERYL WILLIAMS
II-22
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Prostatherapies, Inc.
/s/ Cheryl Williams
By: _________________________________
CHERYL WILLIAMS,TREASURER AND
DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Dan Myers, M.D.* President May 22, 1998
- -------------------------------------
DAN MYERS, M.D.
/s/ Michael Madler* Vice President May 22, 1998
- -------------------------------------
MICHAEL MADLER
/s/ Cheryl Williams Treasurer and May 22, 1998
- ------------------------------------- Director (Chief
CHERYL WILLIAMS Financial and
Accounting Officer)
/s/ Kenneth S. Shifrin* Director May 22, 1998
- -------------------------------------
KENNETH S. SHIFRIN
/s/ Joseph Jenkins, M.D.* Director May 22, 1998
- -------------------------------------
JOSEPH JENKINS, M.D.
*By:
/s/ Cheryl Williams Attorney-in-Fact May 22, 1998
---------------------------------
CHERYL WILLIAMS
II-23
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Fast Start, Inc.
/s/ Cheryl Williams
By: _________________________________
CHERYL WILLIAMS,PRESIDENT,
TREASURER AND DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS
IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Cheryl Williams President, Treasurer
- ------------------------------------- and Director (Chief May 22, 1998
CHERYL WILLIAMS Financial and
Accounting Officer)
Vice President,
/s/ Kenneth S. Shifrin* Secretary and May 22, 1998
- ------------------------------------- Director
KENNETH S. SHIFRIN
*By:
/s/ Cheryl Williams Attorney-in-Fact May 22, 1998
---------------------------------
CHERYL WILLIAMS
II-24
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
MedTech Investments, Inc.
/s/ Cheryl Williams
By: __________________________________
CHERYL WILLIAMS,TREASURER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
President and
/s/ Michael Madler* Director May 22, 1998
- ------------------------------------
MICHAEL MADLER
/s/ Cheryl Williams Treasurer (Chief
- ------------------------------------ Financial and May 22, 1998
CHERYL WILLIAMS Accounting
Officer)
/s/ Joseph Jenkins, M.D.* Director May 22, 1998
- ------------------------------------
JOSEPH JENKINS, M.D.
*By:
/s/ Cheryl Williams Attorney-in-Fact May 22, 1998
--------------------------------
CHERYL WILLIAMS
II-25
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF AUSTIN,
STATE OF TEXAS ON MAY 22, 1998.
Executive Medical Enterprises, Inc.
/s/ Cheryl Williams
By: __________________________________
CHERYL WILLIAMS,EXECUTIVE VICE
PRESIDENT AND DIRECTOR
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
NO. 1 TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
President and
/s/ Stan Johnson* Director May 22, 1998
- ------------------------------------
STAN JOHNSON
/s/ Cheryl Williams Executive Vice
- ------------------------------------ President and May 22, 1998
CHERYL WILLIAMS Director (Chief
Financial and
Accounting
Officer)
Vice President--
/s/ Michael Madler* Operations May 22, 1998
- ------------------------------------
MICHAEL MADLER
*By:
/s/ Cheryl Williams Attorney-in-Fact May 22, 1998
--------------------------------
CHERYL WILLIAMS
II-26
<PAGE>
INDEX TO EXHIBITS
EXHIBITS
<TABLE>
<C> <S>
(4)(a)* Indenture, dated as of March 27, 1998, between Prime Medical
Services, Inc. and certain of its subsidiaries and State Street
Bank and Trust Company of Missouri, National Association, with
form of 8 3/4% Senior Subordinated Notes due 2008 attached as
exhibit
(4)(b)* Registration Rights Agreement, dated as of March 27, 1998,
between Prime Medical Services, Inc. and certain of its
subsidiaries and Nationsbanc Montgomery Securities LLC,
Donaldson, Lufkin & Jenrette Securities Corporation, Prudential
Securities Incorporated, and J.C. Bradford & Co.
(5)* Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
(10)* Purchase Agreement, dated as of March 24, 1998 between Prime
Medical Services, Inc. and certain of its subsidiaries and
Nationsbanc Montgomery Securities LLC, Donaldson, Lufkin &
Jenrette Securities Corporation, Prudential Securities
Incorporated, and J.C. Bradford & Co.
(12)* Computation of Ratio of Earnings to Fixed Charges
(23)(a)* Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (Included in
Exhibit 5).
(b)* Consent of KPMG Peat Marwick LLP
(c)* Consent of Arthur Andersen LLP
(24)* Powers of Attorney (included in the signature pages of this
Registration Statement)
(25)* Statement of Eligibility of Trustee on Form T-1 of State Street
Bank and Trust Company of Missouri, National Association
(99)** Letter of Transmittal
</TABLE>
*Previously filed
**Filed herewith
<PAGE>
EXHIBIT 99.1
FORM OF
LETTER OF TRANSMITTAL
PRIME MEDICAL SERVICES, INC.
OFFER TO EXCHANGE 8 3/4% SENIOR NOTES DUE 2008,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT")
FOR
8 3/4% SENIOR NOTES DUE 2008
PURSUANT TO THE PROSPECTUS DATED
May 22, 1998
--------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
5:00 P.M., E.S.T., ON June 30, 1998, UNLESS THE OFFER IS EXTENDED
--------------------
Deliver to
State Street Bank and Trust Company of Missouri, National Association
(the "Exchange Agent")
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED BY OVERNIGHT COURIER OR HAND:
MAIL:
State Street Bank and Trust Company of Missouri, State Street Bank and Trust Company of Missouri,
National Association National Association
Corporate Trust Window Corporate Trust Window
Two International Place, Fourth Floor Two International Place, Fourth Floor
Boston, MA 02110 Boston, MA 02110
</TABLE>
BY FACSIMILE TRANSMISSION
(FOR ELIGIBLE INSTITUTIONS ONLY):
(617) 664-5290
Attention: Corporate Trust Window
Confirm by Telephone: (617) 664-5587
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONES LISTED
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned hereby acknowledges receipt of the Prospectus dated
May 22, 1998 (the "Prospectus") of Prime Medical Services, Inc., a Delaware
corporation (the "Company"), and this Letter of Transmittal, which together
constitute the Company's offer (the "Exchange Offer") to exchange up to an
aggregate principal amount of $100,000,000 of its 8 3/4% Senior Notes due 2008
(the "Exchange Notes," which have been registered under the Securities Act,
pursuant to a Registration Statement of which the Prospectus is a part), for a
like principal amount of its outstanding 8 3/4% Senior Notes due 2008 (the
"Outstanding Notes" and together with the
<PAGE>
Exchange Notes, the "Notes"). Capitalized terms used but not defined herein have
the meaning given to them in the Prospectus.
YOUR BANK OR BROKER CAN ASSIST YOU IN COMPLETING THIS FORM. THE
INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS RELATING TO THE PROCEDURE FOR TENDERING AND REQUESTS FOR ADDITIONAL
COPIES OF THE PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE
EXCHANGE AGENT. QUESTIONS RELATING TO THE EXCHANGE OFFER AND REQUESTS FOR
ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS AND THIS LETTER OF
TRANSMITTAL MAY BE DIRECTED TO THE COMPANY.
This Letter of Transmittal is to be completed by a holder of Outstanding
Notes if (i) certificates are to be forwarded herewith, (ii) delivery of
Outstanding Notes is to be made by book-entry transfer to an account maintained
by the Exchange Agent at The Depository Trust Company ("DTC"), pursuant to the
procedures set forth in "The Exchange Offer Procedures for Tendering" in the
Prospectus or (iii) tender of the Outstanding Notes is to be made according to
the guaranteed delivery procedures described in the Prospectus under the caption
"The Exchange Offer Guaranteed Delivery Procedures." See Instruction 2. Delivery
of documents to a book-entry transfer facility does not constitute delivery to
the Exchange Agent. It is understood that participants in DTC's book-entry
system will, in accordance with DTC's Automated Tender Offer Program procedures
and in lieu of physical delivery to the Exchange Agent of a Letter of
Transmittal, electronically acknowledge receipt of, and agreement to be bound
by, the terms of this Letter of Transmittal.
Unless the context otherwise requires, the term "holder" as used herein
with respect to the Exchange Offer means any person in whose name Outstanding
Notes are registered on the books of the Company or any other person who has
obtained a properly completed bond power from the registered holder. The
undersigned has completed, executed and delivered this Letter of Transmittal to
indicate the action the undersigned desires to take with respect to the Exchange
Offer. Holders who wish to tender their Outstanding Notes must complete this
Letter of Transmittal in its entirety.
Listed below are the Outstanding Notes to which this Letter of Transmittal
relates. If the space provided below is inadequate, the certificate numbers and
principal amounts should be listed on a separate signed schedule affixed hereto.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DESCRIPTION OF OUTSTANDING NOTES TENDERED HEREBY
- -------------------------------------------------------------------------------------------------
Name(s) and Address(es) of Registered Principal
Holder(s) Amount Principal
Exactly as Name(s) Appear(s) on Notes Certificate Represented by Amount
(Please fill in) Numbers* Outstanding Notes Tendered**
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------------------------
* Need not be completed if Outstanding Notes are being tendered by book-entry transfer.
** Unless otherwise indicated, the holder will be deemed to have tendered the full aggregate
principal amount represented by such Outstanding Notes. All tenders must be in integral
multiples of $1,000.
- --------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A BOOK-
ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution
---------------------------------------------
Account Number
------------------------------------------------------------
Transaction Code Number
---------------------------------------------------
Holders whose Notes are not immediately available or who cannot deliver their
Notes and all other documents required hereby to the Exchange Agent on or prior
to the Expiration Date must tender their Notes according to the guaranteed
delivery procedure set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2.
[ ] CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
-------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
------------------------
Name of Eligible Institution that Guaranteed Delivery
---------------------
IF DELIVERED BY BOOK-ENTRY TRANSFER, COMPLETE THE FOLLOWING:
Account Number
------------------------------------------------------------
Transaction Code Number
---------------------------------------------------
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name
----------------------------------------------------------------------
Address
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3
<PAGE>
SPECIAL REGISTRATION INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(See Instruction 5) (See Instruction 5)
To be completed ONLY if the Exchange To be completed ONLY if the Exchange
Notes are to be issued in the name of Notes are to be sent to someone other
someone other than the undersigned. than the undersigned, or to the
Issue Exchange Note to: undersigned at an address other than
that shown under "Description of Notes
Tendered Hereby."
Name(s): Name(s):
------------------------------- --------------------------------
(Please Type or Print) (Please Type or Print)
- --------------------------------------- ----------------------------------------
(Please Type or Print) (Please Type or Print)
Address: Address:
------------------------------- --------------------------------
- --------------------------------------- ----------------------------------------
(Including Zip Code) (Including Zip Code)
- ---------------------------------------
(Tax Identification or
Social Security No.)
[ ] Credit unexchanged Outstanding
Notes and/or Exchange Notes
delivered by book-entry transfer
to the Book-Entry Transfer
Facility account set forth below.
- ---------------------------------------
(Book Entry Transfer Facility
Account Number, if applicable)
IMPORTANT: THIS LETTER OR A FACSIMILE HEREOF (TOGETHER WITH THE CERTIFICATES FOR
OUTSTANDING NOTES OR A BOOK-ENTRY CONFIRMATION AND ALL OTHER REQUIRED DOCUMENTS
OR THE NOTICE OF GUARANTEED DELIVERY) MUST BE RECEIVED BY THE EXCHANGE AGENT
PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING ANY BOX ABOVE.
4
<PAGE>
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of the
Outstanding Notes indicated above. Subject to, and effective upon, the
acceptance for exchange of such Outstanding Notes tendered hereby, the
undersigned hereby exchanges, sells, assigns and transfers to, or upon the order
of, the Company all right, title and interest in and to such Outstanding Notes
as are being tendered hereby, including all rights to accrued and unpaid
interest thereon as of the Expiration Date. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent its true and lawful agent and
attorney-in-fact with full power of substitution (with full knowledge that said
Exchange Agent acts as the agent of the Company in connection with the Exchange
Offer) to cause the Outstanding Notes to be assigned, sold, transferred and
exchanged. The Power of Attorney granted in this paragraph shall be deemed
irrevocable from and after the Expiration Date and coupled with an interest.
The undersigned represents and warrants that it has full power and
authority to tender, sell, exchange, assign and transfer the Outstanding Notes
and to acquire Exchange Notes issuable upon the exchange of such tendered
Outstanding Notes, and that when the same are accepted for exchange, the Company
will acquire good and unencumbered title to the tendered Outstanding Notes, free
and clear of all liens, restrictions, charges and encumbrances and not subject
to any adverse claim.
The undersigned represents to the Company that (i) the Exchange Notes
acquired pursuant to the Exchange Offer are being obtained in the ordinary
course of business of the person receiving such Exchange Notes, whether or not
such person is the undersigned, (ii) neither the undersigned nor any such other
person is engaged in, or intends to engage in, or has an arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of such Exchange Notes, (iii) if the undersigned
or the person receiving the Exchange Notes covered hereby is (a) participating
in the Exchange Offer for the purpose of distributing the Exchange Notes or (b)
a broker-dealer that is receiving the Exchange Notes for its own account in
exchange for Outstanding Notes that were acquired as a result of market-making
activities or other trading activities, the undersigned or such person will
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the acquired
Exchange Notes (however, such compliance by a broker-dealer shall not constitute
an admission by such broker-dealer that it is an "underwriter") and (iv) neither
the undersigned nor the person receiving the Exchange Note covered hereby is an
affiliate (as defined under Rule 405 of the Securities Act) of the Company, or,
if the undersigned or any such other person is an affiliate of the Company,
whether as a result of tendering in the Exchange Offer or otherwise, the
undersigned understands and acknowledges that such Exchange Notes may not be
offered for resale, resold or otherwise transferred by the undersigned or such
other person without registration under the Securities Act or an exemption
therefrom. The undersigned and any such other person acknowledge that, if they
are participating in the Exchange Offer for the purpose of distributing the
Exchange Notes, (i) they cannot rely on the position of the staff of the
Securities and Exchange Commission enunciated in Exxon Capital Holdings
Corporation (available April 13, 1989) or similar no-action letters and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with the
resale transaction and (ii) failure to comply with such requirements in such
instance could result in the undersigned or any such other person incurring
liability under the Securities Act for which such persons are not indemnified by
the Company.
The undersigned also warrants that it will, upon request, execute and
deliver any additional documents deemed by the Exchange Agent or the Company to
be necessary or desirable to complete the exchange, sale, assignment and
transfer of tendered Outstanding Notes or transfer ownership of such Outstanding
Notes on the account books maintained by a Book-Entry Transfer Facility. The
undersigned further agrees that acceptance of any tendered Outstanding Notes by
the Company and the issuance of Exchange Notes in exchange therefor shall
constitute performance in full by the Company of its obligations under the
Registration Rights Agreement and that the Company shall have no further
obligations or liabilities thereunder for the registration of the Outstanding
Notes or the Exchange Notes.
5
<PAGE>
The Exchange Offer is subject to certain conditions set forth in the
Prospectus under the caption "The Exchange Offer." The undersigned recognizes
that as a result of these conditions (which may be waived, in whole or in part,
by the Company), as more particularly set forth in the Prospectus, the Company
may not be required to exchange any of the Outstanding Notes tendered hereby
and, in such event, the Outstanding Notes not exchanged will be returned to the
undersigned at the address shown below the signature of the undersigned.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors,
assigns, executors, administrators, trustees in bankruptcy and legal
representatives of the undersigned. Tendered Outstanding Notes may be withdrawn
at any time prior to the Expiration Date only in accordance with the terms set
forth in the Prospectus under the caption "The Exchange Offer Withdrawal of
Tenders."
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, please deliver the Exchange Notes (and, if applicable,
substitute certificates representing Outstanding Notes for any Outstanding Notes
not exchanged) in the name of the undersigned or, in the case of a book-entry
delivery of Outstanding Notes, please credit the account indicated above
maintained at the Book-Entry Transfer Facility. Similarly, unless otherwise
indicated under the box entitled "Special Delivery Instructions" below, please
send the Exchange Notes (and, if applicable, substitute certificates
representing Outstanding Notes for any Outstanding Notes not exchanged) to the
undersigned at the address shown above in the box entitled "Description of
Outstanding Notes."
IF OUTSTANDING NOTES ARE SURRENDERED BY HOLDER(S) THAT HAVE COMPLETED
EITHER THE BOX ENTITLED "SPECIAL REGISTRATION INSTRUCTIONS" OR THE BOX ENTITLED
"SPECIAL DELIVERY INSTRUCTIONS" IN THIS LETTER OF TRANSMITTAL, SIGNATURE(S) ON
THIS LETTER OF TRANSMITTAL MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION (SEE
INSTRUCTION 4).
6
<PAGE>
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REGISTERED HOLDER(S) OF NOTES SIGN HERE
(In addition complete Substitute Form W-9 Below)
X
-------------------------------------------------------------------------------
X
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(Signature(s) of Registered Holder(s))
Must be signed by registered holder(s) exactly as name(s) appear(s) on the
Notes or on a security position listing as the owner of the Notes or by
person(s) authorized to become registered holder(s) by properly completed bond
powers transmitted herewith. If signature is by attorney-in-fact, trustee,
executor, administrator, guardian, officer of a corporation or other person
acting in a fiduciary capacity, please provide the following information (please
print or type):
Name and Capacity (full title):
-------------------------------------------------
Address: (including zip):
-------------------------------------------------------
Area Code and Telephone Number:
-------------------------------------------------
Dated:
----------------------------------
SIGNATURE GUARANTEE
(If required -- See Instruction 4)
Authorized Signature:
-----------------------------------------------------------
(Signature of Representative of Signature Guarantor)
Name and Title:
-----------------------------------------------------------------
Name of Firm:
-------------------------------------------------------------------
Area Code and Telephone Number: :
-----------------------------------------------
(Please print or type)
Dated:
----------------------------------
================================================================================
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND
CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES.
All physically delivered Outstanding Notes or any confirmation of a book-entry
transfer to the Exchange Agent's account at a Book-Entry Transfer Facility of
Outstanding Notes tendered by book-entry transfer, as well as a properly
completed and duly executed copy of this Letter of Transmittal or facsimile
thereof, and any other documents required by this Letter of Transmittal, must be
received by the Exchange Agent at any of its addresses set forth herein on or
prior to the Expiration Date (as defined in the Prospectus). THE METHOD OF
DELIVERY OF THIS LETTER OF TRANSMITTAL, THE OUTSTANDING NOTES AND ANY OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER, AND EXCEPT AS
OTHERWISE PROVIDED BELOW, THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY
RECEIVED BY THE EXCHANGE AGENT. IF SUCH DELIVERY IS BY MAIL, IT IS SUGGESTED
THAT REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, BE USED.
No alternative, conditional, irregular or contingent tenders will be accepted.
All tendering Holders, by execution of this Letter of Transmittal (or facsimile
thereof), shall waive any right to receive notice of the acceptance of the
Outstanding Notes for exchange.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH HEREIN, OR INSTRUCTIONS VIA A
FACSIMILE NUMBER OTHER THAN THE ONES SET FORTH HEREIN, WILL NOT CONSTITUTE A
VALID DELIVERY.
2. GUARANTEED DELIVERY PROCEDURES.
Holders who wish to tender their Outstanding Notes and (i) whose Outstanding
Notes are not immediately available, (ii) who cannot deliver their Outstanding
Notes, the Letter of Transmittal or any other required documents to the Exchange
Agent or (iii) who cannot complete the procedures for book-entry transfer, prior
to the Expiration Date, may effect a tender if:
(a) the tender is made through a member firm of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent
in the United States or otherwise an "eligible guarantor institution"
within the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible
Institution");
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate
number(s) of such Outstanding Notes and the principal amount of
Outstanding Notes tendered, stating that the tender is being made thereby
and guaranteeing that, within five Nasdaq Stock Market trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof),
together with the certificates representing the Outstanding Notes (or a
confirmation of book-entry transfer of such Outstanding Notes into the
Exchange Agent's account at the Book-Entry Transfer Facility) and any
other documents required by the Letter of Transmittal, will be deposited
by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or facsimile
thereof), as well as the certificates representing all tendered
Outstanding Notes in proper form for transfer (or a confirmation of book-
entry transfer of such Outstanding Notes into the Exchange Agent's account
at the Book-Entry Transfer Facility) and all other documents required by
the Letter of Transmittal, are received by the Exchange Agent within five
Nasdaq Stock Market trading days after the Expiration Date.
8
<PAGE>
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Outstanding Notes according to the
guaranteed delivery procedures set forth above. Any holder who wishes to tender
Outstanding Notes pursuant to the guaranteed delivery procedures described above
must ensure that the Exchange Agent receives the Notice of Guaranteed Delivery
relating to such Outstanding Notes prior to the Expiration Date. Failure to
complete the guaranteed delivery procedures outlined above will not, of itself,
affect the validity or effect a revocation of any Letter of Transmittal form
properly completed and executed by a Holder who attempted to use the guaranteed
delivery procedures.
3. PARTIAL TENDERS; WITHDRAWALS.
If less than the entire principal amount of Outstanding Notes evidenced by a
submitted certificate is tendered, the tendering holder should fill in the
principal amount tendered in the column entitled "Principal Amount Tendered" of
the box entitled "Description of Notes Tendered Hereby." A newly issued
Outstanding Note for the principal amount of Outstanding Notes submitted but not
tendered will be sent to such holder as soon as practicable after the Expiration
Date. All Outstanding Notes delivered to the Exchange Agent will be deemed to
have been tendered in full unless otherwise indicated. Tenders of Outstanding
Notes will be accepted only in integral multiples of $1,000.
Outstanding Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to 5:00 p.m. New York City time, on the Expiration Date, after
which tenders of Outstanding Notes are irrevocable. To be effective, a written,
telegraphic or facsimile transmission notice of withdrawal must be timely
received by the Exchange Agent. Any such notice of withdrawal must (i) specify
the name of the person having deposited the Outstanding Notes to be withdrawn
(the "Depositor"), (ii) identify the Outstanding Notes to be withdrawn
(including the certificate number(s) and principal amount of such Outstanding
Notes, or, in the case of Outstanding Notes transferred by book-entry transfer,
the name and number of the account at the Book-Entry Transfer Facility to be
credited), (iii) be signed by the Holder in the same manner as the original
signature on this Letter of Transmittal (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Outstanding Notes register the transfer of such
Outstanding Notes into the name of the person withdrawing the tender, (iv)
specify the name in which any such Outstanding Notes are to be registered, if
different from that of the Depositor and (v) if applicable because the
Outstanding Notes have been tendered pursuant to book-entry procedures, specify
the name and number of the participant's account at DTC to be credited, if
different from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company, whose determination shall be final and binding on all parties. Any
Outstanding Notes so withdrawn will be deemed not to have been validly tendered
for purposes of the Exchange Offer and no Exchange Notes will be issued with
respect thereto unless the Outstanding Notes so withdrawn are validly
retendered. Any Outstanding Notes that have been tendered but not accepted for
exchange, will be returned to the Holder thereof without cost to such Holder as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Outstanding Notes may be retendered by
following one of the procedures described above under "Procedures for Tendering"
at any time prior to the Expiration Date.
4. SIGNATURE ON THIS LETTER OF TRANSMITTAL; WRITTEN INSTRUMENTS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder(s) of the Outstanding Notes tendered hereby, the signature
must correspond with the name(s) as written on the face of the certificates
without alteration or enlargement or any change whatsoever. If this Letter of
Transmittal is signed by a participant in the Book-Entry Transfer Facility, the
signature must correspond with the name as it appears on the security position
listing as the holder of the Outstanding Notes.
If any of the Outstanding Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If a number of Outstanding Notes registered in different names are tendered,
it will be necessary to complete, sign and submit as many separate copies of
this Letter of Transmittal as there are different registrations of Outstanding
Notes.
9
<PAGE>
Signatures on this Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution unless the
Outstanding Notes tendered hereby are tendered (i) by a registered Holder who
has not completed the box entitled "Special Registration Instructions" or
"Special Delivery Instructions" on the Letter of Transmittal or (ii) for the
account of an Eligible Institution.
If this Letter of Transmittal is signed by the registered Holder or Holders of
Outstanding Notes (which term, for the purposes described herein, shall include
a participant in the Book-Entry Transfer Facility whose name appears on a
security listing as the holder of the Outstanding Notes) listed and tendered
hereby, no endorsements of the tendered Outstanding Notes or separate written
instruments of transfer or exchange are required. In any other case, the
registered Holder (or acting Holder) must either properly endorse the
Outstanding Notes or transmit properly completed bond powers with this Letter of
Transmittal (in either case, executed exactly as the name(s) of the registered
Holder(s) appear(s) on the Outstanding Notes, and, with respect to a participant
in the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of Outstanding Notes, exactly as the name of the
participant appears on such security position listing), with the signature on
the Outstanding Notes or bond power guaranteed by an Eligible Institution
(except where the Outstanding Notes are tendered for the account of an Eligible
Institution).
If this Letter of Transmittal, any certificates or separate written
instruments of transfer or exchange are signed by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons should so
indicate when signing, and, unless waived by the Company, proper evidence
satisfactory to the Company of their authority so to act must be submitted.
5. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS.
Tendering Holders should indicate, in the applicable box, the name and address
(or account at the Book-Entry Transfer Facility) in which the Exchange Notes or
substitute Outstanding Notes for principal amounts not tendered or not accepted
for exchange are to be issued (or deposited), if different from the names and
addresses or accounts of the person signing this Letter of Transmittal. In the
case of issuance in a different name, the employer identification number or
social security number of the person named must also be indicated and the
tendering Holder should complete the applicable box.
If no instructions are given, the Exchange Notes (and any Outstanding Notes
not tendered or not accepted) will be issued in the name of and sent to the
acting Holder of the Outstanding Notes or deposited at such Holder's account at
the Book-Entry Transfer Facility.
6. TRANSFER TAXES.
The Company shall pay all transfer taxes, if any, applicable to the transfer
and exchange of Outstanding Notes to it or its order pursuant to the Exchange
Offer. If a transfer tax is imposed for any other reason other than the transfer
and exchange of Outstanding Notes to the Company or its order pursuant to the
Exchange Offer, the amount of any such transfer taxes (whether imposed on the
registered Holder or any other person) will be payable by the tendering Holder.
If satisfactory evidence of payment of such taxes or exception therefrom is not
submitted herewith, the amount of such transfer taxes will be billed directly to
such tendering Holder.
Except as provided in this Instruction 6, it will not be necessary for
transfer stamps to be affixed to the Outstanding Notes listed in this Letter of
Transmittal.
7. WAIVER OF CONDITIONS.
The Company reserves the absolute right to waive, in whole or in part, any of
the conditions to the Exchange Offer set forth in the Prospectus.
10
<PAGE>
8. MUTILATED, LOST, STOLEN OR DESTROYED NOTES.
Any holder whose Outstanding Notes have been mutilated, lost, stolen or
destroyed should contact the Exchange Agent at the address indicated above for
further instructions.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering as well as requests for
additional copies of the Prospectus and this Letter of Transmittal, may be
directed to the Exchange Agent at the address and telephone number(s) set forth
above. In addition, all questions relating to the Exchange Offer, as well as
requests for assistance or additional copies of the Prospectus and this Letter
of Transmittal, may be directed to the Company at 1301 Capital of Texas Highway,
Suite C-300, Austin, Texas 78746, Attention: Chief Financial Officer (telephone:
(512) 328-2892).
10. VALIDITY AND FORM.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of Outstanding Notes tendered for exchange
will be determined by the Company in its sole discretion, which determination
shall be final and binding. The Company reserves the absolute right to reject
any and all tenders of any Outstanding Notes not properly tendered and to reject
any Outstanding Notes the Company's acceptance of which might, in the judgment
of the Company or its counsel, be unlawful. The Company also reserves the
absolute right at its sole discretion to waive any defects or irregularities or
conditions of the Exchange Offer as to any particular Outstanding Notes either
before or after the Expiration Date (including the right to waive the
ineligibility of any holder who seeks to tender Outstanding Notes in the
Exchange Offer). The interpretation of the terms and conditions of the Exchange
Offer as to any Outstanding Notes either before or after the Expiration Date
(including the Letter of Transmittal and the instructions thereto) by the
Company shall be final and binding on all parties. Unless waived, any defects or
irregularities in connection with tenders of Outstanding Notes for exchange must
be cured within such period of time as the Company shall determine. Neither the
Company, the Exchange Agent nor any other person shall be under any duty to give
notification of any defects or irregularities with respect to any tender of
Outstanding Notes for exchange, nor shall any of them incur any liability for
failure to give such notification. Tenders of the Outstanding Notes will not be
deemed to have been made until such irregularities have been cured or waived.
Any Outstanding Notes received by the Exchange Agent that are not properly
tendered and as to which the defects or irregularities have not been cured or
waived will be returned by the Exchange Agent to the tendering Holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
IMPORTANT TAX INFORMATION
Under federal income tax law, a Holder tendering Outstanding Notes is required
to provide the Exchange Agent with such holder's correct TIN on Substitute Form
W-9 below. If such Holder is an individual, the TIN is the Holder's social
security number. The Certificate of Awaiting Taxpayer Identification Number
should be completed if the tendering Holder has not been issued a TIN and has
applied for a number or intends to apply for a number in the near future. If the
Exchange Agent is not provided with the correct TIN, the Holder may be subject
to a $50 penalty imposed by the Internal Revenue Service. In addition, payments
that are made to such Holder with respect to tendered Outstanding Notes may be
subject to backup withholding.
Certain Holders (including, among others, all corporations and certain foreign
individuals and foreign entities) are not subject to these backup withholding
and reporting requirements. In order for such a Holder to qualify as an exempt
recipient, that holder must submit to the Exchange Agent a properly completed
Internal Revenue Service Form W-8, signed under penalties of perjury, attesting
to that Holder's exempt status. Such forms can be obtained from the Exchange
Agent.
If backup withholding applies, the Exchange Agent is required to withhold 31%
of any amounts otherwise payable to the Holder. Backup withholding is not an
additional tax. Rather, the tax liability of persons subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained from the Internal
Revenue Service.
11
<PAGE>
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a Holder with
respect to Outstanding Notes tendered for exchange, the Holder is required to
notify the Exchange Agent of his or her correct TIN by completing the form
herein certifying that the TIN provided on Substitute Form W-9 is correct (or
that such Holder is awaiting a TIN) and that (i) such Holder has not been
notified by the Internal Revenue Service that he or she is subject to backup
withholding as a result of failure to report all interest or dividends or (ii)
the Internal Revenue Service has notified such Holder that he or she is no
longer subject to backup withholding.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
Each Holder is required to give the Exchange Agent the social security number
or employer identification number of the record Holder(s) of the Outstanding
Notes. If Outstanding Notes are in more than one name or are not in the name of
the actual Holder, consult the instructions on Internal Revenue Service Form W-
9, which may be obtained from the Exchange Agent, for additional guidance on
which number to report.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
If the tendering holder has not been issued a TIN and has applied for a number
or intends to apply for a number in the near future, write "Applied For" in the
space for the TIN on Substitute Form W-9, sign and date the form and the
Certificate of Awaiting Taxpayer Identification Number and return them to the
Exchange Agent. If such certificate is completed and the Exchange Agent is not
provided with the TIN within 60 days, the Exchange Agent will withhold 31% of
all payments made thereafter until a TIN is provided to the Exchange Agent.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE THEREOF
(TOGETHER WITH OUTSTANDING NOTES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL
OTHER REQUIRED DOCUMENTS) OR A NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY
THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
12
<PAGE>
Name (if joint names, list first and circle the
name of the person or entity whose number
you enter in Part 1 below. See instructions if
your name has changed.)
---------------------------------------------------
Address
---------------------------------------------------
SUBSTITUTE City, State and Zip Code
---------------------------------------------------
Form W-9 List account number(s) here (optional)
---------------------------------------------------
Department of the Treasury Part 1 - PLEASE PROVIDE YOUR | Social Security
Internal Revenue Service TAXPAYER IDENTIFICATION | Number or TIN
NUMBER ("TIN") IN THE BOX AT |
RIGHT AND CERTIFY BY SIGNING |
AND DATING BELOW |
---------------------------------------------------
Payer's Request for Part 2 - Check the box if you are NOT subject to
Taxpayer backup withholding under the provisions of section
Identification 3408(a)(1)(C) of the Internal Revenue Code because
Number (TIN) (1) you have not been notified that you are subject
to backup withholding as a result of failure to
report all interest of dividends or (2) the
Internal Revenue Service has notified you that you
are no longer subject to backup withholding.
---------------------------------------------------
CERTIFICATION - UNDER THE PENALTIES OF |
PERJURY, I CERTIFY THAT THE INFORMATION | Part 3 -
PROVIDED ON THIS FORM IS TRUE, CORRECT |
AND COMPLETE. |
| Awaiting
| TIN [ ]
SIGNATURE DATE |
------------ ------------- |
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
13
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer.
Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-
0000. Employer identification numbers have nine digits separated by only one
hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------- ---------------------------------------------------------------
FOR THIS TYPE OF ACCOUNT: GIVE THE FOR THIS TYPE OF ACCOUNT: GIVE THE EMPLOYER
SOCIAL SECURITY IDENTIFICATION
NUMBER OF NUMBER OF
- ---------------------------------------------------------------- ---------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account. The individual 9. A valid trust, estate, or pension The legal entity (Do
trust not furnish the
identifying number of
the personal
representative or
trustee unless the
legal entity itself
is not designated in
the account
title.)(5)
2. Two or more individuals (joint The actual owner of the 10. Corporate account The corporation
account) account or, if combined
funds, any one of the
individuals(1)
3. Husband and wife (joint account) The actual owner of the 11. Religious, charitable, or The organization
account or, if joint educational organization account
funds, either person(1)
4. Custodian account of a minor The minor (2) 12. Partnership account held in the name The partnership
(Uniform Gift to Minors Act) of the business
5. Adult and minor (joint account) The adult or, if the minor 13. Association, club, or other The organization
is the only contributor, tax-exempt organization
the minor(1)
6. Account in the name of guardian or The ward, minor, or 14. A broker or registered nominee The broker or nominee
committee for a designated ward, incompetent person(3)
minor, or incompetent person
7. a The usual revocable savings The grantor-trustee(1) 15. Account with the Department of The public entity
trust account (grantor is also The actual owner(1) Agriculture in the name of a public
trustee) entity (such as a State or local
b So-called trust account that government, school, district, or
is not a legal or valid trust prison) that receives agricultural
under State law program payments
8. Sole proprietorship account The owner (4)
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</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circled the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
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GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER OF SUBSTITUTE FORM W-9
PAGE 2
Obtaining A Number
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
. A corporation.
. A financial institution.
. An organization exempt from tax under section 501(a), or an individual
retirement plan, or a custodial account under section 403(6)(7).
. The United States or any agency or instrumentality thereof.
. A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
. A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
. An international organization or any agency, or instrumentality thereof.
. A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
. A real estate investment trust.
. A common trust fund operated by a bank under section 584(a)
. An exempt charitable remainder trust under section 664, or a non-exempt
trust described in section 4947.
. An entity registered at all times under the Investment Company Act of
1940.
. A foreign central bank of issue.
. A future commission merchant registered with the Commodity Futures
Trading Commission.
. A middleman known in the investment community as A nominee or listed in
the most recent publication of the American Society of Corporate
Secretaries, Inc. Nominee List.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
. Payments to nonresident aliens subject to withholding under section 1441.
. Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
. Payments of patronage dividends where the amount received is not paid in
money.
. Payments made by certain foreign organizations.
Payments of interest not generally subject to backup withholding include the
following:
. Payments of interest on obligations issued by individuals.
Note: You may be subject to backup withholding if this interest is $600
or more and is paid in the course of the payer's trade or business and
you have not provided your correct taxpayer identification number to the
payer.
. Payments of tax-exempt interest (including exempt-in-interest dividends
under section 852).
. Payments described in section 6049(b)(5) to non-resident aliens.
. Payments on tax-free covenant bonds under section 1451.
. Payments made by certain foreign organizations.
. Mortgage interest paid to the payer.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS,
ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details see section 6041, 6041A(a), 6042, 6044, 6045, 6049,
6050A, and 6050N and their regulations.
PRIVACY ACT NOTICE. -- Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to IRS. IRS uses the numbers for identification
purposes and to help verify the accuracy of your return. Payers must be given
the numbers whether or not recipients are required to file tax returns. Payers
must generally withhold 31% of taxable interest, dividend, and certain other
payments to a payee who does not furnish a taxpayer identification number to a
payer. Certain penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER. -- If you
fail to furnish your taxpayer identification number to a payer, you are subject
to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
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