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FILED PURSUANT TO RULE 424(B)(2)
REGISTRATION NUMBER 333-10915
PROSPECTUS
ROTECH MEDICAL CORPORATION
$110,000,000 PRINCIPAL AMOUNT OF 5 1/4% CONVERTIBLE SUBORDINATED DEBENTURES
DUE 2003
(INTEREST PAYABLE JUNE 1 AND DECEMBER 1)
4,190,476 SHARES OF COMMON STOCK
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This Prospectus relates to (i) $110,000,000 aggregate principal amount of 5
1/4% Convertible Subordinated Debentures due 2003 (the "Debentures") of RoTech
Medical Corporation, a Florida corporation ("RoTech" or the "Company") and
4,190,476 shares of the Common Stock, par value $.0002 per share (the "Common
Stock"), of the Company which are initially issuable upon conversion of the
Debentures plus such additional indeterminate number of shares of Common Stock
as may become issuable upon conversion of the Debentures as a result of
adjustments to the conversion price (the "Conversion Shares"). The Debentures
and the Conversion Shares that are being registered hereby are to be offered
for the account of the holders thereof (the "Selling Securityholders"). The
Debentures were acquired from the Company by Smith Barney Inc., Needham &
Company, Inc. and Wheat, First Securities, Inc. (the "Initial Purchasers") in
May 1996 in connection with a private offering (the "Debenture Offering"). See
"Description of Debentures."
The Debentures are convertible into Common Stock of the Company at any time
after the 60th day following the date of original issuance of the Debentures
and at or before maturity, unless previously redeemed, at a conversion price
of $26.25 per share, subject to adjustment in certain events. The Common Stock
of the Company is traded on The Nasdaq National Market under the symbol ROTC.
On September 9, 1996, the closing price of the Common Stock as reported by
Nasdaq was $14 per share.
The Debentures do not provide for a sinking fund and are not redeemable by
the Company prior to June 4, 1999. The Debentures are redeemable at the option
of the Company, in whole or in part, at the redemption prices set forth in
this Prospectus, together with accrued interest. Upon a Repurchase Event (as
defined herein), each holder of Debentures shall have the right, at the
holder's option, to require the Company to repurchase such holder's Debentures
at a purchase price equal to 100% of the principal amount thereof, plus
accrued interest. See "Description of Debentures--Certain Rights to Require
Repurchase of Debentures."
The Debentures are unsecured obligations of the Company and are subordinate
to all present and future Senior Indebtedness (as defined herein) of the
Company and will be effectively subordinated to all indebtedness and
liabilities of subsidiaries of the Company. As of August 20, 1996, Senior
Indebtedness was approximately $53.2 million. The Indenture does not restrict
the incurrence of any other indebtedness or liabilities by the Company or its
subsidiaries. See "Description of Debentures--Subordination."
The Debentures have been designated for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") Market. For a
description of certain income tax consequences to holders of the Debentures,
see "Certain United States Federal Income Tax Consequences."
The Initial Purchasers have advised the Company that they intend to make a
market in the Debentures. The Initial Purchasers, however, are not obligated
to do so and any such market making may be discontinued at any time without
notice, in the sole discretion of the Initial Purchasers. No assurances can be
given that any market for the Debentures will develop or be maintained.
The Debentures and the Conversion Shares are being registered to permit
public secondary trading of the Debentures and, upon conversion, the
underlying Common Stock, by the holders thereof from time to time after the
date of this Prospectus. The Company has agreed, among other things, to bear
all expenses (other than underwriting discounts, selling commissions and the
fees and expenses of counsel and other advisors to the holders of the
Debentures or the underlying Common Stock) in connection with the registration
and sale of the Debentures and the underlying Common Stock covered by this
Prospectus.
The Company will not receive any of the proceeds from the sales of the
Debentures or the Conversion Shares by the Selling Securityholders. The
Debentures and the Conversion Shares may be offered in negotiated transactions
or otherwise, at market prices prevailing at the time of sale or at negotiated
prices. In addition, the Conversion Shares may be offered from time to time
through ordinary brokerage transactions on The Nasdaq National Market. See
"Plan of Distribution." The Selling Securityholders may be deemed to be
"Underwriters" as defined in the Securities Act of 1933, as amended (the
"Securities Act"). If any broker-dealers are used by the Selling
Securityholders, any commissions paid to broker-dealers and, if broker-dealers
purchase any Debentures or Conversion Shares as principals, any profits
received by such broker-dealers on the resale of the Debentures or Conversion
Shares may be deemed to be underwriting discounts or commissions under the
Securities Act. In addition, any profits realized by the Selling
Securityholders may be deemed to be underwriting commissions.
SEE "RISK FACTORS" FOR A DESCRIPTION OF CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
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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 September 10, 1996
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files periodic reports, proxy statements and other information with
the Securities and Exchange commission (the "Commission"). Such reports and
other information filed by the Company with the Commission in accordance with
the Exchange Act may be inspected, without charge, at the Public Reference
Section of the Commission located at 450 Fifth Street, N.W., Washington, D.C.
20549 and at the following regional offices of the Commission: New York
Regional Office at 7 World Trade Center, 13th Floor, New York, New York 10048;
and Chicago Regional Office at Citicorp Center, 500 West Madison Street,
Chicago, Illinois 60661. Copies of all or any portion of the material may be
obtained from the Public Reference Section of the Commission upon payment of
the prescribed fees. Such materials can also be inspected at the offices of
Nasdaq Operations, 1735 K Street, N.W. Washington, D.C. 20006.
The Company has filed with the Commission a registration statement on Form
S-3 (such registration statement, together with all amendments and exhibits
thereto, being hereinafter referred to as the "Registration Statement") under
the Securities Act for the registration under the Securities Act of the
Debentures and Conversion Shares offered hereby. This Prospectus does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. Reference is hereby made to the Registration
Statement for further information with respect to the Company and the
securities offered hereby. Statements contained herein concerning the
provisions of documents filed as exhibits to the Registration Statement are
necessarily summaries of such documents, and each such statement is qualified
in its entirety by reference to the copy of the applicable document filed with
the Commission. Copies of the Registration Statement and the exhibits may be
inspected, without charge, at the offices of the Commission, or obtained at
prescribed rates from the Public Reference Section of the Commission at the
address set forth above.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents previously filed by the Company with the Commission
pursuant to the Exchange Act are incorporated by reference in this Prospectus
and made a part hereof: (1) Annual Report on Form 10-K for fiscal year ended
July 31, 1995; (2) Quarterly Report on Form 10-Q for the quarter ended October
31, 1995; (3) Quarterly Report on Form 10-Q/A for the quarter ended January
31, 1996; (4) Current Report on Form 8-K as filed with the Commission on
November 15, 1995; (5) Current Report on Form 8-KA as filed with the
Commission on January 11, 1996; (6) Current Report on Form 8-K as filed with
the Commission on April 1, 1996; (7) Report on Form 10-C as filed with the
Commission on May 9, 1996; (8) Current Report on Form 8-K as filed with the
Commission on May 17, 1996; (9) Form S-8 as filed with the Commission on May
17, 1996; (10) Quarterly Report on Form 10-Q/A for the quarter ended April 30,
1996; (11) Current Report on Form 8-K/A as filed with the Commission on June
4, 1996; and (12) Current Report on Form 8-K as filed with the Commission on
August 20, 1996. Certain portions of the above-referenced documents have been
modified or superseded by the information contained herein. In addition, all
documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act after the date hereof and prior to the time of the
termination of the offering are hereby deemed to be incorporated by reference.
Any statements contained in a document incorporated or deemed to be
incorporated by reference 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 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 modfied or
superseded, to constitute a part of this Prospectus. Any person receiving a
copy of this Prospectus may obtain without charge, upon written request or
oral request, a copy of any of the documents incorporated by reference herein,
except for the exhibits to such documents (unless such exhibits are
specifically incorporated by reference into the documents which
this Prospectus incorporates). Written or telephone requests for such copies
should be directed to RoTech Medical Corporation, P.O. Box 536576, Orlando,
Florida 32853-6576, Attention: Rebecca R. Irish, telephone (407) 841-2115.
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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 included in and incorporated by reference in this Prospectus. See "Risk
Factors" for a discussion of certain factors to be considered by prospective
investors. Unless otherwise indicated, the information in this Prospectus gives
effect to a 2-for-1 stock split paid on May 21, 1996 in the form of a stock
dividend to holders of record on April 30, 1996.
THE COMPANY
RoTech Medical Corporation ("RoTech" or the "Company") provides comprehensive
home health care and primary care physician services, principally to patients
in non-urban areas. As of August 20, 1996, RoTech operated 366 home health care
locations and 24 primary care physician practices, employing 29 physicians. The
Company's home health care business provides a diversified range of products
and services, with emphasis on respiratory and home infusion therapies. RoTech
has pursued an aggressive acquisition strategy since 1988 which included in
fiscal 1996 acquisitions of 145 locations of smaller home health care companies
and the opening of 20 new locations. Current industry estimates indicate that
approximately half of the nation's home health care industry remains fragmented
and is run by either single operators or small, local chains. These smaller
providers are RoTech's main competition and main acquisition opportunities. The
Company plans to continue to enter new home health care markets through
acquisition or start-up as competitive and pricing pressures encourage
consolidation and economies of scale. In January 1994, the Company expanded
this strategy to include the acquisition of primary care physician practices in
certain markets to enable the ultimate development of an integrated primary
health care delivery system capable of providing a broad range of non-
institutional care to patients in these markets. The Company believes this
system will facilitate managed care concepts and pricing in these markets,
where managed care currently has little penetration, and should prevent the
outmigration of the non-urban population to urban health care facilities and
service providers. The Company's revenues have grown from $26 million for the
fiscal year ended July 31, 1991 to $134 million for the fiscal year ended July
31, 1995 and to $180 million for the nine months ended April 30, 1996.
The Company's principal executive offices are located at 4506 L.B. McLeod
Road, Suite F, Orlando, Florida 32811; its telephone number is (407) 841-2115.
The Company conducts its business through operating subsidiaries and, unless
the context requires otherwise, the terms "RoTech" and "Company" refer to
RoTech Medical Corporation and its operating subsidiaries.
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THE OFFERING
SECURITIES OFFERED........ $110,000,000 aggregate principal amount of 5
1/4% Convertible Subordinated Debentures due
2003 (the "Debentures") and 4,190,476 shares of
the Common Stock, par value $.0002 per share
(the "Common Stock") which are initially
issuable upon conversion of the Debentures (the
"Conversion Shares")
PAYMENT OF INTEREST....... June 1 and December 1, commencing December 1,
1996.
CONVERSION................ The Debentures are convertible into Common
Stock of the Company at the option of the
holder at any time after the 60th day following
the date of original issuance of the Debentures
and at or before maturity, unless previously
redeemed, at $26.25 per share, subject to
adjustment upon the occurrence of certain
events.
SUBORDINATION............. The Debentures are subordinated to all present
and future Senior Indebtedness (as defined
herein) of the Company and effectively
subordinated to all indebtedness and other
liabilities of subsidiaries of the Company.
Senior Indebtedness of the Company and
indebtedness and other liabilities of its
subsidiaries aggregated approximately $53.2
million at August 20, 1996. The Indenture
contains no limitation on the incurrence of
indebtedness (including Senior Indebtedness) or
other liabilities by the Company and its
subsidiaries.
REDEMPTION................ The Debentures are redeemable in whole or in
part, at the option of the Company, at the
redemption prices set forth herein, together
with accrued interest, except that no
redemption may be made prior to June 4, 1999.
REDEMPTION AT HOLDER'S In the event that there shall occur a
OPTION.................... Repurchase Event (as defined herein), each
holder of the Debentures shall have the right,
at the holder's option, to require the Company
to repurchase such holder's Debentures at 100%
of their principal amount, plus accrued
interest. The term Repurchase Event is limited
to transactions involving a Change in Control
(as defined herein) or a Termination of Trading
(as defined herein), and does not include other
events that might adversely affect the
financial condition of the Company or result in
a downgrade in the credit rating (if any) of
the Debentures. The Company's ability to
repurchase the Debentures following a
Repurchase Event is dependent upon the
Company's having sufficient funds and may be
limited by the terms of the Company's Senior
Indebtedness or the subordination provisions of
the Indenture. There is no assurance that the
Company will be able to repurchase the
Debentures upon the occurrence of a Repurchase
Event.
USE OF PROCEEDS........... The Company will not receive any of the
proceeds from the sale of any of the Debentures
or the Common Stock issuable upon conversion
thereof.
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Prospective investors are cautioned that the statements in this Prospectus
that are not descriptions of historical facts may be forward-looking
statements. Such statements reflect management's current views, are based on
many assumptions and are subject to risks and uncertainties. Actual results
could differ materially from those currently anticipated due to a number of
factors.
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RISK FACTORS
In addition to the other information contained in this Prospectus and in the
documents incorporated herein by reference, prospective purchasers of the
Debentures and the Conversion Shares should carefully consider the factors set
forth below before purchasing the Debentures and Conversion Shares offered
hereby.
REIMBURSEMENT FOR SERVICES
A substantial percentage of RoTech's revenue is attributable to third-party
payors, including private insurers, Medicare and, to a lesser extent,
Medicaid. The Company has substantial expertise at processing claims and
continues to create and improve systems to manage third-party reimbursements,
to produce clean claims and obtain timely reimbursements by third-party
payors. The Company has developed distinct billing and collection departments
for Medicare and Medicaid reimbursements and for private insurance company
claims which are supported by customized computer systems. These departments
work closely with reimbursement officers at branch locations and third-party
payors and are responsible for the review of patient coverage, the adequacy
and timeliness of documentation and the follow-up with third-party payors to
expedite reimbursement payments. Reimbursement from the Medicare program as a
percentage of RoTech's total operating revenue approximated 36% for fiscal
1992, 39% for fiscal 1993, 35% for fiscal 1994, 49% for fiscal 1995, and 49%
for the nine months ended April 30, 1996.
RoTech has achieved increased operating revenue in home respiratory and
other medical equipment operations despite increased regulation and
corresponding reimbursement reductions. While the increased regulation tends
to reduce the amount of reimbursement from government sources for individual
cases, the Company believes the continued increased regulation also benefits
the Company by reducing the competition from joint ventures and fee revenue
sharing arrangements, which the Company has historically avoided.
The levels of operating revenue and profitability of the Company, like those
of other health care companies, are affected by the continuing efforts of
third-party payors to contain or reduce the costs of health care by lowering
reimbursement rates, increasing case management review of services and
negotiating reduced contract pricing. Home health care, which is generally
less costly to third-party payors than hospital-based care, has benefitted
from those cost containment objectives. However, as expenditures in the home
health care market continue to grow, initiatives aimed at reducing the costs
of health care delivery at non-hospital sites are increasing. Changes in
reimbursement policies by third-party payors, or the reduction in or
elimination of such reimbursement programs, could have a material adverse
impact on the Company's revenues. Various state and federal health reform
initiatives may lead to additional changes in reimbursement programs.
GOVERNMENT REGULATION
The home care industry is subject to extensive government regulation at the
federal level through the Medicare program and at the state level through the
Medicaid program. Medicare is a federally funded health insurance program
which provides health insurance coverage for persons age 65 and older and
certain disabled persons, and generally provides reimbursement at specified
rates for sales and rentals of specified medical equipment and supplies,
provided such equipment and supplies are determined to be medically necessary
by the treating physician. Medicaid is a health insurance program administered
by state governments which provides reimbursements for health care for certain
financially or medically needy persons regardless of age.
The Company is subject to government audits of its Medicare and Medicaid
reimbursement claims and has not, to date, experienced any material loss as a
result of any such government audits. Under existing federal law, the knowing
and willful offer or payment of any remuneration (including any kickback,
bribe or rebate) of any kind to another person to induce the referral of
Medicare or Medicaid beneficiaries for whom medical supplies and services may
be reimbursed by the Medicare or Medicaid programs is prohibited and could
subject the parties to such an arrangement to substantial criminal and civil
penalties, including exclusion from participation in these programs, for
Medicare or Medicaid fraud. The Office of Inspector General of the Department
of Health
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and Human Services ("OIG") has promulgated regulatory "safe harbors" that
describe certain practices and business arrangements that comply with Medicare
and Medicaid regulations. The OIG and law enforcement authorities have
recently increased their investigatory efforts to determine whether various
business practices constitute remuneration for, or to induce, referrals.
Certain states have also passed statutes and regulations that prohibit
payments for referral of patients. These laws vary significantly from state to
state. The result of legislative and regulatory efforts is an extra compliance
challenge and, therefore, risk. The Company has been aware that the OIG has
made certain informal inquiries related to payments received by the Company in
the late 1980's. The OIG submitted its findings to the United States Attorney
for the Middle District of Florida, which elected in May, 1995, to file a
civil suit, Case No. 95-558-CIV-ORL-18, in which it contends that Medicare
made some unspecified amount of payments to the Company by mistake in part of
1987, in 1988, and in 1989. The civil suit seeks repayment of the monies
allegedly paid by mistake. While the Company is confident that it was at all
times in compliance with all material Medicare requirements, and believes that
all payments it received were made correctly and not by mistake, the Company
seeks an amicable resolution of the issues involved in the civil suit in order
to save time and potential litigation expenses. However, if the matter is not
amicably resolved, the Company intends to mount a vigorous defense. The
potential financial exposure of the Company in the civil suit is unknown.
The Company received an inquiry from the Medicaid Department of the State of
Mississippi and subsequently received a subpoena from the OIG concerning the
Company's 1994 cost report for its Mississippi Rural Health Clinics. The
Company is cooperating fully with such inquiries. There has been no statement
of issues or particular concerns given the Company sufficient to permit the
Company to determine the extent of financial exposure, if any. The Company is
not aware of any material error in the one year's cost report under inquiry,
following consultation with its outside consultant, who also assisted in the
preparation and filing of the original report. If any adjustments occur, such
would likely relate only to Mississippi physician clinics for 1994.
The types of services and products delivered by the Company, the required
quality of such services and products and the manner in which such services
and products are delivered and billed are each subject to significant and
complex regulations promulgated, interpreted and administered by the
appropriate federal or state governmental agency. Although the Company
believes that its products, services and procedures comply in all respects
with such regulations applicable to reimbursement eligibility, the
unavailability of advance formal administrative rulings in most regulated
areas subjects the Company to possible subsequent adverse interpretations and
rulings which may affect the eligibility of some or all of the Company's
services and products for reimbursement. Such an adverse interpretation or
ruling could have a substantial adverse impact on the Company's business.
In addition, the Company is required to obtain federal and state licenses
and permits relating to the distribution of pharmaceutical products, including
a federal Controlled Dangerous Substance Registration Certificate and Florida
State Wholesaler License. The Company is required to obtain similar licenses
from each state in which it does business.
The Company's acquisitions of primary care physician practices are
structured to attempt to comply with federal and state law restrictions on
business relationships between the Company and persons who may be in a
position to refer patients to the Company for the provision of health care
related items or services. Accordingly, the Company endeavors to undertake
such acquisitions in a manner where the consideration offered and paid is
consistent with fair market value in arms-length transactions and is not
determined in a manner that takes into account the volume or value of any
referrals or business that might otherwise be generated between the Company
and the physician whose practice is to be acquired and for which payment may
be made under Medicare or Medicaid. While the Company believes that its
acquisitions do not entail any form of unlawful remuneration, there can be no
assurances that enforcement authorities will not attempt to construe the
consideration exchanged in certain acquisition transactions as entailing
unlawful remuneration and to challenge such transactions on such basis.
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In many states, the "corporate practice of medicine doctrine" prohibits
business corporations from providing, or holding themselves out as providers
of, medical care through the employment of physicians. Although the two states
in which the Company has acquired practices of primary care physicians,
Florida and Mississippi, have not adopted this prohibition, there can be no
assurance that either state will not adopt this doctrine in the future or that
the Company will not acquire a primary care medical practice in a state that
has enacted or adopted through case law the corporate practice of medicine
doctrine. While the Company intends to structure future acquisitions to comply
with the corporate practice of medicine doctrine where it exists, there can be
no assurance that, given varying and uncertain interpretations of such laws,
the Company would be found to be in compliance with restrictions on the
corporate practice of medicine in all states. Enforcement of such doctrine
could require divestiture of acquired practices or restructuring of physician
relationships.
Health care is an area of extensive and dynamic regulatory change. Changes
in the law or new interpretations of existing laws can have a dramatic effect
on permissible activities, the relative costs associated with doing business,
and the amount of reimbursement by government and third-party payors. The
Omnibus Budget Reconciliation Act of 1987 ("OBRA 1987") created six categories
of durable medical equipment for purposes of reimbursement under the Medicare
Part B program. There is a separate fee schedule for each category. OBRA 1987
also controls whether durable medical equipment products will be paid for on a
rental or sale basis and established fixed payment rates for oxygen service as
well as a 15-month rental ceiling on certain medical equipment. An interim
final rule implementing the payment methodology under the fee schedules
recently was published in the Federal Register. Payment based on the fee
schedules is effective with covered items furnished on or after January 1,
1989. Generally, Medicare pays 80% of the lower of the supplier's actual
charge for the item or the fee schedule amount, after adjustment for the
annual deductible amount. OBRA 1990 made changes to Medicare Part B
reimbursement that were implemented in 1991. The substantive change was the
standardization of Medicare rates for certain equipment categories. Laws and
regulations often are adopted to regulate new products, services and
industries. There can be no assurances that either the states or the federal
government will not impose additional regulations upon the Company's
activities which might adversely affect the Company's business.
Political, economic and regulatory influences are subjecting the health care
industry in the United States to fundamental change. Although Congress has
failed to pass comprehensive health care reform legislation thus far, the
Company anticipates that Congress and state legislatures will continue to
review and assess alternative health care delivery and payment systems and may
in the future propose and adopt legislation effecting fundamental changes in
the health care delivery system. Further, each area of medical care is subject
to scrutiny and revision as to the amount of reimbursement which is
reasonable. Any reduction in reimbursement in those goods and services
provided by the Company would have a direct effect on gross revenues of the
Company. Legislative debate is expected to continue in the future, and the
Company cannot predict what impact the adoption of any federal or state health
care reform measures or future private sector reform may have on its industry
or business.
Pursuant to federal legislation (commonly known as "Stark II") enacted as
part of The Omnibus Budget Reconciliation Act of 1993, and effective January
1, 1995, physicians are prohibited from making referrals to entities in which
they (or immediate family members) have an investment interest or compensation
arrangement, where such referral is for any "designated health service"
covered by Medicare/Medicaid, including parenteral and enteral nutrients,
equipment and supplies, and home health services. Ownership by a physician of
investment securities in a publicly-held corporation with stockholders' equity
exceeding $75 million at the end of the corporation's most recent fiscal year
or on average during the previous three fiscal years is exempt from the
investment prohibition if the securities are traded on the New York, American
or a regional stock exchange, or The Nasdaq National Market. Exemptions from
the compensation arrangement prohibition include (i) amounts paid by an
employer to a physician pursuant to a bona fide employment relationship
meeting specified requirements, including payments being unrelated to
referrals and consistent with the fair market value of the services provided
and (ii) other personal service arrangements if certain requirements are met,
including that compensation be paid over the term of a written agreement with
a term of one year or more, be set in advance,
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not exceed fair market value, and be unrelated to referrals. While RoTech
intends to structure its acquisitions and operations to comply with Stark II,
there can be no assurance that future interpretations of that law will not
require structural and organizational modifications of the Company's existing
relationships with physicians, nor can assurance be given that present or
future relationships between the Company and physicians will be found to be in
compliance with such law.
INSURANCE
In recent years, participants in the health care market have become subject
to an increasing number of malpractice and product liability lawsuits, many of
which involve large claims and significant defense costs. As a result of the
liability risks inherent in the Company's lines of business, including the
risk of liability due to the negligence of physicians or other health care
professionals employed by or otherwise under contract to the Company, the
Company maintains liability insurance intended to cover such claims. There can
be no assurance that the coverage limits of the Company's insurance policies
will be adequate, or that the Company can obtain liability insurance in the
future on acceptable terms or at all.
The Company currently has in force various liability insurance policies,
with total coverage limits of $11.0 million per occurrence and in the
aggregate annually. These policies contain various levels of deductibles and
self-insured retentions. They provide the Company protection against claims
alleging bodily injury or property damage arising out of the Company's
operations, including home health care, but excluding the Company's employed
physicians. The Company has in force, with respect to physicians employed by
the Company, individual professional liability insurance policies, with
coverage limits ranging from $250,000 per occurrence to $1 million per
occurrence, and ranges from $750,000 in the aggregate annually to $3 million
in the aggregate annually. The Company's insurance policies are subject to
annual renewal.
LEGAL PROCEEDINGS
The Company is from time to time involved in various legal proceedings.
Although the Company does not believe that any currently pending proceeding
will materially and adversely affect the Company, there can be no assurance
that any current or future proceeding will not have a material adverse affect
on the Company's financial position or results of operations.
LEVERAGE
The Company's indebtedness is significant in relation to its shareholders'
equity. As of August 20, 1996, such debt accounted for approximately 48% of
the Company's total capitalization.
SUBORDINATION OF DEBENTURES
The Debentures are subordinate in right of payment to all current and future
Senior Indebtedness of the Company. Senior Indebtedness includes all secured
indebtedness of the Company, whether existing on or created or incurred after
the date of the issuance of the Debentures, that is not made subordinate to or
pari passu with the Debentures by the instrument creating the indebtedness. At
August 20, 1996, the aggregate amount of Senior Indebtedness outstanding and
the aggregate amount of indebtedness and other liabilities of the Company and
its subsidiaries to which the Debentures are effectively subordinated was
approximately $53.2 million. The Indenture does not limit the amount of
additional indebtedness, including Senior Indebtedness, which the Company can
create, incur, assume or guarantee. By reason of such subordination of the
Debentures, in the event of insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of the business of the Company or
upon a default in payment with respect to any Senior Indebtedness of the
Company or an event of default with respect to such indebtedness resulting in
the acceleration thereof, the assets of the Company will be available to pay
the amounts due on the Debentures only after all Senior Indebtedness of the
Company has been paid in full. In addition, holders of the Debentures are
effectively subordinated to the claims of creditors of the Company's
subsidiaries, to the extent of the assets of such subsidiaries. In the event
of the insolvency,
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bankruptcy, liquidation, reorganization, dissolution or winding up of the
business of any subsidiary of the Company, creditors of such subsidiary
generally will have the right to be paid in full before any distribution is
made to the Company or the holders of the Debentures. See "Description of
Debentures."
LIMITATIONS ON REPURCHASE OF DEBENTURES UPON A REPURCHASE EVENT
In the event of a Repurchase Event, which includes a Change in Control and a
Termination of Trading (each as defined herein), each holder of the Debentures
will have the right, at the holder's option, to require the Company to
repurchase all or a portion of such holder's Debentures at a purchase price
equal to 100% of the principal amount thereof plus accrued interest to the
repurchase date. The Company's ability to repurchase the Debentures upon a
Repurchase Event may be limited by the terms of the Company's Senior
Indebtedness and the subordination provisions of the Indenture. Further, the
ability of the Company to repurchase Debentures upon a Repurchase Event will
be dependent on the availability of sufficient funds and compliance with
applicable securities laws. Accordingly, there can be no assurance that the
Company will be able to repurchase the Debentures upon a Repurchase Event. The
term "Repurchase Event" is limited to certain specified transactions and may
not include other events that might adversely affect the financial condition
of the Company or result in a downgrade of the credit rating of the Debentures
nor would the requirement that the Company offer to repurchase the Debentures
upon a Repurchase Event necessarily afford holders of the Debentures
protection in the event of a highly leveraged reorganization, merger or
similar transaction involving the Company. See "Description of Debentures."
ABSENCE OF PUBLIC MARKET; TRANSFER RESTRICTIONS
There is no existing market for the Debentures and there can be no assurance
as to the liquidity of any markets that may develop for the Debentures, the
ability of the holders to sell their Debentures or the price at which holders
of the Debentures may be able to sell their Debentures. Future trading prices
of the Debentures will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results, the price of the
Common Stock and the market for similar securities. The Initial Purchasers
have informed the Company that the Initial Purchasers intend to make a market
in the Debentures offered hereby; however, the Initial Purchasers are not
obligated to do so and any such market making activity may be terminated at
any time without notice to the holder of the Debentures. See "Description of
Debentures--Registration Rights; Liquidated Damages." The Debentures have been
designated for trading in the PORTAL Market; however, the Company does not
intend to apply for listing of the Debentures on any securities exchange.
RATIO OF EARNINGS TO FIXED CHARGES
The Company's ratio of earnings to fixed charges for each of the periods
indicated is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED JULY 31 APRIL 30
- -------------------------------------------------------- ----------------------------
1991 1992 1993 1994 1995 1995 1996
- ---- ----- ------ ------ ----- --------- --------
<S> <C> <C> <C> <C> <C> <C>
6.58x 19.65x 107.03x 192.62x 26.07x 19.94x 8.44x
</TABLE>
The ratio of earnings to fixed charges is computed by dividing fixed charges
into earnings from continuing operations before income taxes, minority
interest and extraordinary items plus fixed charges. Fixed charges consist of
interest expense, amortization of financing costs and the estimated interest
component of rent expense.
9
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sales of the
Debentures or the Conversion Shares by the Selling Securityholders. See
"Selling Securityholders" for a list of those persons and entities receiving
the proceeds from the sales of the Debentures or the Conversion Shares.
DESCRIPTION OF DEBENTURES
The Debentures were issued under an indenture dated as of June 1, 1996 (the
"Indenture") between the Company and PNC Bank, Kentucky, Inc., as trustee (the
"Trustee"). The following summaries of certain provisions of the Indenture do
not purport to be complete and are subject to, and are qualified in their
entirety by reference to, all of the provisions of the Indenture, including
the definition therein of certain terms. Wherever particular sections or
defined terms of the Indenture are referred to, such sections or defined terms
are incorporated herein by reference. Copies of the proposed form of Indenture
are available from the Company or the Initial Purchasers upon request at the
address provided on page 3 hereof.
GENERAL
The Debentures are unsecured obligations of the Company, are limited to
$110,000,000 in aggregate principal amount and mature on June 1, 2003. The
Debentures bear interest at the rate per annum shown on the front cover of
this Prospectus from the date of original issuance of Debentures pursuant to
the Indenture, or from the most recent Interest Payment Date to which interest
has been paid or provided for, payable semi-annually on June 1 and December 1
of each year, commencing December 1, 1996, to the Person in whose name the
Debenture (or any predecessor Debenture) is registered at the close of
business on the preceding May 15 or November 15, as the case may be. Interest
on the Debentures will be paid on the basis of a 360-day year of 12 30-day
months.
Principal of, and premium, if any, and interest on, the Debentures is
payable (i) in respect of Debentures held of record by The Depository Trust
Company ("DTC") or its nominee in same day funds on or prior to the payment
dates with respect to such amounts and (ii) in respect of Debentures held of
record by holders other than DTC or its nominee at the office of the Trustee
in New York, New York, and the Debentures may be surrendered for transfer,
exchange or conversion at the office of the Trustee in New York, New York. In
addition, with respect to Debentures held of record by holders other than DTC
or its nominee, payment of interest may be made at the option of the Company
by check mailed to the address of the persons entitled thereto as it appears
in the Register for the Debentures on the Regular Record Date for such
interest.
The Debentures are issued only in registered form, without coupons and in
denominations of $1,000 or any integral multiple thereof. No service charge
will be made for any transfer or exchange of the Debentures, but the Company
may require payment of a sum sufficient to cover any tax or other governmental
charge and any other expenses (including the fees and expenses of the Trustee)
payable in connection therewith. The Company is not required (i) to issue,
register the transfer of or exchange any Debentures during a period beginning
at the opening of business 15 days before the day of the mailing of a notice
of redemption and ending at the close of business on the day of such mailing,
or (ii) to register the transfer of or exchange any Debenture selected for
redemption in whole or in part, except the unredeemed portion of Debentures
being redeemed in part.
All monies paid by the Company to the Trustee or any Paying Agent for the
payment of principal of and premium and interest on any Debenture which remain
unclaimed for two years after such principal, premium or interest become due
and payable may be repaid to the Company. Thereafter, the Holder of such
Debenture may, as an unsecured general creditor, look only to the Company for
payment thereof.
The Indenture does not contain any provisions that would provide protection
to Holders of the Debentures against a sudden and dramatic decline in credit
quality of the Company resulting from any takeover,
10
<PAGE>
recapitalization or similar restructuring, except as described below under
"Certain Rights to Require Repurchase of Debentures."
CONVERSION RIGHTS
The Debentures are convertible into Common Stock at any time after the 60th
day following the date of original issuance of the Debentures and prior to
redemption or final maturity, initially at the conversion price of $26.25 per
share. The right to convert Debentures which have been called for redemption
will terminate at the close of business on the second business day preceding
the Redemption Date. See "Optional Redemption" below.
The conversion price is subject to adjustment upon the occurrence of any of
the following events: (i) the subdivision, combination or reclassification of
outstanding shares of Common Stock; (ii) the payment in shares of Common Stock
of a dividend or distribution on any class of capital stock of the Company;
(iii) the issuance of rights or warrants to all holders of Common Stock
entitling them to acquire shares of Common Stock at a price per share less
than the Current Market Price; (iv) the distribution to holders of Common
Stock of shares of capital stock other than Common Stock, evidences of
indebtedness, cash or assets (including securities, but excluding dividends or
distributions paid exclusively in cash and dividends, distributions, rights
and warrants referred to above); (v) a distribution consisting exclusively of
cash (excluding any cash distributions referred to in (iv) above) to all
holders of Common Stock in an aggregate amount that, together with (A) all
other cash distributions (excluding any cash distributions referred to in (iv)
above) made within the 12 months preceding such distribution and (B) any cash
and the fair market value of other consideration payable in respect of any
tender offer by the Company or a subsidiary of the Company for the Common
Stock consummated within the 12 months preceding such distribution, exceeds
12.5% of the Company's market capitalization (being the product of the Current
Market Price times the number of shares of Common Stock then outstanding) on
the date fixed for determining the stockholders entitled to such distribution;
and (vi) the consummation of a tender offer made by the Company or any
subsidiary of the Company for the Common Stock which involves an aggregate
consideration that, together with (X) any cash and other consideration payable
in respect of any tender offer by the Company or a subsidiary of the Company
for the Common Stock consummated within the 12 months preceding the
consummation of such tender offer and (Y) the aggregate amount of all cash
distributions (excluding any cash distributions referred to in (iv) above) to
all holders of the Common Stock within the 12 months preceding the
consummation of such tender offer, exceeds 12.5% of the Company's market
capitalization at the date of consummation of such tender offer. No adjustment
of the conversion price will be required to be made until cumulative
adjustments amount to at least one percent of the conversion price, as last
adjusted. Any adjustment that would otherwise be required to be made shall be
carried forward and taken into account in any subsequent adjustment.
In addition to the foregoing adjustments, the Company will be permitted to
reduce the conversion price as it considers to be advisable in order that any
event treated for federal income tax purposes as a dividend of stock or stock
rights will not be taxable to the holders of the Common Stock or, if that is
not possible, to diminish any income taxes that are otherwise payable because
of such event. In the case of any consolidation or merger of the Company with
any other corporation (other than one in which no change is made in the Common
Stock), or any sale or transfer of all or substantially all of the assets of
the Company, the Holder of any Debenture then outstanding will, with certain
exceptions, have the right thereafter to convert such Debenture only into the
kind and amount of securities, cash and other property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock into which such Debenture might have been converted immediately
prior to such consolidation, merger, sale or transfer; and adjustments will be
provided for events subsequent thereto that are as nearly equivalent as
practical to the conversion price adjustments described above.
Fractional shares of Common Stock will not be issued upon conversion, but,
in lieu thereof, the Company will pay a cash adjustment based upon the then
Closing Price at the close of business on the day of conversion. If any
Debentures are surrendered for conversion during the period from the close of
business on any Regular Record Date through and including the next succeeding
Interest Payment Date (except any such Debentures
11
<PAGE>
called for redemption), such Debentures when surrendered for conversion must
be accompanied by payment in next day funds of an amount equal to the interest
thereon which the registered Holder on such Regular Record Date is to receive.
Except as described in the preceding sentence, no interest will be payable by
the Company on converted Debentures with respect to any Interest Payment Date
subsequent to the date of conversion. No other payment or adjustment for
interest or dividends is to be made upon conversion.
SUBORDINATION
The payment of the principal of and premium, if any, and interest on the
Debentures are, to the extent set forth in the Indenture, subordinated in
right of payment to the prior payment in full of all Senior Indebtedness. If
there is a payment or distribution of assets to creditors upon any
liquidation, dissolution, winding up, reorganization, assignment for the
benefit of creditors, marshalling of assets or any bankruptcy, insolvency or
similar proceedings of the Company, the holders of all Senior Indebtedness
will be entitled to receive payment in full of all amounts due or to become
due thereon or provision for such payment in money or money's worth before the
Holders of the Debentures will be entitled to receive any payment in respect
of the principal of or premium, if any, or interest on the Debentures. In the
event of the acceleration of the Maturity of the Debentures, the holders of
all Senior Indebtedness will first be entitled to receive payment in full in
cash of all amounts due thereon or provision for such payment in money or
money's worth before the Holders of the Debentures will be entitled to receive
any payment for the principal of or premium, if any, or interest on the
Debentures. No payments on account of principal of or premium, if any, or
interest on the Debentures or on account of the purchase or acquisition of
Debentures may be made if there has occurred and is continuing a default in
any payment with respect to Senior Indebtedness, any acceleration of the
maturity of any Senior Indebtedness of if any judicial proceeding is pending
with respect to any such default.
Senior Indebtedness is defined in the Indenture as (a) all indebtedness
(whether secured or unsecured) of the Company for money borrowed under the
Company's primary revolving credit and line of credit facilities and any
predecessor or successor credit facilities thereto, whether outstanding on the
date of execution of the Indenture (such as the Company's revolving credit and
line of credit facility of $200.0 million, any increase in the maximum
principal amount thereof and any predecessor or successor facilities thereto)
or thereafter created, incurred or assumed, (b) all secured indebtedness of
the Company for money borrowed, whether outstanding on the date of execution
of the Indenture or thereafter created, incurred or assumed, except any such
other indebtedness that by the terms of the instrument or instruments by which
such indebtedness was created or incurred expressly provides that it (i) is
junior in right of payment to the Debentures or (ii) ranks pari passu in right
of payment with the Debentures, and (c) any amendments, renewals, extensions,
modifications, refinancings and refundings of any of the foregoing. The term
"indebtedness for money borrowed" when used with respect to the Company is
defined to mean (i) any obligation of, or any obligation guaranteed by, the
Company for the repayment of borrowed money (including without limitation
fees, penalties and other obligations in respect thereof), whether or not
evidenced by bonds, debentures, notes or other written instruments, (ii) any
deferred payment obligation of, or any such obligation guaranteed by, the
Company for the payment of the purchase price of property or assets evidenced
by a note or similar instrument and (iii) any obligation of, or any such
obligation guaranteed by, the Company for the payment of rent or other amounts
under a lease of property or assets which obligation is required to be
classified and accounted for as a capitalized lease on the balance sheet of
the Company under generally accepted accounting principles.
The Debentures are obligations exclusively of the Company. A portion of the
operations of the Company are currently conducted principally through
subsidiaries, which are separate and distinct legal entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Debentures or to make any funds available therefor, whether by dividends,
loans or other payments. In addition, the payment of dividends and certain
loans and advances to the Company by such subsidiaries may be subject to
certain statutory or contractual restrictions, are contingent upon the
earnings of such subsidiaries and are subject to various business
considerations.
12
<PAGE>
The Debentures are effectively subordinated to all indebtedness and other
liabilities and commitments (including trade payables and lease obligations)
of the Company's subsidiaries to the extent of the assets of such
subsidiaries. Any right of the Company to receive assets of any such
subsidiary upon the liquidation or reorganization of any such subsidiary (and
the consequent right of the Holders of the Debentures to participate in those
assets) will be effectively subordinated to the claims of that subsidiary's
creditors, except to the extent that the Company is itself recognized as a
creditor of such subsidiary, in which case the claims of the Company would
still be subordinate to any security in the assets of such subsidiary and any
indebtedness of such subsidiary senior to that held by the Company.
The Indenture does not limit or prohibit the incurrence of Senior
Indebtedness. At August 20, 1996, the aggregate amount of Senior Indebtedness
outstanding and the aggregate amount of indebtedness and other liabilities of
the Company and its subsidiaries to which the Debentures are effectively
subordinated was approximately $53.2 million. The Company also expects to
incur Senior Indebtedness from time to time in the future.
OPTIONAL REDEMPTION
The Debentures are redeemable, at the Company's option, in whole or from
time to time in part, at any time on or after June 4, 1999, upon not less than
15 nor more than 60 days' notice mailed to each Holder of Debentures to be
redeemed at its address appearing in the Security Register and prior to
Maturity at the following Redemption Prices (expressed as percentages of the
principal amount) plus accrued interest to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date to receive
interest due on an Interest Payment Date that is on or prior to the Redemption
Date).
If redeemed during the 12-month period beginning June 1, in the year
indicated (June 4, in the case of 1999), the redemption price shall be:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
1999........................... 103.00%
2000........................... 102.25%
</TABLE>
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2001........................... 101.50%
2002........................... 100.75%
</TABLE>
No sinking fund is provided for the Debentures.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with or merge into any other Person or
convey, transfer or lease its properties and assets substantially as an
entirety to any Person, or permit any Person to consolidate with or merge into
the Company or convey, transfer or lease its properties substantially as an
entirety to the Company, unless (a) if applicable, the Person formed by such
consolidation or into which the Company is merged or the Person or corporation
which acquires the properties and assets of the Company substantially as an
entirety is a corporation, partnership or trust organized and validly existing
under the laws of the United States or any state thereof or the District of
Columbia and expressly assumes payment of the principal of and premium, if
any, and interest on the Debentures and performance and observance of each
obligation of the Company under the Indenture, (b) after consummating such
consolidation, merger, transfer or lease, no Default or Event of Default will
occur and be continuing, (c) such consolidation, merger or acquisition does
not adversely affect the validity or enforceability of the Debentures and (d)
the Company has delivered to the Trustee an Officer's Certificate and an
Opinion of Counsel, each stating that such consolidation, merger, conveyance,
transfer or lease complies with the provisions of the Indenture.
13
<PAGE>
CERTAIN RIGHTS TO REQUIRE REPURCHASE OF DEBENTURES
In the event of any Repurchase Event (as defined below) occurring after the
date of issuance of the Debentures and on or prior to Maturity, each Holder of
Debentures will have the right, at the Holder's option, to require the Company
to repurchase all or any part of the Holder's Debentures on the date (the
"Repurchase Date") that is 30 days after the date the Company gives notice of
the Repurchase Event as described below at a price (the "Repurchase Price")
equal to 100% of the principal amount thereof, together with accrued and
unpaid interest to the Repurchase Date. On or prior to the Repurchase Date,
the Company shall deposit with the Trustee or a Paying Agent an amount of
money sufficient to pay the Repurchase Price of the Debentures which are to be
repaid on or promptly following the Repurchase Date.
Failure by the Company to provide timely notice of a Repurchase Event, as
provided for below, or to repurchase the Debentures when required under the
preceding paragraph will result in an Event of Default under the Indenture
whether or not such repurchase is permitted by the subordination provisions of
the Indenture.
On or before the 15th day after the occurrence of a Repurchase Event, the
Company is obligated to mail to all Holders of Debentures a notice of the
occurrence of such Repurchase Event and identifying the Repurchase Date, the
date by which the repurchase right must be exercised, the Repurchase Price for
Debentures and the procedures which the Holder must follow to exercise this
right. To exercise the repurchase right, the Holder of a Debenture must
deliver, on or before the close of business on the Repurchase Date, written
notice to the Company (or an agent designated by the Company for such purpose)
and to the Trustee of the Holder's exercise of such right, together with the
certificates evidencing the Debentures with respect to which the right is
being exercised, duly endorsed for transfer.
A "Repurchase Event" shall have occurred upon the occurrence of a Change in
Control (as defined below) or a Termination of Trading (as defined below).
A "Change in Control" shall occur when: (i) all or substantially all of the
Company's assets are sold as an entirety to any person or related group of
persons; (ii) there shall be consummated any consolidation or merger of the
Company (A) in which the Company is not the continuing or surviving
corporation (other than a consolidation or merger with a wholly owned
subsidiary of the Company in which all shares of Common Stock outstanding
immediately prior to the effectiveness thereof are changed into or exchanged
for the same consideration) or (B) pursuant to which the Common Stock would be
converted into cash, securities or other property, in each case other than a
consolidation or merger of the Company in which the holders of the Common
Stock immediately prior to the consolidation or merger have, directly or
indirectly, at least a majority of the total voting power of all classes of
capital stock entitled to vote generally in the election of directors of the
continuing or surviving corporation immediately after such consolidation or
merger in substantially the same proportion as their ownership of Common Stock
immediately before such transaction; (iii) any person, or any persons acting
together which would constitute a "group" for purposes of Section 13(d) of the
Exchange Act, together with any affiliates thereof, shall beneficially own (as
defined in Rule 13d-3 under the Exchange Act) at least 50% of the total voting
power of all classes of capital stock of the Company entitled to vote
generally in the election of directors of the Company; (iv) at any time during
any consecutive two-year period, individuals who at the beginning of such
period constituted the Board of Directors of the Company (together with any
new directors whose election by such Board of Directors or whose nomination
for election by the stockholders of the Company was approved by a vote of 66
2/3% of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office; or (v) the Company is
liquidated or dissolved or adopts a plan of liquidation or dissolution.
A "Termination of Trading" shall occur if the Common Stock (or other common
stock into which the Debentures are then convertible) is neither listed for
trading on a U.S. national securities exchange nor approved for trading on an
established automated over-the-counter trading market in the United States.
14
<PAGE>
The right to require the Company to repurchase Debentures as a result of the
occurrence of a Repurchase Event could create an event of default under Senior
Indebtedness of the Company, as a result of which any repurchase could, absent
a waiver, be blocked by the subordination provisions of the Debentures. See
"Subordination." Failure by the Company to repurchase the Debentures when
required will result in an Event of Default with respect to the Debentures
whether or not such repurchase is permitted by the subordination provisions.
The Company's ability to pay cash to the Holders of Debentures upon a
repurchase may be limited by certain financial covenants contained in the
Company's Senior Indebtedness.
In the event a Repurchase Event occurs and the Holders exercise their rights
to require the Company to repurchase Debentures, the Company intends to comply
with applicable tender offer rules under the Exchange Act, including Rules
13e-4 and 14e-1, as then in effect, with respect to any such purchase.
The foregoing provisions would not necessarily afford Holders of the
Debentures protection in the event of highly leveraged or other transactions
involving the Company that may adversely affect Holders. In addition, the
foregoing provisions may discourage open market purchases of the Common Stock
or a non-negotiated tender or exchange offer for such stock and, accordingly,
may limit a stockholder's ability to realize a premium over the market price
of the Common Stock in connection with any such transaction.
EVENTS OF DEFAULT
The following are Events of Default under the Indenture with respect to the
Debentures: (a) default in the payment of principal of or any premium on any
Debenture when due (even if such payment is prohibited by the subordination
provisions of the Indenture); (b) default in the payment of any interest on
any Debenture when due, which default continues for 30 days (even if such
payment is prohibited by the subordination provisions of the Indenture); (c)
failure to provide timely notice of a Repurchase Event as required by the
Indenture; (d) default in the payment of the Repurchase Price in respect of
any Debenture on the Repurchase Date therefor (even if such payment is
prohibited by the subordination provisions of the Indenture); (e) default in
the performance of any other covenant of the Company in the Indenture which
continues for 60 days after written notice as provided in the Indenture; (f)
default under any bond, debenture, note or other evidence of indebtedness for
money borrowed by the Company or any subsidiary of the Company or 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 subsidiary of the Company, whether such indebtedness now exists
or shall hereafter be created, which default shall constitute a failure to pay
the principal of indebtedness in excess of $5,000,000 when due and payable
after the expiration of any applicable grace period with respect thereto or
shall have resulted in indebtedness in excess of $5,000,000 becoming or being
declared due and payable prior to the date on which it would otherwise have
become due and payable, without such indebtedness having been discharged, or
such acceleration having been rescinded or annulled, within a period of 30
days after there shall have been given to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25% in aggregate principal
amount of the Outstanding Debentures a written notice specifying such default
and requiring the Company to cause such indebtedness to be discharged or cause
such acceleration to be rescinded or annulled; and (g) certain events in
bankruptcy, insolvency or reorganization of the Company or any subsidiary of
the Company.
If an Event of Default with respect to the Debentures shall occur and be
continuing, the Trustee or the Holders of not less than 25% in aggregate
principal amount of the Outstanding Debentures then outstanding may declare
the principal of and premium, if any, on all such Debentures to be due and
payable immediately, but if the Company cures all Events of Default (except
the nonpayment of interest on, premium, if any, and principal of any Notes)
and certain other conditions are met, such declaration may be canceled and
past defaults may be waived by the holders of a majority in principal amount
of Outstanding Debentures. If an Event of Default shall occur as a result of
an event of bankruptcy, insolvency or reorganization of the Company or any
subsidiary of the Company, the aggregate principal amount of the Debentures
shall automatically become due and payable. The Company is required to furnish
to the Trustee annually a statement as to the performance by the Company of
certain of its obligations under the Indenture and as to any default in such
performance. The Indenture
15
<PAGE>
provides that the Trustee may withhold notice to the Holders of the Debentures
of any continuing default (except in the payment of the principal of or
premium, if any, or interest on any Debentures) if the Trustee considers it in
the interest of Holders of the Debentures to do so.
MODIFICATION, AMENDMENTS AND WAIVERS
Modifications and amendments of the Indenture may be made by the Company and
the Trustee without the consent of the Holders to: (a) cause the Indenture to
be qualified under the Trust Indenture Act; (b) evidence the succession of
another Person to the Company and the assumption by any such successor of the
covenants of the Company herein and in the Debentures; (c) add to the
covenants of the Company for the benefit of the Holders or an additional Event
of Default, or surrender any right or power conferred upon the Company; (d)
secure the Debentures; (e) make provision with respect to the conversion
rights of Holders in the event of a consolidation, merger or sale of assets
involving the Company, as required by the Indenture; (f) evidence and provide
for the acceptance of appointment by a successor Trustee with respect to the
Debentures; (g) cure any ambiguity, correct or supplement any provision which
may be defective or inconsistent with any other provision, or make any other
provisions with respect to matters or questions arising under the Indenture
which shall not be inconsistent with the provisions of the Indenture,
provided, however, that no such modifications or amendment may adversely
affect the interest of Holders in any material respect.
SATISFACTION AND DISCHARGE
The Company may discharge its obligations under the Indenture while
Debentures remain Outstanding if (a) all Outstanding Debentures will become
due and payable at their scheduled maturity within one year or (b) all
Outstanding Debentures are scheduled for redemption within one year, and in
either case the Company has deposited with the Trustee an amount sufficient to
pay and discharge all Outstanding Debentures on the date of their scheduled
maturity or the scheduled date of redemption.
FORM, DENOMINATION AND REGISTRATION
The Debentures are issued in fully registered form, without coupons, in
denominations of $1,000 in principal amount and integral multiples thereof.
Global Notes; Book-Entry Form. The Debentures were sole in reliance on Rule
144A under the Securities Act (as evidenced by a global note hereinafter
referred to as the "Restricted Global Note") and in reliance on Regulation S
under the Securities Act (as evidenced by a global note hereinafter referred
to as the "Regulation S Global Note") (the Restricted Global Note and
Regulation S Global Note are together herein referred to as the "Global
Notes"). The Global Notes were initially deposited with, or on behalf of, the
Depository Trust Company, New York, New York ("DTC") and registered in the
name of Cede & Co. ("Cede") as DTC's nominee. Except as set forth below, the
Global Notes may be transferred, in whole or in part, only to another nominee
of DTC or to a successor of DTC or its nominee. The Restricted Global Note
will be (i) reduced in principal amount to reflect the subsequent transfer by
owners of beneficial interest in the Restricted Global Note to a Regulation S
Purchaser (as defined herein) and (ii) increased in principal amount to
reflect the subsequent transfer from a Regulation S Purchaser. The Regulation
S Global Note will be (i) reduced in principal amount to reflect the
subsequent transfer by owners of beneficial interest in the Regulation S
Global Note to a "qualified institutional buyer" as defined in Rule 144A under
the Securities Act (a "Qualified Institutional Buyer," or "QIB") and (ii)
increased in principal amount to reflect the subsequent transfer from a
Qualified Institutional Buyer.
The Holders of Debentures may hold their interests in the Global Notes
directly through DTC if such Holder is a participant in DTC, or indirectly
through organizations which are participants in DTC (the "Participants").
Transfers between Participants will be effected in the ordinary way in
accordance with DTC rules and will be settled in same day funds. The laws of
some states require that certain persons take physical delivery of securities
16
<PAGE>
in definitive form. Consequently, the ability to transfer beneficial interests
in the Global Notes to such persons may be limited.
The Holders of Debentures who are not Participants may beneficially own
interests in the Global Notes held by DTC only through Participants or certain
banks, brokers, dealers, trust companies and other parties that clear through
or maintain a custodial relationship with a Participant, either directly or
indirectly ("Indirect Participants"). So long as Cede, as the nominee of DTC,
is the registered owner of the Global Notes, Cede for all purposes will be
considered the sole holder of the Global Notes.
Payment of interest on and the redemption price (upon redemption at the
option of the Company or at the option of the Holder upon a Change of Control)
of the Global Notes will be made to Cede, the nominee for DTC, as the
registered owner of the Global Notes, by wire transfer of immediately
available funds. Neither the Company, the Trustee nor any paying agent will
have any responsibility or liability for any aspect of the records relating to
or payments made on account of beneficial ownership interests in the Global
Notes or for maintaining, supervising or reviewing any records relating to
such beneficial ownership interests.
With respect to any payment of interest on and the redemption price (upon
redemption at the option of the Company or at the option of the Holder upon a
Change of Control) of the Global Notes, DTC's practice is to credit
Participants' accounts on the payment date therefor with payments in amounts
proportionate to their respective beneficial interests in the Debentures
represented by the Global Notes as shown on the records of DTC, unless DTC has
reason to believe that it will not receive payment on such payment date.
Payments by Participants to owners of beneficial interests in Debentures
represented by the Global Notes held through such Participants will be the
responsibility of such Participants, as is now the case with securities held
for the accounts of customers registered in "street name."
Because DTC can only act on behalf of Participants, who in turn act on
behalf of Indirect Participants and certain banks, the ability of a person
having a beneficial interest in Debentures represented by the Global Notes to
pledge such interest to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interest, may be affected
by the lack of a physical certificate evidencing such interest.
Neither the Company nor the Trustee (or any registrar, paying agent or
conversion agent under the Indenture) will have any responsibility for the
performance by DTC or its Participants or Indirect Participants of their
respective obligations under the rules and procedures governing their
operations.
If DTC is at any time unwilling or unable to continue as depositary and a
successor depositary is not appointed by the Company within 90 days, the
Company will cause Debentures to be issued in definitive form in exchange for
the Global Notes.
Certificated Debentures. QIBs may request that their Debentures be issued in
definitive registered form. In addition, certificated Debentures may be issued
in exchange for Debentures represented by the Global Notes if no successor
depositary is appointed by the Company as set forth above under the paragraph
entitled "Global Notes; Book-Entry Form."
Restrictions on Transfer; Legends. The Debentures, and the Common Stock into
which they may be converted, are subject to certain transfer restrictions. See
"--Absence of Public Trading Market; Transfer Restrictions."
PAYMENTS OF PRINCIPAL AND INTEREST
The Indenture requires that payments in respect of the Debentures (including
principal, premium, if any, and interest) held of record by DTC (including
Debentures evidenced by the Restricted Global Note) be made in same day funds.
Payments in respect of the Debentures held of record by holders other than DTC
may, at the option of the Company, be made by check and mailed to such holders
of record as shown on the register for the Debentures.
17
<PAGE>
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
Pursuant to the Registration Rights Agreement between the Company and the
Initial Purchasers, the Company has filed with the Commission a registration
statement on Form S-3 (the "Shelf Registration Statement"), of which this
Prospectus is a part, to cover resales of Transfer Restricted Securities (as
defined below) by the holders thereof who satisfy certain conditions relating
to the provision of information in connection with the Shelf Registration
Statement. Notwithstanding the foregoing, the Company is permitted to prohibit
offers and sales of Transfer Restricted Securities pursuant to the Shelf
Registration Statement under certain circumstances and subject to certain
conditions (any period during which offers and sales are prohibited being
referred to as a "Suspension Period"). For the purposes of the foregoing,
"Transfer Restricted Securities" means each Debenture and any underlying share
of Common Stock until the date on which such Debenture or underlying share of
Common Stock has been effectively registered under the Securities Act and
disposed of in accordance with the Shelf Registration Statement, the date on
which such Debenture or underlying share of Common Stock is distributed to the
public pursuant to Rule 144 under the Securities Act or the date on which such
Debenture or share of Common Stock may be sold or transferred pursuant to Rule
144(k) (or any similar provisions then in force).
Holders of the Transfer Restricted Securities are required to deliver
information to be used in connection with, and to be named as selling
securityholders in, the Shelf Registration Statement and to provide any
comments they may wish to make on the Shelf Registration Statement within the
time periods set forth in the Registration Rights Agreement in order to have
their Transfer Restricted Securities included in the Shelf Registration
Statement. The Transfer Restricted Securities of any Holder who elects not to
include such securities in the Shelf Registration Statement could be deemed to
be less liquid than if such securities were included in the Shelf Registration
Statement. In addition, there can be no assurance that the Company will be
able to maintain an effective and current registration statement as required.
The absence of such a registration statement may limit the holder's ability to
sell such Transfer Restricted Securities or adversely affect the price at
which such Transfer Restricted Securities can be sold.
The Registration Rights Agreement provides that if (i) the applicable Shelf
Registration Statement is not filed with the Commission on or prior to 90 days
after the Closing Date, or the applicable Shelf Registration Statement has not
been declared effective by the Commission within 120 days after the Closing
Date, or (ii) the Shelf Registration Statement is filed and declared effective
but shall thereafter cease to be effective (without being succeeded
immediately by an additional registration statement filed and declared
effective) or usable for the offer and sale of Transfer Restricted Securities
for a period of time (including any Suspension Period) which shall exceed 60
days in the aggregate in any of the one-year periods ending on the first,
second and third anniversaries of the Closing Date, or which shall exceed 30
days in any calendar quarter within any of such one-year periods (each such
event referred to in clauses (i) and (ii) being referred to herein as a
"Registration Default"), the Company will pay liquidated damages to each
Holder of Transfer Restricted Securities. The amount of liquidated damages
payable during any period during which a Registration Default shall have
occurred and be continuing is that amount which is equal to one-quarter of one
percent (25 basis points) per annum per $1,000 principal amount, or $0.01 per
week per share (subject to adjustment in the event of stock splits, stock
recombinations, stock dividends and the like) constituting Transfer Restricted
Securities, for each 90-day period or part thereof until the applicable
registration statement is filed and the applicable registration statement is
declared effective, or the Shelf Registration Statement again becomes
effective or usable, as the case may be, up to a maximum amount of liquidated
damages of $0.25 per week per $1,000 principal amount of Debentures or $0.05
per week per share (subject to adjustment as set forth above) of Common Stock
constituting Transfer Restricted Securities. All accrued liquidated damages
shall be paid to holders of Debentures by wire transfer of immediately
available funds or by federal funds check by the Company on each Damages
Payment Date (as defined in the Registration Rights Agreement). Following the
cure of a Registration Default, liquidated damages will cease to accrue with
respect to such Registration Default.
Holders of the Debentures are required to make certain representations to
the Company (as described in the Registration Rights Agreement) in connection
with the Shelf Registration Statement within the time periods set
18
<PAGE>
forth in the Registration Rights Agreement in order to have their Debentures
and Common Stock included in the Shelf Registration Statement.
The Company shall cause the Shelf Registration Statement to be effective for
a period of three years from the effective date thereof or such shorter period
that will terminate when each of the Transfer Restricted Securities covered by
the Registration Statement ceases to be a Transfer Restricted Security.
The foregoing summary of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, the provisions of the Registration Rights
Agreement. Copies of the Registration Rights Agreement are available from the
Company upon request.
GOVERNING LAW
The Indenture and Debentures are governed by and construed in accordance
with the laws of the State of New York, without giving effect to such State's
conflicts of laws principles.
INFORMATION CONCERNING THE TRUSTEE
The Company and its subsidiaries may maintain deposit accounts and conduct
other banking transactions with the Trustee in the ordinary course of
business.
ABSENCE OF PUBLIC TRADING MARKET; TRANSFER RESTRICTIONS
There is no existing market for the Debentures and there can be no assurance
as to the liquidity of any markets that may develop for the Debentures, the
ability of the holders to sell their Debentures or at what price holders of
the Debentures will be able to sell their Debentures. Future trading prices of
the Debentures will depend upon many factors including, among other things,
prevailing interest rates, the Company's operating results, the price of the
Common Stock and the market for similar securities. The Initial Purchasers
have informed the Company that they intend to make a market in the Debentures
offered hereby; however, the Initial Purchasers are not obligated to do so and
any such market making activity may be terminated at any time without notice
to the holders of the Debentures. See "--Registration Rights; Liquidated
Damages." The Debentures have been designated for trading in the PORTAL
Market; however, the Company does not intend to apply for listing of the
Debentures on any securities exchange.
DESCRIPTION OF CAPITAL STOCK
The authorized common stock of RoTech consists of 50,000,000 shares of
Common Stock, $.0002 par value, of which approximately 25.2 million shares
were outstanding as of August 20, 1996. On that date there were approximately
670 record holders of shares of Common Stock. Holders of Common Stock are
entitled to receive such dividends as may be declared from time to time by the
Board of Directors out of funds legally available thereof, if any. The holders
of Common Stock are entitled to share ratably in any distribution to
shareholders upon liquidation of the Company. The holders of Common Stock have
no preemptive, registration or other subscription or conversion rights, other
than as disclosed herein, and the Common Stock is not subject to further calls
or assessments by the Company. The Common Stock currently outstanding is
validly issued, fully paid and non-assessable. See "Description of
Debentures."
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<PAGE>
SELLING SECURITYHOLDERS
The following table sets forth certain information as of September 6, 1996
(except as otherwise noted) as to the security ownership of the Selling
Securityholders. Except as set forth below, none of the Selling
Securityholders has had a material relationship with the Company or any of its
predecessors or affiliates within the past three years.
<TABLE>
<CAPTION>
AGGREGATE PRINCIPAL NUMBER OF SHARES
AMOUNT OF DEBENTURES OF COMMON STOCK
NAME THAT MAY BE SOLD THAT MAY BE SOLD*
- ---- -------------------- -----------------
<S> <C> <C>
Nomura Securities (Bermuda) Ltd. ...... $ 1,875,000 71,428
SMM Co. BV............................. 2,950,000 112,380
LCMS Foundation........................ 1,000,000 38,095
New York Life Separate Account #7...... 1,500,000 57,142
Robertson Stephens & Co., LLC.......... 400,000 15,238
Catholic Mutual Relief Society of
America............................... 150,000 5,714
Catholic Mutual Relief Society of
America Retirement Plan and Trust..... 350,000 13,333
Societe Generale Securities Corp....... 750,000 28,571
ICI American Holdings Pension.......... 225,000 8,571
Zeneca Holdings Pension................ 225,000 8,571
Delaware State Retirement Fund--Froley,
Revy.................................. 450,000 17,142
WAFRA Discretionary.................... 270,000 10,285
SAIF Corporation....................... 900,000 34,285
Oregon Equity Fund..................... 2,025,000 77,142
Nalco Chemical Retirement.............. 90,000 3,428
Kapiolani Medical Center............... 180,000 6,857
Queen's Health Systems................. 135,000 5,142
Smith Barney Inc....................... 4,830,000 184,000
Lipco Partners, L.P.................... 1,800,000 68,571
San Diego City Retirement.............. 155,000 5,904
Occidental College..................... 45,000 1,714
San Diego County Convertible........... 540,000 20,571
Boston Museum of Fine Arts............. 15,000 571
Engineers Joint Pension................ 75,000 2,857
Wake Forest University................. 120,000 4,571
N-A Income & Growth Fund............... 460,000 17,523
Presbyterian Healthcare................ 100,000 3,809
Austin Firefighters.................... 55,000 2,095
Baptist Hospital of Miami.............. 65,000 2,476
AIM Charter Fund, a Series of Aim
Equity Funds, Inc..................... 10,000,000 380,952
AIM Balanced Fund, a Series of AIM
Funds Group........................... 1,200,000 45,714
AIM V.I. Growth and Income Fund, a
Series of AIM Variable
Insurance Funds, Inc.................. 400,000 15,238
Castle Convertible Fund, Inc........... 500,000 19,047
LB Series Fund, Inc.--High Yield
Portfolio............................. 5,650,000 215,238
Lutheran Brotherhood High Yield Fund... 3,850,000 146,666
Mainstay Convertible Fund.............. 4,500,000 171,428
Robertson Stephens Investment
Management L.P (1).................... 1,350,000 51,428
Value Line Convertible Fund............ 500,000 19,047
Allstate Insurance Company............. 2,500,000 95,238
Aetna Variable Fund.................... 2,790,000 106,285
Aetna Growth and Income Fund........... 210,000 8,000
Paloma Securities L.L.C................ 50,000 1,904
CFW-C, L.P............................. 7,000,000 266,666
Lincoln National Convertible Securities
Fund.................................. 2,520,000 96,000
Lincoln National Life Insurance
Company--Corporate Convertible
Securities Pool....................... 4,970,000 189,333
Weirton Trust Convertibles............. 620,000 23,619
United National Insurance--American
Manufacturing......................... 120,000 4,571
Any other Selling Securityholders or
future transferee from any such
Selling Securityholder(2)............. 39,535,000 1,506,116
------------ ---------
$110,000,000 4,190,476
</TABLE>
- --------
(1) Information is as of September 9, 1996.
(2) Information regarding these persons or entities will be added by
supplement to this Prospectus.
* Assumes a conversion price of $26.25 per share and a cash payment in lieu
of any fractional share interest.
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<PAGE>
The preceding table has been prepared based upon information furnished to
the Company by the Depository Trust Company, PNC Bank, Kentucky, Inc., trustee
under the Indenture, and by or on behalf of the Selling Securityholders.
Additional information concerning ownership of the Debentures and Conversion
Shares offered hereby rests with certain holders of the Debentures and
Conversion Shares who are not named in the preceding table, with whom the
Company believes it has no affiliation and from whom the Company has received
no response to its request for such information.
In view of the fact that Selling Securityholders may offer all or a portion
of the Debentures or Conversion Shares held by them pursuant to the offering
contemplated by this Prospectus, and because this offering is not being
underwritten on a firm commitment basis, no estimate can be given as to the
amount of Debentures or the number of Conversion Shares that will be held by
the Selling Securityholders after completion of the offering made hereby. In
addition, the Selling Securityholders may have sold, transferred or otherwise
disposed of all or a portion of their Debentures and/or Conversion Shares,
since the date on which they provided the information set forth above, in
transactions exempt from the registration requirements of the Securities Act.
Information concerning the Selling Securityholders may change from time to
time and any such changed information will be set forth in supplements to this
Prospectus if and when necessary. In addition, the per share conversion price,
and therefor the number of shares issuable upon conversion of the Debentures,
is subject to adjustment under certain circumstances. Accordingly, the
aggregate principal amount of Debentures and the number of Conversion Shares
issuable upon conversion of the Debentures offered hereby may increase or
decrease.
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<PAGE>
PLAN OF DISTRIBUTION
The Debentures and the Conversion Shares are being registered to permit
public secondary trading of such securities by the holders thereof from time
to time after the date of this Prospectus. The Company has agreed, among other
things, to bear all expenses (other than underwriting discounts, selling
commissions and fees and expenses of counsel and other advisors to holders of
the Debentures and the underlying Common Stock) in connection with the
registration and sale of the Debentures and the Conversion Shares covered by
this Prospectus.
The Company will not receive any of the proceeds from the offering of
Debentures and the Conversion Shares by the Selling Securityholders. The
Company has been advised by the Selling Securityholders that the Selling
Securityholders may sell all or a portion of the Debentures and Conversion
Shares beneficially owned by them and offered hereby from time to time on any
exchange on which the securities are listed on terms to be determined at the
times of such sales. The Selling Securityholders may also make private sales
directly or through a broker or brokers. Alternatively, any of the Selling
Securityholders may from time to time offer the Debentures or shares of Common
Stock beneficially owned by them through underwriters, dealers or agents, who
may receive compensation in the form of underwriting discounts, commissions or
concessions from the Selling Securityholders and the purchasers of the
Debentures or shares or Common Stock from whom they may act as agent. The
aggregate proceeds to the Selling Securityholders from the sale of the
Debentures or shares or Common Stock offered by them hereby will be the
purchase price of such Debentures or shares of Common Stock less discounts and
commissions, if any.
The Debentures and the Conversion Shares may be sold from time to time in
one or more transactions at fixed offering prices, which may be changed, or at
varying prices determined at the time of sale or at negotiated prices. Such
prices will be determined by the holders of such securities or by agreement
between such holders and underwriters or dealers who may receive fees or
commissions in connection therewith.
The outstanding Common Stock of the Company is listed for trading on The
Nasdaq National Market. The Initial Purchasers have advised the Company that
they are making and currently intend to continue making a market in the
Debentures; however, they are not obligated to do so and any such market-
making may be discontinued at any time without notice, in the sole discretion
of the Initial Purchasers. The Company does not intend to apply for listing of
the Debentures on any securities exchange. Accordingly, no assurance can be
given as to the development of liquidity of any trading market that may
develop for the Debentures. See "Risk Factors--Absence of Public Market;
Transfer Restrictions."
In order to comply with the securities laws of certain states, if
applicable, the Debentures and Conversion Shares will be sold in such
jurisdictions only through registered or licensed brokers or dealers. In
addition, in certain states the Debentures and Conversion Shares may not be
sold unless they have been registered or qualified for sale in the applicable
state or an exemption from the registration or qualification requirement is
available and is complied with.
The Selling Securityholders and any broker and any broker-dealers, agents or
underwriters that participate with the Selling Securityholders in the
distribution of the Debentures or the Conversion Shares may be deemed to be
"underwriters" within the meaning of the Securities Act, in which event any
commissions received by such broker-dealers, agents or underwriters and any
profit on the resale of the Debentures or the Conversion Shares purchased by
them may be deemed to be underwriting commissions or discounts under the
Securities Act.
In addition, any securities covered by this Prospectus which qualify for
sale pursuant to Rule 144 or Rule 144A of the Securities Act may be sold under
Rule 144 or Rule 144A rather than pursuant to this Prospectus. There is no
assurance that any Selling Securityholder will sell any or all of the
Debentures or Conversion Shares described herein, and any Selling
Securityholder may transfer, devise or gift such securities by other means not
described herein.
22
<PAGE>
The Debentures were originally sold to Smith Barney Inc., Needham & Company,
Inc. and Wheat, First Securities, Inc. in May 1996 in a private placement. The
Company agreed to indemnify and hold Smith Barney Inc., Needham & Company,
Inc. and Wheat, First Securities, Inc. harmless against certain liabilities
under the Securities Act that could arise in connection with the sale of the
Debentures by Smith Barney Inc., Needham & Company, Inc. and Wheat, First
Securities, Inc. The Company and the Selling Securityholders are obligated to
indemnify each other against certain liabilities arising under the Securities
Act.
The Company will use its best efforts to cause the registration statement to
which this Prospectus relates to become effective as promptly as is
practicable and to keep the registration statement effective for a period of
three years from the effective date thereof, or until the Shelf Registration
Statement is no longer required for transfer of the Debentures or the
underlying Common Stock. The Company is permitted to suspend the use of this
Prospectus in connection with the sales of Debentures and Conversion Shares by
holders upon the happening of an event or if there exists any fact that makes
any statement of material fact made in this Prospectus untrue or that requires
the making of additions to or changes in the Prospectus in order to make the
statements herein not misleading until such time as the Company advises the
Selling Securityholders that use of the Prospectus may be resumed, in which
case the period of time during which the Company is required to maintain the
effectiveness of the Shelf Registration Statement shall be extended. Expenses
of preparing and filing the registration statement and all post-effective
amendments will be borne by the Company.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion of certain United States federal
income tax considerations to holders of the Debentures. This discussion is
based upon the Internal Revenue Code of 1986, as amended (the "Code"),
Treasury Regulations, Internal Revenue Service ("IRS") rulings, and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) or different interpretations.
This discussion does not deal with all aspects of United States federal
income taxation that may be important to holders of the Debentures or shares
of Common Stock and does not deal with tax consequences arising under the laws
of any foreign, state or local jurisdiction. This discussion is for general
information only, and does not purport to address all tax consequences that
may be important to particular purchasers in light of their personal
circumstances, or to certain types of purchasers (such as certain financial
institutions, insurance companies, tax-exempt entities, dealers in securities
or persons who hold the Debentures or Common Stock in connection with a
straddle) that may be subject to special rules. This discussion assumes that
each holder holds the Debentures and the shares of Common Stock received upon
conversion thereof as capital assets.
For the purpose of this discussion, a "Non-U.S. Holder" refers to any holder
who is not a United States person. The term "United States person" means a
citizen or resident of the United States, a corporation or partnership created
or organized in the United States or any state thereof, or an estate or trust,
the income of which is includible in income for United States federal income
tax purposes regardless of its source.
PROSPECTIVE PURCHASERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THEIR PARTICIPATION
IN THIS OFFERING, OWNERSHIP AND DISPOSITION OF THE DEBENTURES, INCLUDING
CONVERSION OF THE DEBENTURES, AND THE EFFECT THAT THEIR PARTICULAR
CIRCUMSTANCES MAY HAVE ON SUCH TAX CONSEQUENCES.
OWNERSHIP OF THE DEBENTURES
Interest on Debentures. Interest paid on Debentures will be taxable to a
holder as ordinary interest income in accordance with the holder's methods of
tax accounting at the time that such interest is accrued or (actually or
constructively) received. The Company expects that the Debentures will not be
issued with original issue discount ("OID") within the meaning of the Code.
23
<PAGE>
Constructive Dividend. Certain corporate transactions, such as distributions
of assets to holders of Common Stock, may cause a deemed distribution to the
holders of the Debentures if the conversion price or conversion ratio of the
Debentures is adjusted to reflect such corporate transaction. Such deemed
distributions will be taxable as a dividend, return of capital, or capital
gain in accordance with the earnings and profits rules discussed under
"Dividends on Shares of Common Stock."
Sale or Exchange of Debentures or Shares of Common Stock. In general, a
holder of Debentures will recognize gain or loss upon the sale, redemption,
retirement or other disposition of the Debentures measured by the difference
between the amount of cash and the fair market value of any property received
(except to the extent attributable to the payment of accrued interest) and the
holder's adjusted tax basis in the Debentures. A holder's tax basis in
Debentures generally will equal the cost of the Debentures to the holder
increased by the amount of market discount, if any, previously taken into
income by the holder or decreased by any bond premium theretofore amortized by
the holder with respect to the Debentures. (For the basis and holding period
of shares of Common Stock, see "Conversion of Debentures.") In general, each
holder of Common Stock into which the Debentures have been converted will
recognize gain or loss upon the sale, exchange, redemption, or other
disposition of the Common Stock under rules similar to those applicable to the
Debentures. Special rules may apply to redemptions, or other disposition of
the common stock under rules similar to those applicable to the Debentures.
Special rules may apply to redemptions of the Common Stock which may result in
the amount paid being treated as a dividend. Subject to the market discount
rules discussed below, the gain or loss on the disposition of the Debentures
or shares of Common Stock will be capital gain or loss and will be long-term
gain or loss if the Debentures or shares of Common Stock have been held for
more than one year at the time of such disposition.
Conversion of Debentures. A holder of Debentures will not recognize gain or
loss on the conversion of the Debentures into shares of Common Stock. The
holder's tax basis in the shares of Common Stock received upon conversion of
the Debentures will be equal to the holder's aggregate basis in the Debentures
exchanged therefor (less any portion thereof allocable to cash received in
lieu of a fractional share). The holding period of the shares of Common Stock
received by the holder upon conversion of Debentures will generally include
the period during which the holder held the Debentures prior to the
conversion.
Cash received in lieu of a fractional share of Common Stock should be
treated as a payment in exchange for such fractional share rather than as a
dividend. Gain or loss recognized on the receipt of cash paid in lieu of such
fractional shares generally will equal the difference between the amount of
cash received and the amount of tax basis allocable to the fractional shares.
Market Discount. The resale of Debentures may be affected by the "market
discount" provisions of the Code. For this purpose, the market discount on a
Debenture will generally be equal to the amount, if any, by which the stated
redemption price at maturity of the Debenture immediately after its
acquisition exceeds the holder's tax basis in the Debenture. Subject to a de
minimis exception, these provisions generally require a holder of a Debenture
acquired at a market discount to treat as ordinary income any gain recognized
on the disposition of such Debenture to the extent of the "accrued market
discount" on such Debenture at the time of disposition. In general, market
discount on a Debenture will be treated as accruing on a straight-line basis
over the term of such Debenture, or, at the election of the holder, under a
constant yield method. A holder of a Debenture acquired at a market discount
may be required to defer the deduction of a portion of the interest on any
indebtedness incurred or maintained to purchase or carry the Debenture until
the Debenture is disposed of in a taxable transaction, unless the holder
elects to include accrued market discount in income currently.
Dividends on Shares of Common Stock. Distributions on shares of Common Stock
will constitute dividends for United States federal income tax purposes to the
extent of current or accumulated earnings and profits of the Company as
determined under United States federal income tax principles. Dividends paid
to holders that are United States corporations may qualify for the dividends-
received deduction.
24
<PAGE>
To the extent, if any, that a holder receives distributions on shares of
Common Stock that would otherwise constitute dividends for United States
federal income tax purposes but that exceeds current and accumulated earnings
and profits of the Company, such distribution will be treated first as a non-
taxable return of capital reducing the holder's basis in the shares of Common
Stock. Any such distribution in excess of the holder's basis in the shares of
Common Stock will be treated as capital gain.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS APPLICABLE TO NON-U.S. HOLDERS
Interest on Debentures. Generally, interest paid on the Debentures to a Non
U.S.-Holder will not be subject to United States federal income tax if: (I)
such interest is not effectively connected with the conduct of a trade or
business within the United States by such Non-U.S. Holder; (II) the Non-U.S.
Holder does not actually or constructively own 10% or more of the total voting
power of all classes of stock of the Company entitled to vote and is not a
controlled foreign corporation with respect to which the Company is a "related
person" within the meaning of the Code; and (III) the beneficial owner, under
penalty of perjury, certifies that the owner is not a United States person and
provides the owner's name and address. If certain requirements are satisfied,
the certification described in paragraph (III) above may be provided by a
securities clearing organization, a bank, or other financial institution that
holds customers' securities in the ordinary course of its trade or business.
For this purpose, the holder of Debentures would be deemed to own
constructively the Common Stock into which it could be converted. A holder
that is not exempt from tax under these rules will be subject to United States
federal income tax withholding at a rate of 30% unless the interest is
effectively connected with the conduct of a United States trade or business,
in which case the interest will be subject to the United States federal income
tax on net income that applies to United States persons generally. Non-U.S.
Holders should consult applicable income tax treaties, which may provide
different rules.
Sale or Exchange of Debentures or Shares of Common Stock. A Non-U.S. Holder
generally will not be subject to United States federal income tax on gain
recognized upon the sale or other disposition unless (I) the gain is
effectively connected with the conduct of a trade or business within the
United States by the Non-U.S. Holder, or (ii) in the case of a Non-U.S. Holder
who is a nonresident alien individual and holds the Common Stock as a capital
asset, such holder is present in the United States for 183 or more days in the
taxable year and certain other circumstances are present. If the Company is a
"United States real property holding corporation," a Non-U.S. Holder may be
subject to federal income tax with respect to gain realized on the disposition
of such amount withheld pursuant to these rules will be creditable against
such Non U.S. Holder's United States federal income tax liability and may
entitle such Non-U.S. Holder to a refund upon furnishing the required
information to the Internal Revenue Service. Non-U.S. Holders should consult
applicable income tax treaties, which may provide different rules.
Conversion of Debentures. A Non-U.S. Holder generally will not be subject to
United States federal income tax on the conversion of a Debenture into shares
of Common Stock. To the extent a Non-U.S. Holder receives cash in lieu of a
fractional share on conversion, such cash may give rise to gain that would be
subject to the rules described above with respect to the sale or exchange of a
Debenture or Common Stock.
Dividends on Shares of Common Stock. Generally, any distribution on shares
of Common Stock to a Non-U.S. Holder will be subject to United States federal
income tax withholding at a rate of 30% unless the dividend is effectively
connected with the conduct of trade or business within the United States by
the Non-U.S. Holders, in which case the dividend will be subject to the United
States federal income tax on net income that applies to United States persons
generally (and, with respect to corporate holders and under certain
circumstances, the branch profits tax). Non-U.S. Holders should consult any
applicable income tax treaties, which may provide for a lower rate of
withholding or other rules different from those described above. A Non-U.S.
Holder may be required to satisfy certain certification requirements in order
to claim a reduction of or exemption from withholding under the foregoing
rules.
25
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INFORMATION REPORTING AND BACKUP WITHHOLDING
U.S. Holders. Information reporting and backup withholding may apply to
payments of interest or dividends on or the proceeds of the sale or other
disposition of the Debentures or shares of Common Stock made by the Company
with respect to certain noncorporate U.S. Holders. Such U.S. holders generally
will be subject to backup withholding at a rate of 31% unless the recipient of
such payment supplies a taxpayer identification number, certified under
penalties of perjury, as well as certain other information, or otherwise
establishes, in the manner prescribed by law, an exemption from backup
withholding. Any amount withheld under backup withholding is allowable as a
credit against the U.S. holder's federal income tax, upon furnishing the
required information.
Non-U.S. Holders. Generally, information reporting and backup withholding of
United States federal income tax at a rate of 31% may apply to payments of
principal, interest and premium (if any) to Non-U.S. Holders if the payee
fails to certify that the holder is a Non-U.S. person or if the Company or its
paying agent has actual knowledge that the payee is a United States person.
The 31% backup withholding tax generally will not apply to dividends paid to
foreign holders outside the United States that are subject to 30% withholding
discussed above or that are subject to a tax treaty that reduces such
withholding.
The payment of the proceeds on the disposition of Debenture or shares of
Common Stock to or through the United States office of a United States or
foreign broker will be subject to information reporting and backup withholding
unless the owner provides the certification described above or otherwise
establishes an exemption. The proceeds of the disposition by a Non-U.S. Holder
of Debentures or share of Common Stock to or through a foreign office of a
broker will not be subject to backup withholding. However, if such broker is a
U.S. person, a controlled foreign corporation for United States tax purposes,
or a foreign person 50% or more of whose gross income from all sources for
certain periods is from activities that are effectively connected with a
United States trade or business, information reporting will apply unless such
broker has documentary evidence in its files of the owner's foreign status and
has no actual knowledge to the contrary or unless the owner otherwise
establishes an exemption. Both backup withholding and information reporting
will apply to the proceeds from such dispositions if the broker has actual
knowledge that the payee is a U.S. Holder.
LEGAL MATTERS
The validity of the issuance of the Debentures and the Conversion Shares
offered hereby will be passed upon for RoTech by Winderweedle, Haines, Ward &
Woodman, P.A., Winter Park and Orlando, Florida. William A. Walker II,
Secretary, a Director and a shareholder of the Company, is a shareholder and
officer of Winderweedle, Haines, Ward & Woodman, P.A. Such firm has acted as
counsel to the Company, its subsidiaries, and certain of its affiliates in
other matters. The Company issued options to such firm to purchase up to, but
not exceeding in the aggregate, 20,000 shares of the Company's Common Stock at
$13.88 per share. The options are exercisable until June 30, 2000.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference from the Company's Current Report on Form 8-K as filed with the
Commission on August 20, 1996 have been audited by Deloitte & Touche LLP,
independent certified public accountants as of July 31, 1995 and 1994 and for
each of the years ended July 31, 1995 and 1994, and by Ernst & Young LLP,
independent certified public accountants for the year ended July 31, 1993, as
stated in their reports which are incorporated herein by reference, and have
been so incorporated in reliance upon the reports of such firms given upon
their authority as experts in accounting and auditing.
26
<PAGE>
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NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE
AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS
NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLI-
CATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSE-
QUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE SUCH DATE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................................................... 2
Incorporation of Certain Information by Reference.......................... 2
Prospectus Summary......................................................... 3
Risk Factors............................................................... 5
Ratio of Earnings to Fixed Charges......................................... 9
Use of Proceeds............................................................ 10
Description of Debentures.................................................. 10
Description of Capital Stock............................................... 19
Selling Securityholders.................................................... 20
Plan of Distribution....................................................... 22
Certain United States Federal Income Tax Consequences...................... 23
Legal Matters.............................................................. 26
Experts.................................................................... 26
</TABLE>
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ROTECH MEDICAL CORPORATION
$110,000,000 PRINCIPAL AMOUNT OF 5 1/4% CONVERTIBLE SUBORDINATED DEBENTURES
DUE 2003
(INTEREST PAYABLE JUNE 1 AND DECEMBER 1)
AND
4,190,476 SHARES OF
COMMON STOCK
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PROSPECTUS
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SEPTEMBER 10, 1996
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