<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
PHARMERICA, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS ARTICLES OF INCORPORATION)
<TABLE>
<S> <C> <C>
DELAWARE 37-0903482 11-2310352
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
3611 QUEEN PALM DRIVE, TAMPA, FLORIDA 33619
(813) 626-7788
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------------
WITH A COPY TO:
DAVID COX, ESQ.
HARWELL HOWARD HYNE GABBERT & MANNER, P.C.
1800 FIRST AMERICAN CENTER
315 DEADERICK STREET
NASHVILLE, TENNESSEE 37238
(615) 256-0500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
------------
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TO BE OFFERING PRICE AGGREGATE REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED PER UNIT(2) OFFERING PRICE FEE(1)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
8 3/8 Senior Subordinated Notes due 2008..... $325,000,000 100% $325,000,000 $95,875
Guarantees for the Senior Subordinated Notes due
2008(3).................................... $0 0% $0 $0
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</TABLE>
(1) Estimated pursuant to Rule 457(f) solely for the purposes of calculating the
registration fee.
(2) Estimated solely for the purposes of calculating the registration fee.
(3) Pursuant to Rule 457(n), no registration fee is required with respect to the
guarantees.
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THE REGISTRANT HEREBY AMENDS THE REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY , 1998
PROSPECTUS
PHARMERICA, INC. (PHARMERICA, INC. LOGO)
OFFER TO EXCHANGE ALL OUTSTANDING
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008
($325,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008
($325,000,000 PRINCIPAL AMOUNT)
OF
PHARMERICA, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998, UNLESS EXTENDED
PharMerica, Inc., a Delaware corporation (the "Company"), hereby offers (the
"Exchange Offer"), upon the terms and subject to the conditions set forth in
this Prospectus and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), to exchange up to an aggregate principal amount of $325,000,000
of its 8 3/8% Senior Subordinated Notes due 2008 (the "New Senior Notes" or "New
Notes") for an equal principal amount of its outstanding 8 3/8% Senior
Subordinated Notes due 2008 (the "Senior Notes" or "Notes"), in integral
multiples of $1,000. The terms of the New Notes are identical in all material
respects to those of the Notes, except for certain transfer restrictions and
registration rights relating to the Notes. The New Notes will be issued pursuant
to, and be entitled to the benefits of, the Indenture (as defined) governing the
Notes.
The New Notes will mature on April 1, 2008. Interest on the New Notes will
be payable semiannually in arrears on April 1 and October 1 of each year,
commencing October 1, 1998. The New Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or after April 1, 2003 at the
redemption prices set forth herein, plus accrued and unpaid interest and
Liquidated Damages (as defined), if any, to the date of redemption. Upon the
occurrence of a Change of Control (as defined), each holder of the New Notes
will have the right to require the Company to purchase such holder's New Notes
at a cash price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the date of purchase.
In addition, at any time prior to April 1, 2001, the Company may on one or more
occasions, use net cash proceeds received by it from one or more public
offerings of PharMerica common stock to redeem up to 33 1/3% of the aggregate
principal amount of the New Notes originally issued at a redemption price of
108.375% of principal amount thereof, plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the date of redemption; provided that,
immediately after giving effect to any such redemption, at least $200 million
aggregate principal amount of the New Notes remains outstanding. See
"Description of the Notes." There can be no assurance that sufficient funds will
be available at the time of any Change of Control to make any required
repurchase of the New Notes tendered. See "Risk Factors."
The New Notes will be unsecured senior subordinated obligations of the
Company, subordinated in right of payment to all existing and future Senior Debt
(as defined) of the Company, including indebtedness pursuant to the Bank Credit
Facility (as defined). The New Notes will be guaranteed (the "Subsidiary
Guarantees"), jointly and severally, on an unsecured senior subordinated basis,
by each of the Company's Restricted Subsidiaries (as defined) (the
"Guarantors"). The Subsidiary Guarantees will be subordinated in right of
payment to all existing and future Senior Debt of the Guarantors, including
guarantees by the Guarantors of the Company's Bank Credit Facility. At May 13,
1998, the Company and the Guarantors had approximately $198 million of Senior
Debt outstanding which would have ranked senior to the New Notes. The indenture
governing the Notes (the "Indenture") permits the Company and its subsidiaries
to incur additional Indebtedness (as defined), including Senior Debt of the
Company and the Guarantors, subject to certain limitations. See "Description of
the Notes -- Certain Covenants."
The Notes were sold to the Initial Purchasers (as defined below) by the
Company on March 31, 1998 in a transaction not registered under the Securities
Act of 1933 (the "Securities Act") in reliance upon the exemption provided in
Section 4(2) of the Securities Act. A portion of the Notes were subsequently
resold to qualified institutional buyers in reliance upon Rule 144A under the
Securities Act, to a limited number of institutional accredited investors in a
manner exempt from registration under the Securities Act and to persons outside
the United States in reliance on Regulation S under the Securities Act.
Accordingly, the Notes may not be reoffered, resold or otherwise transferred in
the United States unless registered under the Securities Act or unless an
applicable exemption from the registration requirements of the Securities Act is
available. The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company under the Registration Rights Agreement by and among,
Donaldson, Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc.,
BancAmerica Robertson Stephens, Chase Securities Inc. and CIBC Oppenheimer Corp.
(the "Initial Purchasers") the Company and the Subsidiary Guarantors (the
"Registration Rights Agreement"). See "The Exchange Offer."
Based on an interpretation by the staff of the Commission (as defined
herein) set forth in no-action letters issued to third parties, the Company
believes that New Notes issued pursuant to the Exchange Offer in exchange for
Notes may be offered for resale, resold and otherwise transferred by any holder
thereof (other than any such holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance with
the registration and prospectus delivery provisions of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business and that such holder does not intend to participate in the
distribution of such New Notes.
(continued on next page)
SEE "RISK FACTORS" COMMENCING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT HOLDERS OF EXISTING NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is May , 1998.
<PAGE> 3
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivery of a prospectus, a broker-dealer will
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from time
to time, may be used by a broker-dealer in connection with resales of New Notes
received in exchange for Notes where such Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of two years after the
Expiration Date (as defined herein), it will make this Prospectus available to
any broker-dealer for use in connection with any such resale. See "Plan of
Distribution."
Any Holder who tenders in the Exchange Offer with the intention to
participate, or for purpose of participating, in a distribution of the New Notes
cannot rely on the position of the staff of the Securities and Exchange
Commission (the "Commission") enunciated in Exxon Capital Holdings Corporation
(available April 13, 1989), or Morgan Stanley & Co., Inc. (available June 5,
1991) or similar no-action letters and, in the absence of an exemption
therefrom, must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with the resale of the New
Notes. Failure to comply with such requirements in such instance may result in
such Holder incurring liability under the Securities Act for which the Holder is
not indemnified by the Company.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. The Company
will accept for exchange any and all validly tendered Notes on or prior to 5:00
p.m. New York City time, on , 1998, unless the Exchange Offer is
extended (the "Expiration Date"). Tenders of Notes may be withdrawn at any time
prior to 5:00 p.m. New York City time, on the Expiration Date; otherwise such
tenders are irrevocable. Harris Trust and Savings will act as Exchange Agent
with respect to the Senior Subordinated Notes (in such capacity, the "Exchange
Agent") in connection with the Exchange Offer. The Exchange Offer is not
conditioned upon any minimum principal amount of Notes being tendered for
exchange, but is otherwise subject to certain customary conditions.
Prior to the Exchange Offer, there has been no public market for the
Existing Notes. If a market for the New Notes should develop, such New Notes
could trade at a discount from their principal amount. The Company currently
does not intend to list the New Notes on any securities exchange or to seek
approval for quotation through any automated quotation system, and no active
public market for the New Notes is currently anticipated. The Initial Purchasers
have advised the Company that they intend to make a market in the New Notes;
however, they are not obligated to do so and any market-making may be
discontinued at any time. As a result, the Company cannot determine whether an
active public market will develop for the New Notes.
ANY NOTES NOT TENDERED AND ACCEPTED IN THE EXCHANGE OFFER WILL REMAIN
OUTSTANDING. TO THE EXTENT ANY NOTES ARE TENDERED AND ACCEPTED IN THE EXCHANGE
OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED NOTES COULD BE ADVERSELY AFFECTED.
FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER, THE HOLDERS OF NOTES WILL CONTINUE
TO BE SUBJECT TO THE EXISTING RESTRICTIONS UPON TRANSFER THEREOF AND THE COMPANY
WILL HAVE FULFILLED ONE OF ITS OBLIGATIONS UNDER THE REGISTRATION RIGHTS
AGREEMENT. HOLDERS OF NOTES WHO DO NOT TENDER THEIR NOTES GENERALLY WILL NOT
HAVE ANY FURTHER REGISTRATION RIGHTS UNDER THE REGISTRATION RIGHTS AGREEMENT OR
OTHERWISE.
The New Notes issued pursuant to this Exchange Offer generally will be
issued in the form of Global New Notes (as defined herein), which will be
deposited with, or on behalf of, The Depository Trust Company (the "Depositary"
or "DTC") and registered in its name or in the name of Cede & Co., its nominee.
Beneficial interests in the Global New Notes representing the New Notes will be
shown on, and transfers thereof will be effected through, records maintained by
the Depository and its participants. Notwithstanding the foregoing, Notes held
in certificated form will be exchanged solely for New Notes in certificated
form. After the initial issuance of the Global New Notes, New Notes in
certificated form will be issued in exchange for the Global New Notes only on
the terms set forth in the Indenture.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE NEW NOTES OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR THE SOLICITATION OF AN OFFER TO BUY ANY OF THE NEW NOTES TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL , 1998 (90 DAYS AFTER COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN
THE EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
<PAGE> 4
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 reports and other information with the Commission relating to
its business, financial position, results of operations and other matters. Such
reports, proxy statements and other information can be inspected and copied at
the Public Records Section maintained by the Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices located
at The Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and 7 World Trade Center, New York, New York 10048. Copies of such
material can also be obtained at the Public Reference Section of the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The
Company's common stock is listed on the Nasdaq Stock Market's National Market
System (the "Nasdaq Stock Market"), 1735 K Street, N.W., Washington, D.C. 20006.
Such reports, proxy statements and other information can be reviewed through the
Commission's Electronic Data Gathering Analysis and Retrieval System, which is
publicly available through the Commission's Web Site (http://www.sec.gov).
The Company has filed with the Commission a Registration Statement on Form
S-4 (as amended, the "Registration Statement") under the Securities Act with
respect to the New Notes offered hereby. This Prospectus, which constitutes a
part of the Registration Statement, 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 made
to the Registration Statement and to the exhibits relating thereto for further
information with respect to the Company and the Exchange Notes offered hereby.
i
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and financial statements, including the notes thereto,
appearing elsewhere in this Prospectus. Unless otherwise indicated or the
context requires otherwise, all references herein to the "Company" or
"PharMerica" refer to PharMerica, Inc. and its direct and indirect subsidiaries.
The merger (the "Merger") involving the predecessors to PharMerica, Pharmacy
Corporation of America, Inc. ("PCA") and Capstone Pharmacy Services, Inc.
("Capstone"), closed on December 3, 1997 and was effective as of December 1,
1997. Unless otherwise indicated or the context requires otherwise, for the
period prior to December 1, 1997, references to the "Company" and "PharMerica"
refer to the combined operations of PCA and Capstone on a pro forma combined
basis as if the Merger had taken place prior to the period being discussed.
Information provided herein on a "pro forma basis" gives effect to (i) the
Merger, (ii) the Offering (as defined herein) and the application of the net
proceeds therefrom and (iii) all acquisitions, other than certain insignificant
acquisitions, made by Capstone and PCA since January 1, 1997 as though they
occurred on January 1, 1997. As a result of the accounting treatment of the
Merger, the historical financial statements of the Company are those of PCA.
THE COMPANY
PharMerica is a leading provider of institutional pharmacy services to the
elderly, chronically ill and disabled in long-term care and alternate site
settings, including skilled nursing facilities, assisted living facilities,
specialty hospitals and the home. The Company is also a leading provider of mail
order pharmacy services to the workers' compensation and catastrophic care
markets. As of March 1, 1998, PharMerica provided pharmacy services to
approximately 345,000 long-term care residents in 36 states and to over 106,000
workers' compensation claimants nationwide. For the year ended December 31,
1997, the Company generated, on a pro forma basis, net sales of approximately
$1.0 billion and EBITDA (as defined herein) of approximately $126.2 million.
PharMerica is the largest institutional pharmacy provider in four of the
five states with the highest population of elderly people, and its network of
approximately 120 institutional pharmacies covers a geographic area that
includes over 80% of the nation's long-term care beds. The Company operates six
large scale "mega-pharmacies," each serving over 10,000 beds, and many of its
pharmacies are open 24 hours, seven days a week. The Company intends to create
five additional mega-pharmacies in 1998 in connection with pharmacy
consolidations resulting from the Merger. As a result of its national scope, the
Company has been able to enter into preferred provider agreements with regional
and national long-term care providers, the most significant of which are Beverly
Enterprises, Inc. ("Beverly") and Integrated Health Services, Inc. ("IHS"). The
Company provides services to approximately 58,000 Beverly long-term care beds
and 17,000 IHS long-term care beds.
The Company purchases, repackages and dispenses pharmaceuticals and
provides its clients' long-term facilities with related management services,
regulatory assistance and third-party billing. The Company also provides
specialty services, including infusion therapy, clinical consulting and
comprehensive catastrophic care. In addition, PharMerica has developed
specialized information technology and clinical initiatives to offer its clients
additional value-added services such as computerized medical record keeping,
on-line formulary, drug therapy evaluation and disease state management, which
the Company believes will position it to successfully compete in managed care
and prospective payment systems.
Industry analysts estimate that the United States pharmacy industry's total
annual revenues for 1997 for the markets served by the Company exceeded $16
billion. These revenues were comprised of sales of approximately $7 billion to
individuals that live at home, $5 billion to residents of long-term care
facilities, $2.7 billion to residents of assisted living and retirement
communities and $2 billion to patients in rehabilitation and other specialty
hospitals. Institutional pharmacy companies such as PharMerica have
traditionally focused on servicing the $5 billion long-term care facility
segment of the industry, which industry analysts estimate is growing by
approximately 10% annually. The Company also believes that changes in the
institutional pharmacy industry are providing large institutional pharmacies
with the opportunity to serve elderly, chronically ill and disabled patients in
settings across the healthcare continuum. These changes
1
<PAGE> 6
include: (i) an increase in the acuity level and number of residents in assisted
living facilities; (ii) increased operating and cost efficiencies, regulatory
expertise and national market presence of large institutional providers; and
(iii) an increase in outsourcing of pharmacy services by specialty hospitals.
The Company intends to continue to increase its sales and improve its
profitability by capitalizing on its position as a leading provider of pharmacy
services. Key elements of the Company's strategy are to: (i) grow through
strategic acquisitions; (ii) pursue internal growth opportunities by increasing
market penetration and cross-selling specialty services such as infusion therapy
to its existing customer base; (iii) expand the markets it serves to include
elderly, chronically ill and disabled patients across a broader range of
settings; (iv) enhance operating margins by leveraging economies of scale and
creating larger regional pharmacies in key metropolitan areas; and (v) utilize
clinical and information capabilities to provide value-added services and to
provide information to position the Company to maximize profitability in a
managed care environment.
PharMerica was formed as a result of a merger involving PCA, a subsidiary
of Beverly, and Capstone. In connection with the Merger, Beverly entered into a
preferred provider agreement that gives PharMerica, subject to certain
conditions, including quality of services and competitive pricing, the right to
service Beverly's long-term care beds, including any subsequently added beds,
for a five-year period with a five-year renewal period at the Company's option.
In addition, Beverly agreed not to compete in the institutional pharmacy
industry for five years.
The Company believes that, when fully realized, the synergies from the
Merger will be approximately $25 million annually. This includes savings
primarily from the consolidation of 19 institutional pharmacies, 11 of which
have already occurred, more favorable pricing terms in the Company's new primary
purchasing contracts and corporate and regional overhead reductions. It also
includes additional income generated through expanded market coverage of
available beds under the Company's existing preferred provider agreements with
regional and national long-term care providers. The Company expects to realize
approximately $16 million of these synergies in 1998 and the full $25 million in
anticipated annual synergies (including approximately $2 million of additional
income as described above) beginning in 1999.
2
<PAGE> 7
THE OFFERING
THE NOTES..................... The Notes were sold to the Initial Purchasers
by the Company on March 31, 1998 and were
subsequently resold to qualified institutional
buyers pursuant to Rule 144A under the
Securities Act, to institutional investors that
are accredited investors in a manner exempt
from registration under the Securities Act and
to persons in transactions outside the United
States in reliance on Regulation S under the
Securities Act (the "Offering").
REGISTRATION RIGHTS
AGREEMENT................... In connection with the Offering, the Company
entered into the Registration Rights Agreement,
which grants Holders of the Notes certain
exchange and registration rights, which
generally terminate upon the consummation of
the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED............ $325,000,000 in aggregate principal amount of
the Company's 8 3/8% New Notes due 2008.
THE EXCHANGE OFFER............ $1,000 principal amount of New Senior
Notes in exchange for each $1,000 principal
amount of Senior Notes. As of the date hereof,
$325,000,000 aggregate principal amount of
Senior Notes are outstanding. The Company will
issue the New Notes to Holders on or promptly
after the Expiration Date.
EXPIRATION DATE............... 5:00 p.m., New York City time on
, 1998, unless the Exchange Offer
is extended, in which case the term "Expiration
Date" means the latest date and time to which
the Exchange Offer is extended.
INTEREST ON THE NEW NOTES AND
THE NOTES................... The New Notes will bear interest from the later
of (i) April 1, 1998 (the date of issuance of
the Notes that are tendered in exchange for the
New Notes) or (ii) the most recent Interest
Payment Date (as defined below in
"Summary -- The New Notes") for which interest
on such Notes has been paid. Accordingly,
Holders of Notes that are accepted for exchange
will not receive interest on the Notes that is
accrued but unpaid at the time of tender, but
such interest will be payable with respect to
the New Notes on the first Interest Payment
Date after the Expiration Date.
CONDITIONS TO THE EXCHANGE
OFFER....................... The Exchange Offer is subject to certain
customary conditions, which may be waived by
the Company. See "The Exchange Offer -- Certain
Conditions to the Exchange Offer."
PROCEDURES FOR TENDERING
NOTES....................... Each Holder of Notes wishing to accept the
Exchange Offer must complete, sign and date the
relevant accompanying Letter of Transmittal, or
a facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
the Notes and any other required documentation
to the Exchange Agent at the address set forth
in the Letter of Transmittal. The Letter of
Transmittal should be used to tender Notes. By
executing the Letter of Transmittal, each
Holder will represent to the Company that,
among other things, the Holder or the person
receiving such New
3
<PAGE> 8
Notes, whether or not such person is the
Holder, is acquiring the New Notes in the
ordinary course of business and that neither
the Holder nor any such other person has any
arrangement or understanding with any person to
participate in the distribution of such New
Notes. In lieu of physical delivery of the
certificates representing Notes, tendering
Holders may transfer Notes pursuant to the
procedure for book-entry transfer as set forth
under "The Exchange Offer -- Procedures for
Tendering Notes."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........... Any beneficial owner whose Notes are registered
in the name of a broker, dealer, commercial
bank, trust company or other nominee and who
wishers to tender should contact such
registered Holder promptly and instruct such
registered Holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such beneficial owner's own
behalf, such beneficial owner must, prior to
completing and executing the Letter of
Transmittal and delivering its Notes, either
make appropriate arrangements to register
ownership of the Notes in such beneficial
owner's name or obtain a properly completed
bond power from the registered Holder. The
transfer of registered ownership may take
considerable time.
WITHDRAWAL RIGHTS............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date pursuant to the procedures
described under "The Exchange Offer -- Terms of
the Exchange Offer."
ACCEPTANCE OF NOTES AND
DELIVERY OF NEW NOTES....... The Company will accept for exchange any and
all Notes that are properly tendered in the
Exchange Offer prior to 5:00 p.m., New York
City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
FEDERAL INCOME TAX
CONSEQUENCES................ The issuance of the New Notes to Holders of the
Notes pursuant to the terms set forth in this
Prospectus will not constitute an exchange for
federal income tax purposes. Consequently, no
gain or loss would be recognized by Holders of
the Notes upon receipt of the New Notes. See
"Certain Tax Considerations."
USE OF PROCEEDS............... There will be no proceeds to the Company from
the exchange of Notes for New Notes pursuant to
the Exchange Offer.
EFFECT ON HOLDERS OF NOTES.... As a result of the making of this Exchange
Offer, the Company will have fulfilled certain
of its obligations under the Registration
Rights Agreement, and Holders of Notes who do
not tender their Notes will generally not have
any further registration rights under the
Registration Rights Agreement or otherwise.
Such Holders will continue to hold the
untendered notes and will be entitled to all
the rights and subject to all the limitations
applicable thereto under the Indentures, except
to the extent such rights or limitations, by
their terms, terminate or cease to have further
effectiveness as a result of the Exchange
Offer. All untendered Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, if any Notes are ten-
4
<PAGE> 9
dered and accepted in the Exchange Offer, the
trading market for the untendered Notes could
be adversely affected.
EXCHANGE AGENT................ Harris Trust and Savings is serving as exchange
agent in connection with the Exchange Offer.
See "The Exchange Offer -- Exchange Agent."
5
<PAGE> 10
THE NEW NOTES
The form and terms of the New Notes are the same as the form and terms of
the Notes (which they will replace) except that: (i) the New Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof; and (ii) the Holders of the New Notes
generally will not be entitled to further registration rights under the
Registration Rights Agreement. The New Notes will evidence the same debt as the
Notes and will be entitled to the benefits of the Indenture. See "Description of
New Notes."
<TABLE>
<S> <C>
ISSUER................................. PharMerica, Inc.
NOTES OFFERED.......................... $325.0 million in the aggregate principal amount of
8 3/8% Senior Subordinated Notes due 2008.
MATURITY DATE.......................... April 1, 2008.
INTEREST PAYMENT DATES................. April 1 and October 1 of each year, commencing October 1,
1998.
MANDATORY REDEMPTION................... The Company will not be required to make mandatory
redemption or sinking fund payments with respect to the
New Notes.
OPTIONAL REDEMPTION.................... The New Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after
April 1, 2003 at the redemption prices set forth herein,
plus accrued and unpaid interest and Liquidated Damages,
if any, to the date of redemption. In addition, at any
time prior to April 1, 2001, the Company may, on one or
more occasions, redeem up to 33 1/3% of the aggregate
principal amount of the New Notes originally issued at a
redemption price of 108.375% of principal amount thereof,
plus accrued and unpaid interest and Liquidated Damages,
if any, thereon to the date of redemption, with the net
cash proceeds received by the Company of one or more
Public Offerings of Common Stock of the Company within 60
days of any such Public Offering; provided that
immediately after giving effect to any such redemption,
at least $200 million aggregate principal amount of the
New Notes remains outstanding.
CHANGE OF CONTROL...................... Upon the occurrence of a Change of Control, each holder
of the New Notes will have the right to require the
Company to purchase such holder's New Notes at a cash
price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest and Liquidated
Damages, if any, to the date of purchase.
SUBSIDIARY GUARANTEES.................. The New Notes will be jointly and severally guaranteed by
the Guarantors pursuant to the Subsidiary Guarantees. The
Subsidiary Guarantees will be general unsecured senior
subordinated obligations of the Guarantors, subordinated
in right of payment to all existing and future Senior
Debt of the Guarantors, including the guarantees by the
Guarantors of the Company's indebtedness under the Bank
Credit Facility.
RANKING................................ The New Notes will be general unsecured senior
subordinated obligations of the Company, subordinated in
right of payment to all existing and future Senior Debt
of the Company, including indebtedness pursuant to the
Bank Credit Facility. At May 13, 1998, on a pro forma
basis, the Company had approximately $198 million of
Senior Debt outstanding.
</TABLE>
6
<PAGE> 11
<TABLE>
<S> <C>
CERTAIN COVENANTS...................... The Indenture contains covenants that, among other
things: (i) limit the incurrence of additional
indebtedness and the issuance of preferred stock by the
Company and its Restricted Subsidiaries; (ii) restrict
the ability of the Company and its Restricted
Subsidiaries to pay dividends or make other restricted
payments or investments; (iii) limit the ability of the
Company and its Restricted Subsidiaries to enter into
sale-leaseback transactions; (iv) limit transactions by
the Company and its Restricted Subsidiaries with
affiliates; (v) limit the ability of the Company and its
Restricted Subsidiaries to make asset sales; (vi) limit
the ability of the Company and its Restricted
Subsidiaries to incur certain liens; (vii) limit the
ability of the Company to consolidate or merge with or
into, or to transfer all or substantially all of its
assets to, another person; (viii) prohibit the Company
and the Guarantors from incurring any indebtedness that
is junior to Senior Debt and senior to the New Notes or
the Subsidiary Guarantees, as applicable; and (ix) limit
the ability of the Company to change its line of
business.
FORM AND DENOMINATION.................. The New Notes will be represented by Global Notes (as
defined herein) in fully registered form, deposited with
a custodian for, and registered in the name of, a nominee
of the Depositary. Beneficial interests in the Global
Notes will be shown on, and transfers thereof will be
effected through, records maintained by the Depositary
and its participants.
</TABLE>
RISK FACTORS
Prospective investors in the Notes should carefully consider the matters
set forth herein under "Risk Factors."
---------------------
The principal address of the Company is 3611 Queen Palm Drive, Tampa,
Florida 33619, and its telephone number at that address is (813) 626-7788.
7
<PAGE> 12
SUMMARY HISTORICAL CONSOLIDATED AND UNAUDITED PRO FORMA FINANCIAL DATA
The following summary consolidated statement of income data and summary
consolidated balance sheet data for the years ended and as of December 31, 1995,
1996, and 1997 have been derived from the audited consolidated financial
statements of the Company. As a result of the accounting treatment of the
Merger, the historical financial statements of the Company are those of PCA. The
following summary unaudited pro forma combined statement of income for the year
ended December 31, 1996 is based on the respective historical financial
statements of Capstone and PCA adjusted to give effect to: (i) the Merger; (ii)
the Offering and the application of the net proceeds therefrom; and (iii) all
the acquisitions, other than certain insignificant acquisitions, made by
Capstone and PCA since January 1, 1997 (the "Acquisitions"), as though they
occurred on January 1, 1997. Anticipated synergies from the combined businesses
have not been included, although the Company believes the Merger will generate
annual synergies of approximately $25 million when fully realized. The summary
unaudited pro forma financial data are not necessarily indicative of the
operating results that would have been achieved had the Merger, the Offering and
the Acquisitions been consummated as of January 1, 1997, nor are they
necessarily indicative of future operating results. This information should be
read in conjunction with the unaudited pro forma financial statements, the
consolidated financial statements, related notes thereto, the other financial
information herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," all included elsewhere herein.
<TABLE>
<CAPTION>
AS OF OR FOR THE
YEAR ENDED DECEMBER 31, PRO FORMA
-------------------------------------- ----------
1995 1996 1997 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME DATA:
Net sales.......................................... $ 451,685 $ 516,400 $ 652,179 $1,019,349
Cost of sales...................................... 242,761 280,468 355,577 569,596
---------- ---------- ---------- ----------
Gross profit..................................... 208,924 235,932 296,602 449,753
---------- ---------- ---------- ----------
Operating expenses:
Selling, general and administrative.............. 175,794 184,751 216,087 323,540
Depreciation and amortization.................... 13,219 16,392 21,408 36,601
Restructuring charges............................ -- -- 5,780 --
Impairment of long-lived assets.................. 9,543 -- 5,155 --
---------- ---------- ---------- ----------
Total operating expenses.................. 198,556 201,143 248,430 360,141
---------- ---------- ---------- ----------
Operating income................................. 10,368 34,789 48,172 89,612
Acquisition financing fees and expenses............ -- -- -- --
Interest expense, net.............................. (195) (166) 2,483 36,190
---------- ---------- ---------- ----------
Income before provision for income taxes........... 10,563 34,955 45,689 53,422
Provision for income taxes......................... 5,977 14,668 18,992 23,954
---------- ---------- ---------- ----------
Net income......................................... $ 4,586 $ 20,287 $ 26,697 $ 29,468
========== ========== ========== ==========
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................................... $ 77,512 $ 92,134 $ 201,588 $ 201,588
Total assets....................................... 428,872 441,576 1,114,248 1,123,373
Long-term obligations.............................. 755 2,302 435,422 444,547
Stockholders' equity............................... 71,318 91,605 528,878 528,878
</TABLE>
8
<PAGE> 13
RISK FACTORS
Holders of the Notes offered hereby should consider carefully the factors
set forth below, as well as certain other information set forth in this
Prospectus before tendering Notes in the Exchange Offer. This Prospectus
includes forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, including, without limitation, statements
containing the words "believes," "anticipates," "intends," "expects" and words
of similar import. Such statements include statements concerning the Company's
business strategy, acquisition strategy, operations, cost savings initiatives,
industry, economic performance, financial condition, liquidity and capital
resources, existing government regulations and changes in, or the failure to
comply with, governmental regulations, legislative proposals for healthcare
reform, the ability to enter into arrangements with managed care providers on an
acceptable basis, changes in reimbursement policies and demographic changes.
Such statements are subject to various risks and uncertainties. The Company's
actual results may differ materially from the results discussed in such
forward-looking statements because of a number of factors, including those
identified in this "Risk Factors" section and elsewhere in this Prospectus. See
"Summary," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," and "Business." The forward-looking statements are made
as of the date of this Prospectus, and the Company assumes no obligation to
update the forward-looking statements or to update the reasons that actual
results could differ from those projected in the forward-looking statements.
SIGNIFICANT LEVERAGE
The Company has had and will continue to have substantial indebtedness and
significant debt service obligations. As of March 31, 1998, the Company had
approximately $444.5 million of indebtedness outstanding, approximately $441.4
million committed under the Bank Credit Facility (of which approximately $35.5
million was available), approximately $1.1 billion of total assets,
approximately $379.8 million of net tangible assets and approximately $528.9
million of stockholders' equity. See "Capitalization," "Unaudited Pro Forma
Consolidated Financial Statements" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The availability of funds under
the Bank Credit Facility during 1998 is predicated on the Company maintaining an
adjusted leverage ratio of 4:1. As a result, the availability under the line of
credit may vary based upon the Company's operating results. There can be no
assurance that the Company's operating performance will be adequate to have
available as needed all of the committed funds under the Bank Credit Facility.
In addition, subject to the restrictions in the Bank Credit Facility and the
Indenture, the Company may incur substantial additional senior or other
indebtedness (which may be secured) from time to time to finance acquisitions or
capital expenditures or for other general corporate purposes. There can be no
assurance that the Company's operating results, cash flow and capital resources
will be sufficient for payment of its indebtedness, including the New Notes, in
the future. All or a portion of the principal payments at maturity on the New
Notes may require refinancing, and there can be no assurance that refinancing
would be available on commercially reasonable terms or at all. Reimbursement
rates, the consummation and integration of acquisitions, the regulatory
environment and prevailing economic conditions, certain of which are beyond the
Company's control, and the other factors described in "Risk Factors" could
significantly affect the Company's cash flow.
The level of the Company's indebtedness could have important consequences
to the holders of the New Notes, including: (i) a significant portion of the
Company's cash flow from operations will be committed to the payment of the
Company's interest expense and principal repayment obligations, thereby reducing
the funds available to the Company for its operations and future business
opportunities; (ii) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or other purposes
may be limited; (iii) the Company may be more highly leveraged than certain of
its competitors, which may place it at a competitive disadvantage, limit the
Company's flexibility in reacting to changes in its business and make it more
vulnerable to downturns in general economic conditions; (iv) certain of the
Company's borrowings are at variable rates of interest, which could result in
higher interest expense in the event of an increase in interest rates; and (v)
the Indenture and the Bank Credit Facility contain financial and restrictive
covenants that, if not complied with, could lead to a default that could have a
material adverse effect on the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of
9
<PAGE> 14
Operations -- Liquidity and Capital Resources," "Description of the New Notes"
and "Description of Bank Credit Facility."
INTEGRATION
The effective integration of PCA and Capstone and the realization of the
economic benefits of the Merger are particularly critical to the Company's
success. Potential obstacles to successful integration include, but are not
limited to: (i) retaining and integrating the Company's management team; (ii)
consolidating pharmacies without losing any customer relationships; (iii)
achieving operating efficiencies; (iv) consolidating departmental functions; (v)
achieving anticipated purchasing efficiencies; (vi) consolidating management
information systems; (vii) coordinating field managerial activities with
corporate management; (viii) retaining and expanding the Company's customer
base; (ix) introducing new products and services to existing facilities; and (x)
adding and integrating key personnel. There can be no assurance that PCA and
Capstone will be successfully integrated, or that the effects of the Merger will
not have a material adverse effect upon the Company's results of operations,
financial condition, or prospects. See "Business" and "Management."
DEPENDENCE ON KEY CONTRACTS
On a pro forma basis, sales to Beverly facilities and their residents would
have accounted for approximately 16.0% of the Company's net sales for the year
ended December 31, 1997. Prior to the Merger, Beverly owned PCA. See "Certain
Transactions." Two of the Company's directors are presently officers and
directors of Beverly. The Company has entered into non-competition and preferred
provider agreements with Beverly and IHS to provide for the delivery of pharmacy
services and products and ancillary services and products by the Company to
Beverly's and IHS's long-term care facilities. However, such agreements contain
certain provisions allowing for pricing adjustments and termination under
certain circumstances, and there can be no assurance that either the pricing
will not be adjusted or all or part of such agreement or agreements will not be
terminated at some future date. At December 31, 1997, the Company serviced
approximately 58,000 and 17,000 Beverly and IHS long-term care beds,
respectively.
The Company recently filed a lawsuit against IHS for breaches of contracts
and related torts. The lawsuit alleges that IHS's actions in connection with its
purchase of an institutional pharmacy business, including its failure to offer
to sell such business to the Company, and its causing the acquired pharmacy,
immediately prior to such sale, to enter into certain provider agreements for
long-term care pharmacy services is in violation of its agreement signed in
connection with its sale of its institutional pharmacy business, Symphony Health
Services, Inc. ("Symphony") to the Company and in violation of the preferred
provider agreement between IHS and the Company. The Company cannot at this time
predict the outcome or effect of this litigation.
Any material loss of revenues or business from Beverly or IHS could have a
material adverse impact on the Company's future operations. See
"Business -- Operations -- Preferred Provider Agreements."
GROWTH STRATEGY; NEED FOR ADDITIONAL FINANCING
The Company has experienced rapid growth since 1995 and intends to continue
its growth strategy. The Company's successful implementation of its growth
strategy depends upon its ability to identify, consummate and integrate
acquisitions and to attract and retain qualified personnel. The Company will
compete for acquisition candidates with buyers who may have greater financial
and other resources and may be able to pay higher acquisition prices than the
Company. No assurance can be given that the Company will be able to identify
suitable acquisition candidates or to consummate acquisitions on terms
acceptable to it or on terms consistent with past acquisitions or that
acquisitions of a substantial size will be available. To the extent that the
Company is unable to acquire institutional pharmacy companies, or to integrate
such acquisitions successfully, its ability to expand its business would be
reduced significantly. The ability to integrate any such acquisitions on an
effective basis will also be subject to the risks as described under
" -- Integration." In addition, the Bank Credit Facility contains certain
restrictions on the Company's ability to make acquisitions. See "Description of
Bank Credit Facility."
10
<PAGE> 15
The Company's acquisition strategy requires substantial capital resources.
To fund its acquisition strategy, the Company will incur, from time to time,
additional indebtedness (both short and long-term), including indebtedness under
the Bank Credit Facility, and the amount of such indebtedness could be
significant. See " -- Significant Leverage" and " -- Fraudulent Conveyance
Risk." The Company may also fund acquisitions through the issuance, in public or
private transactions, of equity or debt securities. The availability and terms
of such equity or debt securities will depend on market and other conditions
existing at the time, and there can be no assurance that any such additional
financing will be available on terms acceptable to the Company, if at all. In
addition, the Bank Credit Facility and the Indenture contain limitations on the
ability of the Company and its Restricted Subsidiaries to incur indebtedness and
issue certain preferred stock. Availability of commitments under the Bank Credit
Facility is subject to the Company complying with certain financial covenants
and other provisions. See "-- Significant Leverage," "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Description of the New Notes" and "Description of Bank
Credit Facility."
DEPENDENCE ON REIMBURSEMENT BY THIRD-PARTY PAYORS
The Company derives, directly or indirectly, a majority of its net sales
from government-sponsored reimbursement programs. The Company's revenues and
profitability will be affected by the efforts of all payors to continue to
reduce the costs of healthcare by lowering reimbursement rates, narrowing the
scope of covered services, increasing case management review of services, and
negotiating reduced or fixed contract pricing. Any changes in reimbursement
levels under Medicare, Medicaid, or private pay programs, including managed care
contracts, could have a material adverse effect on the Company's results of
operations, financial condition and prospects. In addition, changes to
reimbursement policies requiring payment on a pre-negotiated basis, based on
specific rates for certain medical conditions or on a capitated basis, could
have a material adverse impact on the Company. Changes in the mix of residents
among Medicare, Medicaid and different types of private pay sources may
materially adversely affect the Company's revenues and profitability. See
"Business -- Government Regulation."
HEALTHCARE REFORM
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect the institutional pharmacy industry. In
recent years, several comprehensive national healthcare reform proposals were
introduced in the United States Congress. While none of the proposals were
adopted, healthcare reform may again be addressed by the United States Congress.
Several states also are considering healthcare reforms through Medicaid managed
care demonstration projects. Although these projects generally exempt
institutional pharmacy services and long-term care facilities, no assurance can
be given that such projects or other proposals will not change the Medicaid
reimbursement system in a manner that would affect the Company's operations. The
Company cannot predict which, if any, federal or state modifications or reform
proposals will be adopted, when they may be adopted or what their impact on the
Company may be if adopted. There can be no assurance that the adoption of
certain modifications or proposals will not have a material adverse effect on
the Company's results of operations, financial condition or prospects. See
"Business -- Government Regulation."
MANAGEMENT
In connection with the Merger, the management of PCA and Capstone were
combined such that two executive officers from each of PCA and Capstone became
executive officers of PharMerica. The management team now includes eleven former
PCA officers and twelve former Capstone officers. In addition, the Company's
Board of Directors was modified such that five former Capstone directors
continued to serve on the Board along with five directors nominated by Beverly,
including PharMerica's President and Chief Executive Officer, C. Arnold
Renschler, M.D. There can be no assurances that the Company will retain the
members of the combined management team or that the combined management team
will be as effective as the former management teams of Capstone or PCA, which
could have a material adverse effect on the Company's results of operations,
financial condition or prospects. PharMerica has entered into employment
contracts with each
11
<PAGE> 16
of its executive officers that contain non-compete clauses with the Company, but
there can be no assurance that such individuals will remain with the Company.
See "Business" and "Management."
ROLE OF MANAGED CARE
As managed care assumes an increasing role in the healthcare industry, the
Company's future success will, in part, be dependent on obtaining and retaining
managed care contracts. Competition for such contracts is intense and, in most
cases, will require the Company to compete based on the breadth of services
offered, pricing, the ability to track and report patient outcomes and cost
data, and the provision of value-added pharmacy consulting services, among other
factors. In addition, reimbursement rates under managed care contracts typically
are lower than those paid by other private third-party payors and may be likely
to be based on fixed rates that will require the Company to accurately project
costs and outcomes. There can be no assurance that the Company will retain or
continue to obtain such managed care contracts or that the managed care
contracts it obtains will be on terms as favorable to the Company as those of
its current managed care and other contracts. To the extent reimbursement
provisions in managed care or other contracts or arrangements change to
pre-negotiated prices for specific medical conditions or to capitated rates,
there can be no assurance that the Company will be able to retain or continue to
obtain such managed care contracts or other arrangements, that the managed care
contracts or other arrangements it obtains will be on terms as favorable to the
Company as those of its current managed care and other contracts or that the
Company will be able to service such contracts or other arrangements profitably.
See "Business."
COMPETITION
The long-term care pharmacy markets in which the Company operates are
fragmented and highly competitive. Competition for each long-term facility is
generally on a local basis and in such markets comes from both small to mid-size
local operators and regional and national operators. The Company's competition
in its mail service workers' compensation division comes primarily from regional
and local competitors and, occasionally, from national managed care companies.
The Company's competition in the correctional pharmacy market comes primarily
from other large providers. The Company believes that the primary competitive
factor in its industry is breadth and quality of service. Additional competitive
factors include reputation, ease of doing business with the specific providers,
ability to develop and to maintain relationships with general medical
contractors, and competitive pricing. Some of the present and potential
competitors including retail pharmacies, captive pharmacies and pharmaceutical
distributors are, or may become, larger than the Company and have, or may
obtain, greater financial and marketing resources. See "Business --
Competition."
GOVERNMENT REGULATION
The Company is subject to extensive federal, state and local regulation.
Federal laws governing the Company's activities include regulations covering the
repackaging, storing and dispensing of drugs, Medicare reimbursement, and
certain financial relationships with physicians and other healthcare providers.
The Company is subject to state laws governing Medicaid, workers' compensation,
professional training, pharmacy licensure, payment in exchange for patient
referrals and the dispensing and storage of pharmaceuticals. The pharmacies
operated by the Company must comply with all applicable laws, regulations and
licensing standards. Many of the Company's employees must maintain certain
licenses in order to provide services. The long-term care facilities that
contract for pharmacy services are also subject to federal and state regulations
and are required to be licensed in the states in which they are located. The
failure by these institutions to comply with such regulations or to obtain or
renew any required licenses could result in the loss of the Company's ability to
provide pharmacy services to their residents. There can be no assurance that
federal, state or local governments will not change existing standards or impose
additional standards, compliance with which may require the Company to incur
significant additional expense. Any significant additional expense incurred in
connection with such compliance or any failure to comply with existing or future
standards could have a material adverse effect upon the Company's results of
operations, financial condition or prospects. In addition, any restrictions on
pharmaceutical companies marketing programs, including the ability of such
12
<PAGE> 17
companies to pay incentives to dispense one particular product rather than
another, could be material to the Company. See "Business -- Government
Regulation."
LIABILITY AND ADEQUACY OF INSURANCE
The provision of healthcare services entails an inherent risk of liability.
The Company currently maintains product and professional liability insurance
intended to cover such claims in amounts which it believes are consistent with
industry standards. There can be no assurance, however, that claims in excess of
the insurance coverage or claims not covered by insurance will not arise. A
successful claim in excess of the Company's insurance coverage could have a
material adverse effect upon the Company's results of operations, financial
condition and future prospects. Claims, regardless of their merit or eventual
outcome, may also have a material adverse effect upon the Company's ability to
attract customers, to maintain its insurance policies or to expand its business.
There can be no assurance that the Company will be able to obtain adequate
liability insurance coverage in the future on acceptable terms, if at all.
SUBORDINATION
The payment of principal, premium, if any, interest, and Liquidated Damages
(as defined herein), if any, on the New Notes will be subordinated to the prior
payment in full of all existing and future Senior Debt of the Company, including
indebtedness under the Company's Bank Credit Facility and, therefore, in the
event of the bankruptcy, liquidation or reorganization of the Company, the
assets of the Company will not be available to pay obligations under the New
Notes until all such Senior Debt has been paid in full. As a result, there may
not be sufficient assets remaining after any such bankruptcy, liquidation, or
reorganization to pay amounts due on the New Notes. In addition, a significant
portion of the Company's total assets are goodwill. At March 31, 1998, the
Company had total assets of $1.1 billion and net tangible assets of $379.8
million. Furthermore, any payment with respect to a Subsidiary Guarantee also
will be subordinated to the payment of any Senior Debt of that Guarantor,
including the Guarantor's guarantee of the Company's obligations under the Bank
Credit Facility. At March 31, 1998, the Company had approximately $119.5 million
of Senior Debt outstanding, in the aggregate, and the Company had commitments,
subject to availability, of approximately $441.4 million of additional borrowing
capacity pursuant to the Bank Credit Facility. In addition, the New Notes will
also be effectively subordinated to all secured indebtedness of the Company or
any of its subsidiaries to the extent of the assets securing such indebtedness.
The Company may not pay principal or premium or Liquidated Damages, if any,
or interest on the New Notes if any amount owing under the Senior Debt is not
paid when due or any other default on any Senior Debt occurs and the maturity of
such Senior Debt is accelerated in accordance with its terms, unless, in either
case, such amounts have been paid in full or the default has been cured or
waived and such acceleration has been rescinded. Moreover, if any non-payment
default occurs with respect to certain Senior Debt and certain other conditions
are satisfied, the Company may not make any payments on the New Notes for a
designated period of time. See "Description of the New Notes -- Subordination."
SUBSIDIARY OPERATIONS AND SUBSIDIARY GUARANTEES
Substantially all of the Company's operations are conducted, and
substantially all of the Company's assets are owned, by its subsidiaries. The
Company's ability to make required interest payments on the New Notes depends on
its ability to receive funds from such subsidiaries. The Bank Credit Facility
does not limit the Company's subsidiaries from paying dividends to the Company.
The holders of the New Notes will have no direct claims against the subsidiaries
of the Company other than the claim created by the Subsidiary Guarantees. The
Subsidiary Guarantees will be subordinated in the right of payment to all
existing and future Senior Debt of the Guarantors, including the guarantees of
the Guarantors of the Company's obligations under the Bank Credit Facility. As
of March 31, 1998, the aggregate principal amount of outstanding Senior Debt of
the Guarantors was approximately $119.5 million (including guarantees by the
Guarantors of the Company's obligations under the Bank Credit Facility). See
"Description of Bank Credit Facility." In addition, the Subsidiary Guarantees
may be subject to legal challenge under applicable provisions of the United
States Bankruptcy Code or comparable provisions of state fraudulent transfer or
conveyance laws. See
13
<PAGE> 18
"-- Fraudulent Conveyance Risk." If such a challenge were upheld, the Subsidiary
Guarantees would be invalidated and unenforceable, and it is possible that
holders of the New Notes would be ordered by a court to turn over to other
creditors of the Guarantors, or to their trustees in bankruptcy, all or a
portion of the payments made to them pursuant to the Subsidiary Guarantees. The
terms of the Guarantees provide that they are only enforceable to the extent
permitted by law, including fraudulent transfer laws. To the extent that the
Subsidiary Guarantees are not enforceable in amounts sufficient to satisfy the
claims of the holders of the New Notes, the rights of holders of the New Notes
to participate in any distribution of assets of any Guarantor upon liquidation,
bankruptcy, reorganization or otherwise would be subject to prior claims of
creditors of that Guarantor.
FRAUDULENT CONVEYANCE RISK
PharMerica used the net proceeds of the Offering will be applied to repay
indebtedness incurred by it under the Bank Credit Facility, a substantial
portion of which was incurred to finance acquisitions by the Company and its
subsidiaries. Based upon financial and other information currently available to
it, the Company believes that the indebtedness under the Bank Credit Facility
was incurred, and that the indebtedness represented by the New Notes is being
incurred, for proper purposes and in good faith and that, based on forecasts,
asset valuations and other financial information, the Company was at each time
it incurred indebtedness under the Bank Credit Facility, currently is, and after
the consummation of the Offering will be, solvent, will have sufficient capital
for carrying on its business and will be able to pay its debts as they mature.
Notwithstanding the Company's belief, however, if a court of competent
jurisdiction in a suit by an unpaid creditor or a representative of creditors
(such as a trustee in bankruptcy or a debtor-in-possession) were to find that,
at the time of the incurrence of indebtedness under the Bank Credit Facility or
the issuance of the New Notes, the Company was insolvent, was rendered insolvent
by reason of such issuance, was engaged in a business or transaction for which
its remaining assets constituted unreasonably small capital, intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, or intended to hinder, delay or defraud its creditors or was a
defendant in an action for money damages, or had a judgement for money damages
docketed against it (if, in either case, after final judgment, the judgment is
unsatisfied), and that the indebtedness was incurred for less than reasonably
equivalent value, then such court could, among other things: (i) void all or a
portion of the Company's obligations to the holders of the New Notes, the effect
of which would be that the holders of the New Notes may not be repaid in full or
at all; or (ii) subordinate the Company's obligations to the holders of the New
Notes to other existing and future indebtedness of the Company, the effect of
which would be to entitle such other creditors to be paid in full before any
payment could be made on the New Notes. The measure of insolvency for purposes
of the foregoing considerations will vary depending upon the federal or local
law that is being applied in any such proceeding. See "Description of the New
Notes."
PAYMENT UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of New Notes may
require the Company to repurchase all or a portion of such holder's New Notes at
101% of the principal amount of the New Notes, together with accrued and unpaid
interest, if any, and Liquidated Damages, if any, to the date of repurchase. The
Indenture requires that prior to such a repurchase, the Company must either
repay all outstanding indebtedness under the Senior Debt or obtain any required
consent to such repurchase. The Bank Credit Agreement does not permit such a
repurchase. If a Change of Control were to occur, the Company may not have the
financial resources to repay all of its obligations under the Senior Debt, the
New Notes and the other indebtedness that would become payable upon such event.
See "Description of the New Notes -- Repurchase at the Option of Holders."
ABSENCE OF PUBLIC MARKET FOR THE NEW NOTES; RESTRICTIONS ON TRANSFERS
The Notes are currently owned by a relatively small number of beneficial
owners. The Notes have not been registered under the Exchange Act and will
continue to be subject to restrictions on transferability to the extent that
they are not exchanged for the New Notes. The New Notes will constitute a new
issue of securities with no established trading market. The New Notes will
generally be permitted to be resold or otherwise
14
<PAGE> 19
transferred by Holders who are not affiliates of the Company without compliance
with the registration requirements under the Securities Act. The Company does
not intend to list the New Notes on any securities exchange or to seek approval
for quotation through one automated quotation system. There can be no assurance
as to the liquidity of any market that may develop for the New Notes, the
ability of Holders of the New Notes to sell their New Notes or the price at
which Holders would be able to sell their New Notes. Future trading prices of
the New Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results and the market for
similar securities. Although the Initial Purchasers have advised the Company
that they currently intend to make a market in the New Notes, they are not
obligated to do so and may discontinue such market-making at any time without
notice. If a trading market does not develop or is not maintained, holders of
the New Notes may experience difficulty in reselling the New Notes or may be
unable to sell them at all. If a market for the New Notes develops, any such
market may be discontinued at any time. See "Notice to Investors." In addition,
such market-making activity will be subject to the limits imposed by the
Exchange Act. See "Description of New Notes -- Registration Rights; Liquidated
Damages." Accordingly, there can be no assurance as to the development or
liquidity of any market for the New Notes.
COMPLIANCE WITH EXCHANGE OFFER PROCEDURES; RESTRICTIONS ON RESALES; CONSEQUENCES
OF FAILURE TO EXCHANGE
Issuance of New Notes in exchange for Notes pursuant to the Exchange Offer
will be made only after a timely receipt by the Exchange Agent of such Notes, a
properly completed and duly executed Letter of Transmittal with respect to such
Notes and all other required documents. Therefore, Holders of the Notes that
want to tender their Notes in exchange for New Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tenders of Notes
for exchange.
Holders of Notes who do not exchange their Notes for New Notes pursuant to
the Exchange Offer will continue to be subject to the restrictions on transfer
of such Notes as set forth in the restrictive legend thereon. In general, the
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not intend
to register the Notes under the Securities Act. No Holder of Notes will be
entitled to receive any Liquidated Damages with respect to such Notes, if a
Holder of such Notes was, at any time while the Exchange Offer is pending,
eligible to exchange, and did not validly tender, such Notes for New Notes in
the Exchange Offer. The Company expects that substantially all of the Notes will
be exchanged for New Notes pursuant to the Exchange Offer, which will negatively
affect the market for the Notes. Based on interpretations by the staff of the
Commission, New Notes issued pursuant to the Exchange Offer may be offered for
resale, resold or otherwise transferred by Holders (other than any such Holder
which is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus delivery
provisions of the Securities Act provided that such New Notes are acquired in
the ordinary course of such Holders' business and such Holders have no
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer. Any Holder who tenders in the
Exchange Offer for the purpose of participating in a distribution of the New
Notes (i) will not be able to rely on the applicable interpretations of the
staff of the Commission and (ii) is required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction. The Company has agreed, subject to certain
specified limitations, to register or qualify the New Notes for offer or sale
under the state securities laws of such jurisdictions as any holder of the New
Notes reasonably requests in writing. See "The Exchange Offer."
15
<PAGE> 20
CAPITALIZATION
The following table sets forth the consolidated capitalization of
PharMerica as of December 31, 1997, and as adjusted to give effect to the
Offering and the application of the net proceeds therefrom. This table should be
read in conjunction with the consolidated financial statements of the Company,
and the Unaudited Pro Forma Financial Statements and the notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 34,215 $ 34,215
======== ========
Current portion of long-term debt........................... $ 7,533 $ 7,533
======== ========
Long-term debt, less current portion:
Bank Credit Facility...................................... $424,524 $108,649
Senior Subordinated Notes................................. -- 325,000
Other..................................................... 3,365 3,365
-------- --------
Total long-term debt (excluding current
portion)........................................ 427,889 437,014
Stockholders' Equity:
Common stock, $0.01 par value; 300,000,000 shares
authorized; 87,930,000 shares issued and 87,592,000
shares outstanding..................................... 876 876
Preferred stock, $0.01 par value; 500,000 shares
authorized; 0 shares issued and outstanding............ -- --
Additional paid-in capital................................ 413,567 413,567
Retained earnings......................................... 114,435 114,435
-------- --------
Total stockholders' equity........................ 528,878 528,878
-------- --------
Total capitalization........................................ $956,767 $965,892
======== ========
</TABLE>
16
<PAGE> 21
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma combining statements of income give
effect to the Merger, the Offering and the Acquisitions as though they occurred
on January 1, 1997. This pro forma information has been prepared utilizing the
audited historical consolidated financial statements of PharMerica for the year
ended December 31, 1997 and the unaudited historical consolidated financial
statements of Capstone for the eleven months ended November 30, 1997. The Merger
was accounted for under the purchase method of accounting and was treated as a
reverse merger/acquisition of Capstone by PCA for accounting and financial
reporting purposes. Therefore, this pro forma information reflects the
adjustment of Capstone's assets and liabilities to their fair values in
accordance with the purchase method of accounting. As a result of this
treatment, the historical financial statements of PharMerica are those of PCA
rather than those of Capstone. This information should be read in conjunction
with the historical consolidated financial statements and notes thereto that
appear elsewhere herein. The pro forma financial data are provided for
comparative purposes only and are not necessarily indicative of the results
which would have occurred had the Merger, the Offering and the Acquisitions been
consummated on January 1, 1997, nor are they necessarily indicative of future
results.
UNAUDITED PRO FORMA STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
------------------------------------------------------------------------
ACQUISITION PRO FORMA
PHARMERICA CAPSTONE(1) ADJUSTMENTS(2) ADJUSTMENTS(3) TOTAL
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales......................... $652,179 $284,407 $82,763 -- $1,019,349
Cost of sales..................... 355,577 160,081 53,938 -- 569,596
-------- -------- ------- ------- ----------
Gross profit...................... 296,602 124,326 28,825 -- 449,753
-------- -------- ------- ------- ----------
Operating expenses:
Selling, general and
administrative............... 216,087 91,869 18,784 (3,200)(4) 323,540
Depreciation and amortization... 21,408 9,094 2,799 3,300(5) 36,601
Restructuring costs............. 5,780 -- -- (5,780)(6) --
Merger related costs............ -- 5,061 -- (5,061)(6) --
Impairment of long-lived
assets....................... 5,155 -- -- (5,155)(6) --
-------- -------- ------- ------- ----------
Total operating expenses..... 248,430 106,024 21,583 (15,896) 360,141
-------- -------- ------- ------- ----------
Income from operations............ 48,172 18,302 7,242 15,896 89,612
Interest expense, net............. 2,483 6,136 5,092 22,479(7) 36,190
-------- -------- ------- ------- ----------
Income before provision for income
taxes........................... 45,689 12,166 2,150 (6,583) 53,422
Provision for income taxes........ 18,992 5,415 -- (453)(8) 23,954
-------- -------- ------- ------- ----------
Net income........................ $ 26,697 $ 6,751 $ 2,150 $(6,130) $ 29,468
======== ======== ======= ======= ==========
</TABLE>
17
<PAGE> 22
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF INCOME
(1) Represents Capstone's actual results of operations for the eleven months
ended November 30, 1997. The remaining month of Capstone's actual results
is included as part of PharMerica's year end results.
(2) Represents the pro forma effects of all material acquisitions made by
Capstone and PCA, other than certain insignificant acquisitions, since
January 1, 1997 as though they occurred on January 1, 1997. The financial
statements underlying a significant number of these acquisitions were not
audited or reviewed by independent public accountants, and, therefore, the
information included herein is generally based on internally prepared
financial statements by the selling entity. The pro forma results do not
reflect any anticipated operating efficiencies or synergies and are not
necessarily indicative of actual results which might have occurred had the
operations and management teams of the Company and the acquired companies
been combined in prior years.
(3) Represents the pro forma effects of the Merger and the Offering as though
they occurred on January 1, 1997.
(4) Represents the elimination of management fees paid by the Company to
Beverly which will not continue post-Merger.
(5) Represents amortization associated with the excess of purchase price over
the estimated fair value of net assets acquired in the Merger calculated on
a straight line basis over 40 years.
(6) Represents elimination of Merger costs recognized in the operations of
Capstone during the period through the date of Merger and restructuring
charges and impairments of long-lived assets directly related to the Merger
recognized in the operations of the Company during the year ended December
31, 1997.
(7) Represents interest expense on $275.0 million of borrowings under the Bank
Credit Facility used to partially repay PCA's intercompany balance to
Beverly at an effective interest rate of 6.5% plus the incremental interest
expense incurred as a result of the Offering (and use of the proceeds
thereof) at a rate of 8.375%.
(8) Represents the tax effect on the acquisition and pro forma adjustments,
using an incremental tax rate of 40%, after adjusting for permanent
differences.
18
<PAGE> 23
SELECTED HISTORICAL FINANCIAL DATA
The following consolidated statement of income and balance sheet data for
the years ended and as of December 31, 1994, 1995, 1996 and 1997 have been
derived from the audited consolidated financial statements of the Company. The
consolidated statement of income and balance sheet data for the year ended and
as of December 31, 1993 have been derived from the Company's internal records.
The December 31, 1993 financial statement data are unaudited and, in the opinion
of the Company's management, includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of such information for
the unaudited periods. This information should be read in conjunction with the
consolidated financial statements and related notes thereto included elsewhere
herein, the other financial information included elsewhere herein and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1993 1994 1995 1996 1997
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF INCOME
DATA:
Net sales............................ $ 201,670 $ 247,512 $ 451,685 $ 516,400 $ 652,179
Cost of sales........................ 90,262 117,045 242,761 280,468 355,577
---------- ---------- ---------- ---------- ----------
Gross profit....................... 111,408 130,467 208,924 235,932 296,602
---------- ---------- ---------- ---------- ----------
Operating expenses:
Selling, general and
administrative.................. 82,201 99,271 175,794 184,751 216,087
Depreciation and amortization...... 3,741 5,734 13,219 16,392 21,408
Restructuring charges.............. -- -- -- -- 5,780
Impairment of long-lived assets.... -- -- 9,543 -- 5,155
---------- ---------- ---------- ---------- ----------
Total operating expenses... 85,942 105,005 198,556 201,143 248,430
---------- ---------- ---------- ---------- ----------
Operating income................... 25,466 25,462 10,368 34,789 48,172
Interest expense, net................ 110 113 (195) (166) 2,483
---------- ---------- ---------- ---------- ----------
Income before provision for income
taxes.............................. 25,356 25,349 10,563 34,955 45,689
Provision for income taxes........... 10,281 10,291 5,977 14,668 18,992
---------- ---------- ---------- ---------- ----------
Net income........................... $ 15,075 $ 15,058 $ 4,586 $ 20,287 $ 26,697
========== ========== ========== ========== ==========
Pro forma earnings per common
share.............................. $ 0.50
==========
CONSOLIDATED BALANCE SHEET DATA:
Working capital...................... $ 24,537 $ 71,794 $ 77,512 $ 92,134 $ 201,588
Total assets......................... 69,443 327,287 428,872 441,576 1,114,248
Long-term obligations................ 1,300 1,147 755 2,302 435,422
Stockholders' equity................. 51,674 66,732 71,318 91,605 528,878
</TABLE>
19
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in the consolidated financial statements, including the related notes,
and the other financial information incorporated by reference herein.
GENERAL
PharMerica is a leading provider of institutional pharmacy services to the
elderly, chronically ill and disabled in long-term care and alternate site
settings, including skilled nursing facilities, assisted living facilities,
specialty hospitals and the home. The Company is also a leading provider of mail
order pharmacy services to the workers' compensation and catastrophic care
markets. As of March 31, 1998, PharMerica provided pharmacy services to
approximately 345,000 long-term care residents in 36 states and to over 106,000
workers' compensation claimants nationwide. For the year ended December 31,
1997, the Company generated, on a pro forma basis, net sales of approximately
$1.0 billion and EBITDA of approximately $126.2 million.
PharMerica was formed as a result of the Merger involving PCA, a subsidiary
of Beverly, and Capstone. Capstone issued 50 million shares of its common stock
and assumed approximately $275.0 million of debt to acquire all of the
outstanding stock of Beverly. Immediately prior to this transaction, Beverly
distributed its long-term care business to New Beverly Holdings, Inc. ("New
Beverly") leaving only its institutional pharmacy business, PCA, to be acquired
by Capstone. Because Beverly's shareholders owned a majority of the Company
after the Merger, for accounting purposes, the transaction was treated as an
acquisition of Capstone by PCA.
Since the Merger was treated as a reverse merger transaction for accounting
purposes, the shares of Capstone at the date of close plus the fair value of
Capstone's outstanding options and warrants, represent the consideration for the
Merger. In accordance with EITF 95-19, the purchase price in the Merger for
accounting purposes was determined using the fair value of Capstone's common
stock over a reasonable period of time before and after the transaction was
agreed to and announced. After the Merger was consummated, the historical
financial statements of the Company became those of PCA. Therefore, the
Company's 1997 historical financial results reflect a full year of PCA
operations and one month of Capstone operations.
The Company believes that, when fully realized, the synergies from the
Merger will be approximately $25 million annually. This includes savings
primarily from the consolidation of 19 institutional pharmacies, 11 of which
have already occurred, more favorable pricing terms in the Company's new primary
purchasing contracts and corporate and regional overhead reductions. It also
includes additional income generated through expanded market coverage of
available beds under the Company's existing preferred provider agreements with
regional and national long-term care providers. The Company expects to realize
approximately $16 million of these synergies in 1998 and the full $25 million in
anticipated annual synergies (which includes approximately $2 million of
additional income as described above) beginning in 1999.
In pursuit of its acquisition strategy, the Company routinely reviews
potential pharmacy and pharmacy services provider acquisitions. At any given
time, the Company may be in discussions with one or more such pharmacy and
pharmacy services provider owners, some of which may be material. There can be
no assurance that any of these or other negotiations will lead to definitive
agreements or, if agreements were reached, that any transactions would be
consummated.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996
Net Sales. The Company's net sales increased approximately $135.8 million,
or 26.3%, to $652.2 million in 1997 from $516.4 million in 1996. This increase
consisted of approximately $72.0 million of same store growth and approximately
$57.8 million related to acquisitions, principally the January 1, 1997
acquisition of Interstate Pharmacy Corp. and the December 1997 acquisition of
Capstone. Same store growth was
20
<PAGE> 25
attributable to increased infusion therapy of approximately $19.0 million,
increased mail order and other workers' compensation services of approximately
$10.8 million and growth in the core institutional pharmacy business of
approximately $42.2 million, primarily due to marketing and customer retention
initiatives. The Company's revenues from sales to Beverly facilities increased
approximately $17.4 million, or 21.2%, to $99.5 million, or 15.3% of net sales,
in 1997 from $82.1 million, or 15.9% of net sales, in 1996. This increase in
sales was primarily attributable to additional Beverly facilities and its
residents being serviced by newly opened or acquired pharmacies.
Cost of Sales. The Company's cost of sales increased approximately $75.1
million, or 26.7%, to $355.6 million in 1997 from $280.5 million in 1996. As a
percentage of net sales, cost of sales was 54.5% in 1997 as compared to 54.3% in
1996. Cost of sales as a percentage remained stable from 1996 to 1997, primarily
due to increased purchasing efficiencies related to renegotiated vendor
contracts and competitive pricing pressures.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses include wages and related expenses, facility expenses,
and other administrative overhead. Selling, general and administrative expenses
increased approximately $31.5 million, or 17.1%, to $216.1 million in 1997 from
$184.6 million in 1996. Approximately $19.3 million of this increase was
attributable to acquisitions completed during 1997. The remaining increase in
selling, general and administrative expenses was related to the increase in same
store revenues discussed above. As a percentage of net sales, selling, general
and administrative expenses decreased to 33.1% in 1997 from 35.7% in 1996. This
decrease was primarily the result of implementing certain cost reduction
initiatives and spreading the costs across a larger revenue base. Additionally,
selling, general and administrative expenses include $3.2 million and $1.8
million in 1997 and 1996, respectively, related to management fees allocated
from Beverly. These amounts do not necessarily reflect the actual cost the
Company would have incurred on a stand-alone basis.
Depreciation and Amortization. Depreciation and amortization increased
approximately $5.0 million, or 30.6%, to $21.4 million in 1997 from $16.4
million in 1996. Approximately $2.7 million of this increase was related to
acquisitions during such period. The remaining increase was attributable to
investments in medical carts and other equipment as well as leasehold
improvements.
Restructuring Charges. During December 1997, in connection with the
Merger, the Company adopted a plan to restructure its long-term care pharmacy
operations. In connection with this plan, the Company intends to close six
former PCA pharmacies and has recorded restructuring costs of $5.8 million
related to these closures, consisting of $3.6 million of severance covering
approximately 180 pharmacy employees, $739,000 of lease termination costs and
$1.4 million of other costs.
Impairment of Long-Lived Assets. In December 1997, the Company recorded an
impairment loss of approximately $5.2 million related to the planned closure of
certain pharmacies as a result of the Merger. The impairment loss includes the
write-off of various fixed assets, such as leasehold improvements and furniture
and fixtures, which are specific to the pharmacies to be closed. Additionally,
the Company wrote down certain capitalized software costs to their estimated
fair values.
Interest expense. Prior to the Merger, the Company financed its
acquisition and working capital needs through intercompany borrowings from
Beverly. The Company did not incur interest on these intercompany advances.
Subsequent to the Merger, the Company entered into the Bank Credit Facility with
a syndicate of commercial banks. Interest expense of approximately $2.5 million
was incurred under the Bank Credit Facility from the date of the Merger through
December 31, 1997. At year end, the Company had outstanding borrowings of
approximately $424.5 million. Proceeds of these borrowings were used to repay
$275 million of PCA debt in connection with the Merger, refinance Capstone's
existing credit facility, fund acquisitions closed in December 1997 and pay
transaction costs related to the Merger.
Provision for Income Taxes. The Company had an annual effective rate of
41.6% in December 31, 1997, compared to 42.0% in 1996. Management believes that
the Company's tax rate will remain higher than the statutory federal tax rate in
future years due to the non-deductibility of the goodwill recorded on certain
stock acquisitions.
21
<PAGE> 26
Year 2000. The Company has assessed and continues to assess the impact of
the Year 2000 issue on its reporting systems and operations. The Year 2000 issue
exists because many computer systems and applications currently use two-digit
date fields to designate a year such that, as the century date occurs, date
sensitive systems will recognize the year 2000 as 1900 or not at all. This
inability to recognize or properly treat the year 2000 may cause systems to
process critical financial and operational information incorrectly. During 1997,
the Company incurred approximately $250,000 to modify existing computer systems
and applications and estimates that approximately $1.7 million in the aggregate
will be incurred in 1998 and 1999. If the Company's remediation plan is not
successful, there could be a significant disruption of the Company's ability to
transact business with its major customers and suppliers. The Company is not
aware of any Year 2000 problems of any of its significant customers or
suppliers.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO THE YEAR ENDED DECEMBER 31, 1995
Net Sales. The Company's net sales increased approximately $64.7 million,
or 14.3%, to $516.4 million in 1996, from $451.7 million in 1995. This increase
was primarily related to the 1995 acquisition of a mail service pharmacy
business, Pharmacy Management Services, Inc. ("PMSI"), and other acquisitions,
which added approximately $54.1 million to revenues, and, to a lesser extent,
internal growth. On a same store basis, revenues increased approximately $10.6
million, primarily due to increased sales of infusion therapy products and
services. The Company's revenues from sales to Beverly facilities and its
residents decreased approximately $2.3 million, or 1.4%, to $160.7 million, or
31.1% of net sales in 1996 from $163.0 million, or 36.1% of net sales, in 1995.
This decrease was primarily attributable to Beverly's disposition of
approximately 83 nursing facilities in 1996 and 29 nursing facilities in 1995.
Cost of Sales. The Company's cost of sales increased approximately $37.7
million, or 15.5%, to $ 280.5 million in 1996 from $242.8 million in 1995. As a
percentage of net sales, cost of sales was 54.3% in 1996 as compared to 53.7% in
1995, primarily related to the full year impact of the lower margin mail service
business purchased from PMSI.
Selling, General and Administrative Expenses. The Company's total selling,
general and administrative expenses increased approximately $9.0 million, or
5.1%, to $184.6 million in 1996 from $175.6 million in 1995. Approximately $5.2
million of this increase was related to the mid-1995 purchase of PMSI with the
remainder of the increase attributable to increased same store revenues and
severance and relocation expenses associated with the 1996 reorganization and
relocation of the Company's corporate offices.
Depreciation and Amortization. Depreciation and amortization expense
increased approximately $3.2 million, or 24.0%, to $16.4 million in 1996 from
$13.2 million in 1995, primarily related to the amortization of goodwill
associated with the PMSI transaction completed in mid-1995.
Income Taxes. The Company had an annual effective tax rate of 42.0% in
1996, compared to 56.6% in 1995. The annual effective tax rate for 1996 was
higher than the federal statutory rate primarily due to the impact of
non-deductible goodwill associated with the acquisition of PMSI. The annual
effective tax rate in 1995 was higher than the federal statutory rate primarily
due to the impact of non-deductible goodwill included in the adjustments
resulting from the adoption of SFAS No. 121.
IMPACT OF INFLATION
Inflation has not materially affected the Company's profitability,
primarily because price increases have generally been obtained to cover
inflationary drug cost increases.
LIQUIDITY AND CAPITAL RESOURCES
The Company requires capital primarily for acquiring institutional pharmacy
companies, financing working capital requirements and purchasing equipment for
existing pharmacies. The Company anticipates its future capital requirements
will primarily be needed to finance the acquisition of institutional pharmacy
operations.
22
<PAGE> 27
Since January 1, 1998 the Company has completed 8 acquisitions for an
aggregate purchase price of approximately 66.0 million in cash and stock.
In connection with the Merger in December 1997, the Company entered into a
revolving $550.0 million credit facility (the "Bank Credit Facility") with a
syndicate of banks for which The Chase Manhattan Bank ("Chase") acts as
administrative agent. Approximately $113.7 million of the Bank Credit Facility
was used to retire principal amounts outstanding under the Company's prior
credit facility and approximately $275.0 million was used to retire PCA debt
assumed in connection with the Merger. The Bank Credit Facility bears interest,
at the option of the Company, at (a) the greater of Chase's base CD rate,
Chase's prime rate (plus an applicable margin) or the federal funds rate plus an
applicable margin, or (b) the London interbank market rate, plus an applicable
margin based upon the Company's leverage ratio. Availability under the Bank
Credit Facility is subject to the Company's leverage ratio and other provisions
and covenants. The Company used the net proceeds of the Offering to repay
indebtedness under the Bank Credit Facility, which amounts may be subsequently
reborrowed. As of May 12, 1998, the Company had approximately $198 million
outstanding under the Bank Credit Facility. Of the additional $352 million
committed under the Bank Credit Facility, approximately $5 million was available
as of such date. See "Description of Bank Credit Facility."
In December 1997, the Company received approximately $8.9 million from the
exercise of certain warrants and anticipates receiving an additional
approximately $7.0 million from the exercise of outstanding warrants over the
next twelve months.
The Company believes its liquidity and capital resources are adequate to
meet its operating needs for the foreseeable future. In order to implement its
growth strategy, the Company will require substantial capital resources and will
need to incur, from time to time, additional indebtedness. Availability under
the Bank Credit Facility will be used primarily to fund the Company's future
acquisitions of institutional pharmacy operations. Availability of funds under
the Bank Credit Facility is limited by the financial covenants described in
"Description of Bank Credit Facility." In the event the funding requirements in
connection with the potential future acquisitions exceed the funds available
pursuant to the Bank Credit Facility, the Company also may need to issue, in
public or in private transactions, equity or debt securities, the availability
and terms of which will depend on market and other conditions. There can be no
assurance that any such additional financing will be available on terms
acceptable to the Company, if at all. See "Description of Bank Credit Facility"
and "Risk Factors -- Leverage Ratio."
23
<PAGE> 28
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Notes which are properly
tendered on or prior to the Expiration Date and not withdrawn as permitted
below. As used herein, the term "Expiration Date" means 5:00 p.m., New York City
time, on , 1998; provided, however, that if the Company extends
the period of time for which the Exchange Offer is open, the term "Expiration
Date" means the latest time and date to which the Exchange Offer is extended.
This Prospectus, together with the Letter of Transmittal, is first being sent on
or about , 1998 to all holders of Notes known to the Company. The
Company's obligation to accept Notes for exchange pursuant to the Exchange Offer
is subject to certain conditions set forth below. See "-- Certain Conditions to
the Exchange Offer."
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Notes, by giving notice of such
extension to the Holders thereof. During any such extension, all Notes
previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Notes not accepted for exchange for
any reason will be returned without expense to the tendering Holder as promptly
as practicable after the expiration or termination of the Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Notes not accepted for exchange, upon
the occurrence of any of the conditions of the Exchange Offer specified below
under "-- Certain Conditions to the Exchange Offer." The Company will give
notice of any extension, amendment, non-acceptance or termination to the holders
of the Notes as promptly as practicable.
Holders of Notes do not have any appraisal or dissenters' rights under the
Delaware General Corporation Law in connection with the Exchange Offer.
PROCEDURES FOR TENDERING NOTES
The tender to the Company of Notes by a Holder and the acceptance thereof
by the Company will constitute a binding agreement between the tendering Holder
and the Company upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal. Except as set forth
below, a Holder who wishes to tender Notes for exchange pursuant to the Exchange
Offer must transmit a properly completed and duly executed Letter of
Transmittal, and all other documents required by such Letter of Transmittal, to
Harris Trust and Savings at the address set forth below under "-- Exchange
Agent" on or prior to the Expiration Date. In addition, either (i) certificates
for such Notes must be received by the Exchange Agent along with the Letter of
Transmittal, or (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Notes, if such procedure is available, into
the Exchange Agent's account at DTC pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date. THE METHOD OF DELIVERY OF NOTES, LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH
DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED,
WITH RETURN RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE TIMELY DELIVERY. DO NOT SEND LETTERS OF TRANSMITTAL OR NOTES
TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Notes who has
not completed the box entitled "Special Issuance Instruction" or "Special
Delivery Instruction" on the Letter of Transmittal or (ii) for the account of an
Eligible Institution (as defined below). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
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required to be guaranteed, such guarantees must be by a firm that is a member of
a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (collectively, "Eligible
Institutions"). If Notes are registered in the name of a person other than the
party signing the Letter of Transmittal, the Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument or instruments of
transfer or exchange, in satisfactory form as determined by the Company in its
sole discretion, duly executed by, the registered Holder with the signature
thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Notes tendered for exchange will be determined by the
Company in its sole discretion, and its determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Notes not properly tendered or to not accept any particular
Notes where acceptance might, in the judgment of the Company or its counsel, be
unlawful. The Company also reserves the absolute right to waive any defects or
irregularities or conditions of the Exchange Offer as to any particular Notes
either before or after the Expiration Date. The interpretation of the terms and
conditions of the Exchange Offer as to any particular Notes either before or
after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of Notes
for exchange must be cured within such reasonable period of time as the Company
shall determine. Neither the Company, the Exchange Agent nor any other person
shall be under any duty to give notification of any defect or irregularity with
respect to any tender of Notes for exchange, nor shall any of them incur any
liability for failure to give such notification.
If the Letter of Transmittal or any Notes or powers of attorney are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must be
submitted.
By tendering, each Holder of Notes represents to the Company that, among
other things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the Holder and any beneficial
Holder, that neither the Holder nor any such beneficial Holder has an
arrangement or understanding with any person to participate in the distribution
of such New Notes and that neither the Holder nor any such other person is an
"affiliate," as defined under Rule 405 of the Securities Act, of the Company. If
the Holder is not a broker-dealer, the Holder must represent that it is not
engaged in, and does not intend to engage in, a distribution of the New Notes.
ACCEPTANCE OF NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
For each Note accepted for exchange, the Holder of such Note will receive a
New Note having a principal amount equal to that of the surrendered Note. For
purposes of the Exchange Offer, the Company shall be deemed to have accepted
properly tendered Notes for exchange when, as and if the Company has given oral
and written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes in exchange for Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Notes or a timely
Book-Entry Confirmation of such Notes into the Exchange Agent's account at DTC,
a properly completed and duly executed Letter of Transmittal and all other
required documents. If any tendered Notes are not accepted for any reason set
forth in the terms and conditions of the Exchange Offer or if Notes are
submitted for a greater principal amount than the Holder desires to exchange,
such unaccepted or non-exchanged Notes will be returned without expense to the
tendering holder thereof (or, in the case of Notes tendered by book-entry
transfer into the Exchange Agent's account at DTC pursuant to the book-entry
transfer procedures described below, such non-exchanged Notes will be credited
to an account maintained with DTC by or on behalf of such Holder) as promptly as
practicable after the expiration of the Exchange Offer.
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BOOK-ENTRY TRANSFER
Any financial institution that is a participant in DTC's systems may make
book-entry delivery of Notes by causing DTC to transfer such Notes into the
Exchange Agent's account at DTC in accordance with DTC's procedures for
transfer. In addition to book-entry transfer at DTC, the Letter of Transmittal
or facsimile thereof with any required signature guarantees and any other
required documents must be transmitted to and received by the Exchange Agent at
the address set forth below under "-- Exchange Agent" on or prior to the
Expiration Date.
WITHDRAWAL RIGHTS
Tenders of Notes may be withdrawn at any time prior to the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal must be
received by the Exchange Agent at the address set forth below under "-- Exchange
Agent." Any such notice of withdrawal must specify the name of the person having
tendered the Notes to be withdrawn, the Notes to be withdrawn (including the
principal amount of such Notes), and (where certificates for Notes have been
transmitted) the name in which such Notes are registered, if different from that
of the withdrawing holder. If certificates for Notes have been delivered or
otherwise identified to the Exchange Agent then, prior to the release of such
certificates, the withdrawing holder must also submit the serial numbers of the
particular certificates to be withdrawn and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution unless such holder is an
Eligible Institution. If Notes have been tendered pursuant to the procedure for
book-entry transfer described above, any notice of withdrawal must specify the
name and number of the account at the DTC to be credited with the withdrawn
Notes and otherwise comply with the procedures of such facility. All questions
as to the validity, form and eligibility (including time of receipt) of such
notices will be determined by the Company, whose determination shall be final
and binding on all parties. Any Notes so withdrawn will be deemed to be not
validly tendered for exchange for purposes of the Exchange Offer. Any Notes that
have been tendered for exchange but which are not exchanged for any reason will
be returned to the holder thereof without cost to such holder (or, in the case
of Notes tendered by book-entry transfer into the Exchange Agent's account at
DTC pursuant to the book-entry transfer procedures described above, will be
credited to an account maintained with DTC by or on behalf of such Holder) as
soon as practicable after withdrawal, rejection of tender or termination of the
Exchange Offer. Properly withdrawn Notes may be retendered by following one of
the procedures described under "-- Procedures for Tendering Notes" above at any
time on or prior to the Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company is
not required to accept for exchange, or to issue New Notes in exchange for, any
Notes and may terminate or amend the Exchange Offer if at any time before the
acceptance or the exchange, the Company determines that the Exchange Offer
violates applicable law or any applicable interpretation of the staff of the
Commission. These conditions are for the sole benefit of the Company and may be
asserted or waived by the Company in whole or in part at any time and from time
to time in its sole discretion. The failure by the Company at any time to
exercise any of its rights will not be deemed a waiver of such right and each
such right shall be deemed an ongoing right that may be asserted at any time and
from time to time.
In addition, the Company will not accept for exchange any Notes tendered,
and no New Notes will be issued in exchange for any such Notes, if at such time
any stop order shall be threatened or in effect with respect to the Registration
Statement of which this Prospectus is a part or the qualification of the
Indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). In any such event the Company is required to use every
reasonable effort to obtain the withdrawal of any stop order at the earliest
possible time.
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EXCHANGE AGENT
Harris Trust and Savings has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at the address set forth below. Questions and requests for
assistance, requests for additional copies of this Prospectus or of the Letter
of Transmittal and requests for Notices of Guaranteed Delivery should be
directed to the Exchange Agent addressed as follows:
BY MAIL, OVERNIGHT COURIER OR HAND:
Harris Trust and Savings Bank
311 West Monroe Street
12th Floor
Chicago, Illinois 60606
Attn: Indenture Trust Administration
BY FACSIMILE (for Eligible Institutions only):
(312) 461-3525
CONFIRM BY TELEPHONE (for Eligible Institutions only):
(312) 461-2908
Delivery other than as set forth above will not constitute a valid
delivery.
FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company will solicit offers to
exchange by mail and additional solicitations may be made in person or by
telephone by officers and employees of the Company. The expenses to be incurred
in connection with the Exchange Offer will be paid by the Company.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Notes,
which is the principal amount as reflected in the Company's accounting records
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The debt issuance costs will be capitalized for
accounting purposes.
TRANSFER TAXES
Holders who tender their Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that Holders who instruct the
Company to register New Notes in the name of, or request that Notes not tendered
or not accepted in the Exchange Offer be returned to, a person other than the
registered tendering Holder will be responsible for the payment of any
applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Notes who do not exchange their Notes for New Notes pursuant to
the Exchange Offer will continue to be subject to the restrictions on transfer
of such Notes as set forth in the legend thereon as a consequence of the
issuance of the Notes pursuant to the exemptions from, or in transactions not
subject to, the registration requirements of, the Securities Act and applicable
state securities laws. Notes not exchanged pursuant to the Exchange Offer will
continue to accrue interest at 8 3/8% per annum and will otherwise remain
outstanding in accordance with their terms. In general, the Notes may not be
offered or sold unless registered under the Securities Act, except pursuant to
an exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not intend to register the
Notes under the Securities Act. However, the Company may be obligated to file
with the Commission a shelf registration
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statement to cover resales of the Notes or Transfer Restricted Securities by the
Holders thereof who satisfy certain conditions relating to the provision of
information in connection with the shelf registration statement. For purposes of
the foregoing, "Transfer Restricted Securities" means each Note until the
earlier of (i) the date on which such Note has been exchanged by a person other
than a broker-dealer for a New Note in the Exchange Offer, (ii) following the
exchange by a broker-dealer in the Exchange Offer of a Note for a New Note, the
date on which such New Note is sold to a purchaser who receives from such
broker-dealer on or prior to the date of such sale a copy of this Prospectus,
(iii) the date on which such Note has been effectively registered under the
Securities Act and disposed of in accordance with such registration statement or
(iv) the date on which such Note is distributed to the public pursuant to Rule
144 under the Act.
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company is of the view that New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than (i) any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (ii) any broker-dealer that purchases Notes from the Company
to resell pursuant to Rule 144A or any other available exemption) without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such holders' business and such holders have no arrangement or understanding
with any person to participate in the distribution of such New Notes. If any
holder has any arrangement or understanding with respect to the distribution of
the New Notes to be acquired pursuant to the Exchange Offer, such holder (i)
could not rely on the applicable interpretations of the staff of the Commission
and (ii) must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction. A
broker-dealer who holds Notes that were acquired for its own account as a result
of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of New Notes. Each such broker-dealer that receives
New Notes for its own account in exchange for Notes, where such Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge in the Letter of Transmittal that it will
deliver a prospectus in connection with any resale of such New Notes. See "Plan
of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, subject to certain limitations, to register or qualify the New Notes for
offer or sale under the securities laws of such jurisdictions as any holder of
the Notes reasonably requests in writing.
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BUSINESS
GENERAL
PharMerica is a leading provider of institutional pharmacy services to the
elderly, chronically ill and disabled in long-term care and alternate site
settings, including skilled nursing facilities, assisted living facilities,
specialty hospitals and the home. The Company is also a leading provider of mail
order pharmacy benefit services to the workers' compensation and catastrophic
care markets. As of March 31, 1998, PharMerica provided pharmacy services to
approximately 345,000 long-term care residents in 36 states and to over
[106,000] workers' compensation claimants nationwide. For the year ended
December 31, 1997, the Company generated, on a pro forma basis, net sales of
approximately $1.0 billion and EBITDA of approximately $126.2 million.
PharMerica is the largest institutional pharmacy provider in four of the
five states with the highest population of elderly people, and its network of
120 institutional pharmacies covers a geographic area that includes over 80% of
the nation's long-term care beds. The Company operates six large scale "mega-
pharmacies", each serving over 10,000 beds, and many of its pharmacies are open
24 hours, 7 days a week. The Company intends to create five additional
mega-pharmacies in 1998 in connection with pharmacy consolidations resulting
from the Merger. As a result of its national scope, the Company has been able to
enter into preferred provider agreements with regional and national long-term
care providers, the most significant of which are Beverly and IHS. The Company
provides services to approximately 58,000 Beverly long-term care beds and 17,000
IHS long-term care beds.
The Company purchases, repackages and dispenses pharmaceuticals and
provides its clients' long-term facilities with related management services,
regulatory assistance and third-party billing. The Company also provides
specialty services including infusion therapy, clinical consulting and
comprehensive catastrophic care. In addition, PharMerica has developed
specialized information technology and clinical initiatives to offer its clients
additional value-added services such as computerized medical record keeping,
on-line formulary, drug therapy evaluation and disease state management, which
the Company believes will position it to successfully compete in managed care
and prospective payment systems.
RECENT DEVELOPMENTS
PharMerica was formed as a result of a merger involving PCA, a subsidiary
of Beverly, and Capstone. In connection with the Merger, Beverly entered into a
preferred provider agreement that gives PharMerica, subject to certain
conditions, including quality of services and competitive pricing, the right to
service Beverly's long-term care beds, including any subsequently added beds,
for a five-year period with a five-year renewal period at the Company's option.
In addition, Beverly agreed not to compete in the institutional pharmacy
industry for five years.
The Company believes that, when fully realized, the synergies from the
Merger will be approximately $25 million annually. This includes savings
primarily from: the consolidation of 19 institutional pharmacies, seven of which
have already occurred, more favorable pricing terms in the Company's new primary
purchasing contracts and corporate and regional overhead reductions. It also
includes additional income generated through expanded market coverage of
available beds under the Company's existing preferred provider agreements with
regional and national long-term care providers. The Company expects to realize
approximately $16 million of these synergies in 1998 and the full $25 million in
anticipated annual synergies (including approximately $2 million of additional
income as described above) beginning in 1999.
INDUSTRY OVERVIEW
Industry analysts estimate that the United States pharmacy industry's total
annual revenues for 1997 for the markets served by the Company exceeded $16
billion. These revenues were comprised of sales of approximately $7 billion to
individuals that live at home, $5 billion to residents of long-term care
facilities, $2.7 billion to residents of assisted living and retirement
communities and $2 billion to patients in rehabilitation and other specialty
hospitals. Institutional pharmacy companies such as PharMerica have
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traditionally focused on servicing the $5 billion long-term care facility
segment of the industry, which industry analysts estimate is growing by
approximately 10% annually. The Company also believes that changes in the
institutional pharmacy industry are providing large institutional pharmacies
with the opportunity to serve elderly, chronically ill and disabled patients in
settings across the healthcare continuum. These changes include: (i) an increase
in the acuity level and number of residents in assisted living facilities; (ii)
increased operating and cost efficiencies, regulatory expertise and national
market presence of large institutional providers; and (iii) an increase in
outsourcing of pharmacy services by specialty hospitals.
Institutional Pharmacy. Institutional pharmacies purchase both
prescription and nonprescription pharmaceuticals and other medical supplies from
wholesale distributors and manufacturers, and repackage and distribute these
products to residents in nursing homes, assisted living facilities, retirement
centers and other institutional settings. Institutional pharmacies generally
provide consultant pharmacist services that include, among other things,
individual patient drug therapy evaluation and the monitoring of the control,
administration and storage of prescribed medications within the institution to
ensure compliance with state and federal regulations. Unlike hospitals, most
long-term care institutions do not have an on-site pharmacy to dispense
prescription drugs; institutional pharmacies accordingly play an integral role
in long-term care by providing a high quality, cost-effective means of
dispensing and monitoring patient medication. In addition, institutional
pharmacies often provide further support services such as infusion therapy,
Medicare Part B services and consultant pharmacist services as a part of
administering daily care in high acuity settings.
The provision of pharmacy services to long-term care residents is
fragmented, with independent institutional pharmacy companies serving, on a
revenue basis, approximately 59% of long-term care facilities, retail pharmacies
serving approximately 19% of long-term care facilities, and institutional
pharmacies owned by long-term care companies (commonly referred to as "captive
pharmacies") serving the remaining 22% of such facilities. Over the past five
years, the proportion of sales by independent institutional pharmacies has
increased. The Company believes that institutional pharmacy companies are better
positioned to serve the changing market demands than local retail pharmacies and
that the proportion of the long-term care pharmacy market served by retail
pharmacies should continue to decline. The Company also believes that
consolidation of the market will accelerate as some long-term care companies
divest themselves of captive pharmacies and owners of smaller institutional
pharmacies are encouraged to sell their business because of various competitive
factors, including: (i) the advantages of economies of scale in pharmaceutical
purchasing; (ii) the benefits of national market presence in competing for
managed care contracts and preferred provider agreements with multi-site
facilities; (iii) the efficiencies created by being able to provide a broad
range of services; and (iv) the demands created by the need for specialized
regulatory expertise and complex information systems.
Workers' Compensation. The workers' compensation market is driven by
workers' compensation laws that require employers to provide medical disability
benefits to employees who suffer job-related injuries and disabilities.
Employers provide these benefits through self-insurance, participation in state
run funds or purchase of insurance. Workers' compensation claimants generally
have not been served as part of the institutional pharmacy industry, relying,
instead, primarily upon local retail pharmacy outlets. This is because state
laws generally provide workers' compensation claimants with freedom of choice in
selecting healthcare providers. The Company believes that this segment of the
pharmacy industry, while currently highly fragmented, is likely to consolidate
as the benefit providers increasingly seek to control costs, reduce expenses and
standardize services related to claimants.
GROWTH STRATEGY
The Company intends to continue to increase its sales and improve its
profitability by capitalizing on its position as a leading provider of pharmacy
services. Key elements of the Company's growth strategy are to:
GROW THROUGH STRATEGIC ACQUISITIONS. The acquisition of high-quality
institutional pharmacy companies in targeted markets has been the primary
contributor to the Company's growth. The Company seeks to acquire independent
and captive institutional pharmacy providers that: (i) expand its service area
into regions that have either high concentrations of elderly people or include
beds operated by parties to the Company's
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preferred provider agreements; (ii) increase market share in currently served
markets; or (iii) provide services or products complementary to those currently
offered by the Company. Since January 1, 1996, in addition to consummating the
Merger, the Company has completed over 20 acquisitions, which at the time of
acquisition were generating combined annualized revenues of over $300 million.
PURSUE INTERNAL GROWTH OPPORTUNITIES. The Company intends to increase
revenues and profitability from existing operations by: (i) increasing its
market share within its currently served markets; (ii) cross-selling specialty
services such as infusion therapy to its existing customer base, particularly
the long-term care facilities served by the Capstone-related pharmacies which
historically have had lower infusion therapy use rates than those of PCA; (iii)
entering into additional preferred provider agreements with regional and
national long-term care and alternate site providers; and (iv) capitalizing on
the Company's national presence, lower costs and value-added clinical and
information services to contract with managed care and other third-party payors
to provide institutional and mail-order pharmacy services to their customers. On
a pro forma basis, the Company added over 25,000 long-term care beds through
internal growth in 1997 and achieved revenue growth of over 15% from existing
operations.
EXPAND INTO ADDITIONAL HEALTHCARE SETTINGS. The Company seeks to serve
elderly, chronically ill and disabled patients in settings such as assisted
living and retirement communities, specialty hospitals and the home, all of
which are outside of the traditional long-term care setting in which
institutional pharmacies historically have operated. The Company has introduced
several proprietary programs designed to attract new customers in a wide variety
of settings, including PharmaCare Complete, which offers comprehensive
healthcare products and services to its homebound catastrophic care customers,
and WellCare, which offers monitoring, training and information services to
providers of assisted living services. In addition, the Company seeks to
increase sales of pharmacy services to elderly residents in the home setting
through marketing efforts directed towards case managers of managed care
providers and other payor sources as well as discharge planners of sub-acute
hospitals and long-term care facilities.
ENHANCE OPERATING MARGINS BY LEVERAGING ECONOMIES OF SCALE. PharMerica
intends to achieve significant benefits from the increased scale and scope of
its operations in areas such as purchasing, overhead and pharmacy operations.
The Company's increased purchasing volumes, resulting primarily from the Merger,
have enabled it to achieve more favorable pricing terms with its suppliers,
which is particularly significant since the costs of drugs and other products
account for more than 50% of the Company's costs. Since the Merger, the Company
has renegotiated and reduced the pricing terms of its contracts with its primary
pharmaceutical wholesaler and 16 other drug manufacturers and distributors. The
Company also believes that its network of 120 institutional pharmacies, which
covers a geographic area that includes over 80% of the nation's long-term care
beds, provides it with the opportunity to achieve significant cost savings
through the acquisition, integration and consolidation of existing pharmacies.
Since the Merger, the Company has identified 19 pharmacies that the Company
intends to consolidate during 1998, 11 of which have already occurred. In
geographic areas in which it has a high customer concentration, the Company's
strategy is to consolidate several of its smaller pharmacies into a single
"mega-pharmacy" serving over 10,000 beds. The size of these mega-pharmacies
allows the Company to reduce overhead per bed, use advanced distribution
technology that increases efficiency and accuracy of services and make greater
investments in clinical and information systems.
UTILIZE CLINICAL AND INFORMATION CAPABILITIES TO PROVIDE VALUE-ADDED
SERVICES. The Company is developing information technology and clinical
initiatives that it believes are valuable to long-term care providers, third
party payors and managed care providers. The Company believes that these
capabilities will become increasingly important to its customers and partners
and will help position the Company as a leading provider of comprehensive
pharmacy solutions as the industry moves toward managed care and other
prospective pay systems and customers increasingly demand advanced clinical
programs and information management to help improve patient outcomes and control
costs. These efforts have resulted in the creation of the Company's centralized
database, DataMart, which currently contains over 50 million transaction
records. As an additional component of its information systems the Company has
developed a clinical software package called Consultware, which includes an
on-line formulary, for use by its consulting pharmacists.
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SERVICES
Long-Term Care Services. PharMerica's long-term care services consist of :
(i) providing pharmacy services in the long-term care setting; (ii) specialty
services including infusion therapy services and Medicare Part B benefits; and
(iii) pharmacy consulting services. For the year ended December 31, 1997, on a
pro forma basis, long-term care pharmacy services represented approximately
84.5% of PharMerica's revenues.
Pharmacy Services. PharMerica's core business consists of providing a full
range of institutional pharmacy services to the elderly, chronically ill and
disabled in long-term care and alternate care settings, including long-term care
facilities, assisted living facilities, specialty hospitals and the home.
PharMerica purchases pharmaceuticals in bulk quantities from wholesalers and
manufacturers and dispenses both prescription and non-prescription drugs in
patient-specific packaging in accordance with physician orders. Prescription and
non-prescription medications are delivered at least daily to long-term care
facilities for administration to residents by the nursing staffs of such
facilities. PharMerica's pharmacists package drugs to meet each patient's needs
for either single-day or multi-day dosage requirements. PharMerica can customize
the timing and packaging of its delivery system to meet specific client needs.
PharMerica uses an order processing system that enables its long-term care
clients to order pharmaceuticals using either a pre-printed label or monthly
order forms. While clients generally require delivery of routine orders within
24 hours, many of PharMerica's pharmacies are open 24 hours, seven days a week
to provide emergency services as needed. Once a physician's order is received by
PharMerica, it is entered into a pharmacy computer system where information is
screened for drug and food interactions, allergies and refill limitations. Upon
entry, the prescription becomes part of the permanent patient record, and a
label is printed for application to the packaging. The package label contains
specific patient information as well as physician name, medication, dosage
information and cautionary messages. Prior to delivery, the completed
prescription is reviewed by one of PharMerica's pharmacists and verified against
the original order entry data. Following this final quality assurance check, the
prescription is delivered by courier service to the facility.
Specialty Services. With cost-containment pressures in healthcare forcing
providers and payors to seek the most efficient setting for care, long-term care
facilities are more often providing higher acuity care more cost effectively
than hospitals. PharMerica provides long-term care facilities with specialty
services and products, including infusion therapy services and services
reimbursed under Medicare Part B.
The Company's infusion therapy services consists of the intravenous
delivery or administration by tube, catheter or IV, of medication or
introduction of parenteral and enteral nutritional formulas, including nutrients
and other fluids, to patients. The Company also offers infusion services under
its "IV Express" program which provides nationwide, next-day delivery service
for facilities that fall outside PharMerica's traditional service area. Patients
can receive infusion therapies at home or in a long-term or other subacute care
facility at a cost which is substantially less than hospital-based care. The
trend toward delivery of healthcare in the lowest cost setting and the
increasing ability to treat certain illnesses outside of hospitals or other
acute care settings represents an opportunity for long-term care facilities to
attract infusion therapy patients. The Company prepares the product to be
administered, delivers the product to the patient setting and trains nursing
facility personnel in administering infusion therapy, but it does not administer
the therapy except in limited circumstances. The Company offers a full range of
premixed, ready-to-handle solutions, and related products, supplies and
equipment, as well as a policy and procedure manual detailing appropriate
intravenous practices and clinical pharmacist support. These infusion therapies
include enteral nutrition therapy, parenteral nutrition therapy, antibiotic
infusion therapy and chemotherapy, AIDS therapy, pain management and hydration
therapy. PharMerica has established an infusion therapy distribution network
which allows next-day delivery and eliminates the need for customer product
storage. Because the proper administration of infusion products requires a
trained and experienced pharmacist and nursing staff and because the level of
such training varies among nursing facilities, the Company has developed a
multi-tiered education and training program. The program ranges from basic
education and information for trained facility nurses to the complete range of
skilled nursing services training made available to customers through hands-on
clinical support, including patient assessment, advanced IV line placement and
dose administration.
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As a part of its specialty services, PharMerica also provides services and
products reimbursed under Medicare Part B. Medicare Part B provides benefits
covering, among other things, outpatient treatment, physicians' services,
durable medical equipment, orthotics, prosthetic devices and medical supplies.
Products and services covered for Medicare Part B eligible residents in the
long-term care facility include but are not limited to, enteral feeding
products, ostomy supplies, urological products, orthotics, prosthetics, surgical
dressings and tracheostomy care supplies. These products and services are
submitted to and paid by four regional carriers which establish coverage
guidelines, allowable utilization frequencies and billing procedures for such
products. PharMerica, as an eligible supplier, either bills Medicare directly
for Part B covered products or, alternatively, assists the long-term care
facility in meeting Medicare Part B eligibility requirements and prepares bills
on behalf of the facility.
Pharmacy Consulting Services. State and local regulations mandate that
long-term care facilities, in addition to providing a source of pharmaceuticals,
retain consultant pharmacist services to monitor and report on prescription drug
therapies in order to maintain and improve the quality of patient care.
PharMerica provides value-added consulting services that help clients comply
with federal and state regulations, manage medication costs and maximize the
therapeutic efficacy of drug regimens. These pharmacy consulting services
include: (i) regular review of each patient's medical record and drug regimen;
(ii) recommendation of therapeutic alternatives, where appropriate; (iii)
monthly evaluation of facility-wide drug usage and drug costs; (iv) maintenance
of drug administration records that assist the long-term care facility with
regulatory compliance; (v) participating on certain key committees of client
facilities as well as periodic involvement in staff meetings; (vi) monthly
inspection of facility's medication carts and drug storage rooms; and (vii)
providing training programs.
PharMerica's consultant pharmacists also employ formulary management
techniques designed to assist physicians in making the best cost-effective
clinical choice of drug therapy for residents. Using PharMerica's proprietary
formulary program, introduced in 1995 and published annually in conjunction with
the American Medical Directors Association and the University of Arizona School
of Pharmacy, PharMerica pharmacists assist prescribing physicians in designating
the use of particular drugs from among therapeutic alternatives (including
generic substitutions) and in the use of more cost-effective delivery systems
and dose forms. The PharMerica formulary takes into account such factors as
pharmacology, safety and toxicity, efficacy, drug administration, quality of
life and other considerations specific to the elderly population of long-term
care facilities. PharMerica's formulary guidelines also provide relative
pharmaceutical cost information to residents, their insurers or other payors.
Adherence to the PharMerica formulary guidelines is intended to improve drug
therapy results, lower costs for residents and strengthen PharMerica's
purchasing power with drug manufacturers.
PharMerica's proprietary Consultware program is customized for pharmacy
consulting practices and is designed to help consultant pharmacists efficiently
generate communications to nursing facility professionals, produce professional
and informative quality assurance reports, monitor responses to their
recommendations, such as therapeutic interchange requests, and help document the
clinical and economic value of their services.
Mail Order Services. PharMerica provides a broad array of mail order
pharmacy products and services, including prescription and non-prescription
pharmaceuticals, medical supplies and medical equipment, primarily to workers'
compensation claimants and correctional facilities nationwide. The Company also
provides mail order pharmacy services to catastrophically ill or injured
claimants requiring long-term pharmacy services. For the year ended December 31,
1997, on a pro forma basis, mail order services represented approximately 14.2%
of PharMerica's revenues.
Workers' Compensation. The Company's workers' compensation services
include: home delivery of prescription drugs and medical supplies and medical
equipment to injured workers who are receiving workers' compensation benefits;
an array of computer software solutions to reduce a payor's administrative
costs; and an on-line retail prescription drug card service that enables injured
workers to obtain prescription drugs at no direct cost to the claimant from a
network of over 30,000 participating retail pharmacies throughout the country.
PharMerica provides mail order services to approximately 106,000 workers'
compensation claimants nationwide.
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PharMerica works directly with workers' compensation payors to provide
their claims representatives with the appropriate training and on-site
assistance to identify potential claimants who would benefit from PharMerica's
services. After identifying these claimants, PharMerica coordinates with the
claims representative, the claimant's treating physician and rehabilitation
nurse to determine the prescription drugs, medical supplies and medical
equipment that are required for the care and treatment of the claimant's injury
and the requisite schedule for supplying those items.
Correctional Facilities. The Company also provides pharmacy services to
approximately 135,000 inmates, making it the largest provider of pharmacy
services to correctional institutions in the United States. The Company enters
into capitated and other contracts with state agencies or general medical
contractors to whom the provision of healthcare services to correctional
institutions has been outsourced. The Company services all of its correctional
institution contracts from a central distribution facility in Baltimore,
Maryland.
Catastrophic Care. The Company also provides comprehensive catastrophic
care as a part of its specialty services. PharMerica has introduced a
proprietary program, PharmaCare Complete, to provide a comprehensive package of
healthcare products and services to its homebound catastrophic care customers
who generally have significant and continuing needs for pharmaceutical services
and healthcare products. At December 31, 1997, the Company provided these
products and services to approximately 3,000 customers.
Specialty Hospitals. The Company also provides pharmacy services to
specialty and rural hospitals. For the year ended December 31, 1997, on a pro
forma basis, these services represented approximately 1.3% of PharMerica's
revenues.
OPERATIONS
Organization. PharMerica's long-term care operations are divided into four
geographic regions, each headed by a regional senior vice president. The Company
believes this regional organizational structure provides the flexibility to
accommodate continued growth while providing standardized regional care.
PharMerica believes that the institutional pharmacy business is dependent in
large part on personal service and encourages its pharmacists to develop
personal relationships and to be responsive to local market demands. PharMerica
uses more centralized financial and inventory control systems support than
typically available to small, independent pharmacy operators. Additional
services performed at the corporate level include quality improvement oversight,
financial and accounting functions, clinical program development, group
purchasing, marketing, acquisitions and corporate development activities. Where
possible, the Company establishes mega-pharmacies serving over 10,000 beds.
These mega-pharmacies allow the Company to lower overhead per bed, to use
advanced distribution technology that increases efficiency and accuracy of
services and to make greater investments in clinical and information systems
that PharMerica expects will further enhance the operating margins of these
pharmacies. The Company currently operates six mega-pharmacies and intends to
create five additional mega-pharmacies in 1998.
Pharmacy Distribution Model. In the institutional pharmacy business,
PharMerica typically provides services through regional pharmacies that have the
capability to serve long-term care facilities within a 150-mile radius. These
regional pharmacies are generally open 24 hours, seven days a week and are
staffed with clinical pharmacists, registered nurses and pharmacy technicians.
PharMerica ships products to workers' compensation claimants from two
distribution facilities in Tampa, Florida. In the correctional business,
PharMerica dispenses pharmaceuticals primarily from a centralized mail service
pharmacy operation located in Baltimore, Maryland.
Marketing and Sales. PharMerica's pharmacy services marketing efforts are
directed at long-term care facility operators. While pricing is an important
factor in the selection of pharmacy providers, PharMerica's experience is that
the primary factor, particularly among long-term care operators, is the quality
and range of services offered. Consequently, PharMerica strives to provide
high-quality services that are tailored to each client's needs. Once a
relationship is established, PharMerica then attempts to expand the range of
services it provides. PharMerica's marketing efforts are conducted by regional
vice presidents with support from local pharmacy managers and regional
salespersons. PharMerica's 300 consultant pharmacists and 100 nurse
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consultants also are integral to the marketing effort because of their daily
contact with the facility managers and the residents in those facilities.
The Company's mail order services marketing and sales efforts are directed
to workers' compensation insurance adjusters and managers at regional and local
insurance offices throughout the country. Referrals of claimants meeting certain
injury profiles are forwarded to the Company's internal salesforce of
approximately 40 individuals who contact claimants to explain the benefits of
using the Company's services. For claimants electing to use the Company's
programs, Company representatives then obtain the necessary information
regarding the patients' medications and supplies and put the claimant on
service.
Suppliers. PharMerica purchases substantially all of its pharmaceutical
inventories from wholesalers and manufacturers. Since the Merger, PharMerica
negotiated a new primary wholesaler agreement with Bergen Brunswig and 16 other
agreements with drug manufacturers and other suppliers with terms that are more
favorable to PharMerica than its previous contracts. PharMerica also has in
place secondary wholesaler agreements to minimize its purchasing channels while
maximizing inventory quality and cost savings. Although Capstone and PCA
purchased approximately 94% of pharmaceutical supplies from McKesson and Bergen
Brunswig in 1997, because of readily available alternatives, PharMerica does not
believe it is dependent on any one supplier.
Customers. The primary customers of PharMerica are long-term care
facilities, workers' compensation payors, correctional facilities, and specialty
hospitals. Sales to Beverly and its residents accounted for approximately 16.0%
of revenues for the year ended December 31, 1997 on a pro forma basis. Other
than Beverly, no customer represented more than 10% of PharMerica's revenue on a
pro forma basis.
Preferred Provider Agreements. The Company has preferred provider
agreements with eight national and regional long-term care operators, including
Beverly and IHS. These agreements give PharMerica the right to provide pharmacy
services to the operator's facilities subject to certain conditions, including
conditions related to competitive pricing and quality service. The agreements
also generally give the Company the right, subject to competitive pricing and
services and freedom of choice laws, to service beds in facilities subsequently
acquired by the long-term care company or in facilities that subsequently become
serviceable by the Company when pharmacies are opened or acquired by the
Company. As a result of the Merger, the Company is seeking expanded market
coverage under existing preferred provider agreements through servicing of
additional beds in areas in which Capstone or PCA, as the case may be, did not
have institutional pharmacy capabilities.
Upon the closing of the Merger, Beverly and the Company entered into a
Preferred Provider Agreement for Pharmaceutical and Related Services (the
"Beverly PPA") that gives PharMerica the right, for a five-year term, with a
five-year renewal right upon meeting certain competitive pricing criteria, to
provide certain pharmacy and related products and services in Beverly long-term
care facilities where PCA had previously provided such services. Beverly is
required under certain conditions to cause additional long-term care facilities
now or hereafter operated by Beverly to enter into similar provider agreements
for such services for up to a five-year term, with similar renewal rights.
Under the Beverly PPA, if Beverly sells or otherwise disposes of any
long-term care facility under contract with the Company to a third party,
Beverly will be obligated to cause the third party to assume Beverly's
obligation to obtain the services at that facility from the Company. A default
by either party with respect to its obligations under provider agreements
covering 10% of the total number of long-term facilities at the time under
contract with the Company will constitute a default under the Beverly PPA,
entitling the non-defaulting party to, among other remedies, terminate the
entire relationship. See "Risk Factors -- Dependence on Key Customers."
JCAHO Accreditation. As one component of its commitment to quality
assurance, PharMerica is pursuing accreditation of its pharmacies by JCAHO, a
professional, nonprofit organization dedicated to improving the quality of care
in healthcare facilities. To receive JCAHO accreditation, pharmacies must be in
compliance with JCAHO's requirements, which focus primarily on quality control.
As of May 1, 1998, [46] of the Company's pharmacies had received accreditation.
The Company intends to pursue JCAHO accreditation
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for all of its long-term care pharmacies. JCAHO accreditation, while not
mandated for pharmacies, is increasingly important to managed care organizations
and Medicaid programs and is also important for entering into preferred provider
arrangements with national and regional providers looking for consistent
quality. The Company believes that its pursuit of accreditation from JCAHO will
help it provide quality services and will assist it in competing on a nationwide
basis.
COMPETITION
The institutional pharmacy market is fragmented and competition varies
significantly from market to market. PharMerica's competitors include small
retail pharmacies, large chains of retail pharmacies, in-house captive
pharmacies and national institutional pharmacies. The Company believes that the
competitive factors most important in PharMerica's lines of business are quality
and range of service offered, competitive prices, reputation with referral
sources, ease of doing business with the provider, and the ability to develop
and maintain relationships with referral sources. Some of PharMerica's present
and potential competitors, including retail pharmacies, captive pharmacies and
pharmaceutical distributors, are significantly larger than PharMerica and have,
or may obtain, greater financial and marketing resources than PharMerica. In
addition, there are relatively few barriers to entry in the local markets served
by PharMerica, and it may encounter substantial competition from local market
entrants. In acquiring institutional pharmacy providers, the Company competes
with several other companies with similar acquisition strategies, some of which
may have greater resources than the Company. See "Risk Factors -- Competition."
TECHNOLOGY AND INFORMATION SYSTEMS
The Company believes that certain technologies and management informations
systems will result in improved pharmacy performance and will allow the
Company's pharmacies to provide value-added services and clinical initiatives
that it believes are valuable to long-term care providers, third party payors
and managed care providers. These initiatives have resulted in the creation of
the Company's centralized database, DataMart, which currently contains over 50
million transaction records. DataMart allows the Company to sort and search data
by, among other things, diagnosis code, pharmaceutical product, facility and
doctor. DataMart also allows the Company to generate customer specific reports
and offers new services, including disease state management and drug
interaction. These new services allow the Company to assist its clients in
assessing patient risks, predict therapeutic outcomes and manage costs for a
particular disease state. The information accessible through DataMart positions
the Company to compete in managed care and risk sharing environments.
PharMerica has also implemented Consultware, a proprietary drug regimen
review system. Consultware assists the consultant pharmacists in producing high
quality, concise and updated drug therapy recommendations to physicians and
nurses, enables the consultant to track provider's responses to recommendations,
generates quality assurance reports for the customer on drug usage, and
generates internal reports for Company management on the consultant's
performance. Consultware is linked to and usable with other consultant
pharmacist software tools such as disease management protocols, pharmacokinetic
dosing formulas, data collection forms for drug usage evaluation projects and
reports to facilities and payors on reductions in drug costs. This positions the
Company to provide its facilities and their medical professionals critical
therapeutic alternatives to provide more effective and cost-efficient
treatments.
Approximately 50% of the Company's pharmacies are connected by a wide area
network, which the Company intends to expand to its remaining pharmacies during
1998. The wide area network facilitates corporate-wide communications and allows
for more timely transfer of information to the DataMart.
REIMBURSEMENT AND BILLING
For the year ended December 31, 1997, the Company's payor mix, on a revenue
basis, was approximately 37.3% directly from long-term care facilities that
receive reimbursement from private residents and under Medicare Part A), 31.8%
Medicaid, 26.0% private pay and third party insurance and 4.9% Medicare Part B.
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Medicare and Medicaid are highly regulated. The failure of PharMerica to comply
with applicable reimbursement regulations could adversely affect the Company's
business.
Medicare/Long-Term Care Facilities. The Medicare program is a federally
funded and administered health insurance program for individuals age 65 and over
or for certain individuals who are disabled. The Medicare program consists of
two parts: Medicare Part A, which covers, among other things, inpatient
hospital, skilled long-term care facility, home healthcare and certain other
types of healthcare services; and Medicare Part B, which covers physicians'
services, outpatient services and certain items and services provided by medical
suppliers. Medicare Part B also covers a limited number of specifically
designated prescription drugs such as enteral nutrition and urologic supplies.
Medicare intermediaries for Medicare Part A require long-term care facilities to
submit all of their costs for patient care, including pharmaceutical costs, in a
unified bill. Thus, fees for pharmaceuticals provided to Medicare Part A
residents are paid to the Company by the long-term care facility on a monthly
basis. Pricing is consistent with that of private pay residents or is set
between private pay rates and Medicaid minimums. Medicare Part A has
cost-sharing arrangements under which beneficiaries must pay a portion of their
costs. These non-covered co-payments are billed by the facility directly to
residents or the state Medicaid plan, as the case may be.
Medicaid. The Medicaid program is a federal-state program designed to
enable states to provide medical assistance to aged, blind or disabled
individuals, or to member of families with dependent children whose income and
resources are insufficient to meet the costs of necessary medical services.
State participation in the Medicaid program is voluntary. To become eligible to
receive federal funds, a state must submit a Medicaid "state plan" to the
Secretary of Health and Human Services for approval. The federal Medicaid
statute specifies a variety of requirements which the state plan must meet,
including requirements relating to eligibility, coverage of services, payment
and administration. For residents eligible for Medicaid, the Company bills the
individual state Medicaid program. Medicaid programs are funded jointly by the
federal government and individual states and are administered by the states. The
reimbursement rates for pharmacy services under Medicaid are determined on a
state-by-state basis subject to review by the Health Care Financing
Administration and applicable federal law. Federal regulations and the
regulations of certain states establish "upper limits" for reimbursement for
prescription drugs under Medicaid. In most states, pharmacy services are priced
at the lower of "usual and customary" charges or cost (which generally is
defined as a function of average wholesale price and may include a profit
percentage) plus a dispensing fee. In addition, most states establish a fixed
dispensing fee which is adjusted to reflect associated costs on an annual or
less frequent basis. Certain states including Georgia, Maine, Michigan and
Nebraska, have "lowest charge legislation" or "most favored nation provisions"
which require the Company to charge Medicaid no more than its lowest charge to
other consumers in the state.
State Medicaid programs generally have long-established programs for
reimbursement which have been revised and refined over time and have not had a
material adverse effect on the pricing policies or receivables collection for
long-term care facility pharmacy services. Any future changes in such
reimbursement programs or in regulations relating thereto, such as reductions in
the allowable reimbursement levels or the timing of processing of payments,
could adversely affect the Company's business. As managed care organizations
continue to demand lower prices, revenues from Medicaid patients in states with
"lowest charge legislation" may be adversely effected. The annual increase in
the federal share would vary from state to state based on a variety of factors.
Such changes, if ultimately signed into law, could adversely affect the
Company's business.
Private Pay/Third Party Insurance. For those residents who are not covered
by government-sponsored programs or private insurance, PharMerica generally
bills the patient or the patient's insuror or other responsible party on a
monthly basis. Depending upon local market practices, PharMerica may alternately
bill private residents through the long-term care facility. Pricing for private
pay residents is based on prevailing regional market rates or "usual and
customary" charges. Third-party insurance includes funding for residents covered
by private plans, veterans benefits, workers' compensation and other programs.
When applicable, the resident's individual insurance plan is billed monthly, and
rates are consistent with those for private pay residents.
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GOVERNMENT REGULATION
Institutional pharmacies, as well as the long-term care facilities they
serve, are subject to extensive federal, state and local regulation. These
regulations delineate qualifications required for day-to-day operations,
reimbursement and documentation of select activities. PharMerica continuously
monitors the effects of regulatory activity on its operations.
States require that companies operating a pharmacy within the state be
licensed by the state board of pharmacy. PharMerica currently has its pharmacies
licensed in each state in which it operates a pharmacy. In addition, PharMerica
currently delivers prescription drugs from its licensed pharmacies to many
states in which PharMerica does not operate a pharmacy. Most of these states
regulate the delivery of prescription drugs by out of state pharmacies to
residents in such states. PharMerica's pharmacies hold these requisite licenses.
In addition, PharMerica's pharmacies are registered with the appropriate state
and federal authorities pursuant to statutes governing the regulation of
controlled substances.
Long-term care facilities are required to be licensed in the states in
which they operate and, if serving Medicare or Medicaid residents, must be
certified to be in compliance with applicable program participation
requirements. Long-term care facilities are also subject to state and federal
nursing home regulations which impose strict compliance standards relating to
quality of care for long-term care facilities operations, including extensive
documentation and reporting requirements. In addition, pharmacists, nurses and
other healthcare professionals who provide services on PharMerica's behalf are
in most cases required to obtain and maintain professional licenses and are
subject to state regulation regarding professional standards of conduct.
Federal and state laws impose certain repackaging, labeling, and packing
insert requirements on pharmacies that repackage drugs for distribution beyond
the regular practice of dispensing or selling drugs directly to retail
customers. A drug repackager must be registered with the Food and Drug
Administration. PharMerica holds all required registrations and licenses, and
its repackaging operations are in material compliance with applicable state and
federal requirements.
The long-term care pharmacy business operates under regulatory and cost
containment pressures from state and federal legislation primarily affecting
Medicaid and, to a lesser extent, Medicare. As is the case for nursing home
services generally, PharMerica receives reimbursement from both the Medicaid and
Medicare programs, directly from individual residents (private pay), and from
other payors such as third-party insurers. PharMerica believes that its
reimbursement mix is in line with long-term care expenditures nationally.
Federal regulations contain a variety of requirements relating to the
furnishing of prescription drugs under Medicaid. First, states are given broad
authority, subject to certain standards, to limit or specify conditions to the
coverage of particular drugs. Second, federal Medicaid law establishes standards
affecting pharmacy practices. These standards include general requirements
relating to patient counseling and drug utilization review and more specific
requirements for long-term care facilities relating to drug regimen reviews for
Medicaid residents in such facilities. Recent regulations clarify that, under
federal law, a pharmacy is not required to meet the general standards for drugs
dispensed to long-term care facility residents if the long-term care facility
complies with the drug regimen review requirements. However, the regulations
indicate that states may nevertheless require pharmacies to comply with the
general standards, regardless of whether the long-term care facility satisfies
the drug regimen review requirement, and the states in which PharMerica operates
currently do require its pharmacies to comply therewith. Third, federal
regulations impose certain requirements relating to reimbursement for
prescription drugs furnished to Medicaid residents.
In addition to requirements imposed by federal law, states have substantial
discretion to determine administrative, coverage, eligibility and payment
policies under their state Medicaid programs which may affect PharMerica's
operations. For example, some states have enacted "freedom of choice"
requirements which may prohibit a long-term care facility from requiring its
residents to purchase pharmacy or other ancillary medical services or supplies
from particular providers. Such limitations may increase the competition which
PharMerica faces in providing services to long-term care residents. Five states
(Florida, Georgia, Louisiana, Texas, and Virginia) in which PharMerica operates
have freedom of choice requirements. PharMerica does not believe these
requirements have, or will have, a material impact on its operations.
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PharMerica is subject to federal and state laws that govern financial and
other arrangements between healthcare providers. These laws include the federal
anti-kickback statute and physician self-referral prohibitions. The
anti-kickback statute prohibits, among other things, knowingly and willfully
soliciting, receiving, offering or paying any remuneration directly or
indirectly in return for or to induce the referral of an individual to a person
for the furnishing of any item or service for which payment may be made in whole
or in part under Medicare or Medicaid. Many states have enacted similar statutes
which are not necessarily limited to items and services for which payment is
made by Medicare or Medicaid. Violations of these laws may result in fines,
imprisonment, and exclusion from the Medicare and Medicaid programs or other
state-funded programs. Federal and state court decisions interpreting these
statutes are limited, but have generally construed the statutes to apply if "one
purpose" of remuneration is to induce referrals or other conduct within the
statute. In August 1994, the Office of Inspector General ("OIG") of the
Department of Health and Human Services, issued a Special Fraud Alert regarding
prescription drug marketing schemes which it believes may violate the
anti-kickback statute. Among the specific activities identified in the Fraud
Alert were a "product conversion" program in which a drug company offered cash
awards to pharmacies who changed from another company's drug product to their
product. The Fraud Alert also targets marketing programs in which drug companies
offer cash or other benefits to pharmacists in exchange for marketing tasks in
the course of pharmacy practice related to Medicare or Medicaid. In the fall of
1997, an assistant U.S. attorney gave a speech in which he stated the industry
wide practice of drug manufacturers granting volume-related rebates to pharmacy
companies is an improper payment under the federal anti-kickback statutes. The
pharmaceutical industry has taken this position under advisement and PharMerica
continues to monitor the situation. PharMerica is not aware of any OIG or
Department of Justice investigations or actions against it. However, it is
impossible to predict whether the OIG or another governmental or regulatory
agency may threaten or bring such an action against PharMerica in the future.
The physician self-referral prohibition, commonly referred to as the
"Stark" law, prohibits a physician from referring Medicare or Medicaid residents
to "designated health services" in which the physician (or family member) has a
financial interest, either through ownership or compensation arrangements.
Prohibited referrals will not be reimbursed by Medicare or Medicaid, and the
statute makes it illegal to seek reimbursement from any other source. In
addition, violations may result in fines and/or civil penalties and exclusion
from the Medicare and Medicaid programs. The list of "designated health
services" includes outpatient prescription drugs. Some states have also passed
similar "anti-self referral" legislation. PharMerica does not believe that the
Stark law or similar state laws, have had, or will have, a significant adverse
impact on the operations of PharMerica and PharMerica is not aware of any
financial arrangements between it, or any of its pharmacies, and physicians
which violate the Stark law.
In addition, a number of states have recently undertaken enforcement
actions against pharmaceutical manufacturers involving pharmaceutical marketing
programs, including programs containing incentives to pharmacists to dispense
one particular product rather than another. These enforcement actions arose
under state consumer protection laws which generally prohibit false advertising,
deceptive trade practices, and the like. Further, a number of states involved in
these enforcement actions have requested that the U.S. Food and Drug
Administration ("FDA") exercise greater regulatory oversight in the area of
pharmaceutical promotional activities by pharmacists. It is not possible to
determine whether the FDA will act in this regard or what effect, if any, either
the state enforcement efforts or the FDA involvement would have on PharMerica's
operations.
The United States government frequently seeks to enforce the health care
laws discussed above, and to ensure accurate billing of federally-financed
health care, through bringing actions against health care providers under the
False Claims Act ("FCA"). The FCA provides for recovery of treble damages to the
federal government, plus penalties, for the submission of false or fraudulent
claims for payment to the federal government. The FCA also authorizes private
citizens to bring such actions on behalf of the United States, and provides an
incentive to private plaintiffs by granting them between 15% and 30% of any
recoveries in actions they initiate. In addition, many states have also enacted
their own false claims statutes modeled on the FCA and are using such statutes
in actions against health care providers whom they believe have submitted false
or fraudulent claims for payment under the Medicaid program or other
state-financed programs.
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PharMerica is not aware of any FCA or state false claims investigations or
actions against it or any of its pharmacies. However, it is impossible to
predict whether the federal government or a state may threaten or bring such an
action against PharMerica in the future.
PharMerica believes its contract arrangements with other healthcare
providers, its pharmaceutical suppliers and its pharmacy practices are in
compliance with these laws. There can be no assurance that such laws will not,
however, be interpreted in the future in a manner inconsistent with PharMerica's
interpretation and application.
EMPLOYEES
As of March 1, 1998, PharMerica had approximately 6,376 full-time employees
and approximately 1,120 part-time employees. The Company believes PharMerica's
relationship with its employees is good. None of PharMerica's employees are
represented by labor unions under any collective bargaining agreement.
LEGAL PROCEEDINGS
PharMerica is from time to time subject to claims and suits arising in the
ordinary course of business, including claims for repayment of monies paid to
PharMerica under Medicare or Medicaid. The provision of healthcare services
entails an intrinsic risk of liability. As of May 1, 1998, there were no
material legal proceedings pending against PharMerica that the Company believes
could reasonably be expected to have a material adverse effect on the Company
nor, to PharMerica's knowledge, were any material proceedings against it
contemplated by any governmental authority. There can be no assurance that
PharMerica will not become involved in such litigation in the future. In
addition, as described under "Risk Factors -- Dependence on Key Contracts", the
Company has brought an action against IHS for breach of certain agreements.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following section sets forth certain information with respect to the
directors and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
<S> <C> <C>
C. Arnold Renschler, M.D.(3)................. 55 President, Chief Executive Officer and Director
James D. Shelton............................. 43 Executive Vice President, Chief Financial Officer
and Secretary
Robert Della Valle, Pharm. D................. 46 Executive Vice President and Chief Operating
Officer
R. Scott Jones............................... 38 Senior Vice President, Marketing and Sales
Curtis B. Johnson............................ 42 Senior Vice President, General Counsel
David R. Banks(3)............................ 60 Director
Cecil S. Harrell(1).......................... 63 Director
Boyd W. Hendrickson(2)....................... 52 Director
Morris A. Perlis(2).......................... 48 Director
Fredrick C. Powell(2)........................ 57 Director
Albert Reichmann(1).......................... 68 Director
Allan C. Silber(3)........................... 48 Chairman of the Board of Directors
Edward Sonshine, Q.C.(2)..................... 50 Director
Gail Wilensky, Ph.D.(1)...................... 54 Director
</TABLE>
- ---------------
(1) Class 1 director.
(2) Class 2 director.
(3) Class 3 director.
The Certificate of Incorporation and Bylaws provide for the Board of
Directors of the Company to be divided into three classes, as nearly equal in
number as possible. The term of the Class 1 directors will expire at the 1998
annual meeting of stockholders; the term of the Class 2 directors will expire at
the 1999 annual meeting of stockholders; and the term of the Class 3 directors
will expire at the 2000 annual meeting of stockholders (and in all cases when
their respective successors are duly elected and qualified). At each annual
meeting of stockholders, successors to the class of directors whose terms expire
at such meeting will be elected to serve for three-year terms or until their
successors are duly elected and qualified.
For the purposes of this section, references to the Company for the period
prior to December 1997 refer to Capstone, rather than PCA, since Capstone was
the corporation surviving the Merger.
Dr. Renschler joined the Company as President, Chief Executive Officer and
Director in December 1997 in connection with the Merger. From June 1996 to
December 1997, Dr. Renschler was Executive Vice President of Beverly and
President of PCA. From 1990 to June 1996, Dr. Renschler was Senior Vice
President and Chief Clinical Officer, as well as President of three operating
divisions of NovaCare, Inc. and a member of its board of directors. Prior to
that time, he held a series of key executive positions at both Manor Care, Inc.
("Manor Care") and its wholly-owned subsidiary, Manor Healthcare Corp. ("Manor
Healthcare"), including President and Chief Executive Officer of Manor
Healthcare and Chief Operating Officer and director of Manor Care. Dr. Renschler
has served as a director of Ameripath, Inc. since April 1997.
Mr. Shelton has served as Executive Vice President, Chief Financial Officer
and Secretary of the Company since February 1997. Mr. Shelton served as Vice
President-Chief Financial Officer of Allied Pharmacy Management Inc.,
("Allied"), a pharmacy subsidiary of Cardinal Health, Inc. from December 1993 to
January 1997. Mr. Shelton served as Vice President of Evergreen Healthcare,
Inc., a long-term care company, from October 1992 to December 1993, and as Vice
President-Chief Financial Officer of its predecessor, National Heritage, Inc.,
from February 1990 to October 1992.
Dr. Della Valle joined the Company as Executive Vice President and Chief
Operating Officer in July 1996. Prior to joining the Company, Dr. Della Valle
was employed by Allied since June 1987 and held
41
<PAGE> 46
the position of President and Chief Executive Officer from July 1993 to July
1996 and Chief Operating Officer from 1991 to 1993.
Mr. Jones joined the Company as Senior Vice President, Marketing and Sales
in December 1997 in connection with the Merger. Mr. Jones served as Vice
President, Marketing and Sales of PCA from January 1997 to December 1997. Prior
to joining PCA, he was employed by General Electric Medical Systems, a global
manufacturer of medical imaging equipment, from 1988 to 1997. From 1991 to 1993,
Mr. Jones was Manager, Business Development and Product Manager -- Surgical
Products. From 1993 to 1995, he held the position of Manager, Americas X-Ray
Business and from 1995 to 1997 he was Director, Multi-Hospital Systems
Operations.
Mr. Johnson joined the Company as Senior Vice President, General Counsel in
March 1998. Mr. Johnson served as General Counsel of DCAmerica, Inc., a U.S.
subsidiary of Counsel, from April 1995 to February 1998. From November 1994 to
April 1995, Mr. Johnson served as Technology Counsel for American Express Travel
Related Services Company, Inc. ("American Express"). From January 1993 to
November 1994 he served as Litigation Counsel to American Express.
Mr. Banks became a Director of PharMerica in December 1997 in connection
with the Merger. Mr. Banks has been a director of Beverly since 1979 and has
served as Chief Executive Officer since May 1989 and Chairman of the Board since
March 1990. Mr. Banks was President of Beverly from 1979 to September 1995. Mr.
Banks is a director of Nationwide Health Properties, Inc., Ralston Purina
Company and Wellpoint Health Networks, Inc., and trustee for Occidental College.
Mr. Harrell became a Director of PharMerica in December 1997 in connection
with the Merger. Mr. Harrell has served as President and as a Director of The
Harrell Corporation of Tampa, Inc., a management company, since July 1995. Mr.
Harrell founded Pharmacy Management Services, Inc. in 1972 and served as its
President, Chairman and Chief Executive Officer until its merger in July 1995
with and into Beverly. He serves on the board of directors of National
Healthcare Resources, Inc., a medical cost containment company, the board of
trustees of the University of Tampa, the board of directors for the Auburn
University Foundation and the Florida Health Sciences Center, Inc., the holding
company of Tampa General Hospital. Mr. Harrell served on the board of directors
for NationsBank South from 1992 to 1997.
Mr. Hendrickson became a Director of PharMerica in December 1997 in
connection with the Merger. Mr. Hendrickson joined Beverly in 1988 as a Division
President and was elected Vice President of Marketing in May 1989, Executive
Vice President of Operations and Marketing in February 1990, and to his current
positions as President, Chief Operating Officer and a director of Beverly in
September 1995.
Mr. Perlis has been Vice Chairman of the Company since May 1995 and a
Director since December 1994. Mr. Perlis served as interim chief executive
officer of the Company from December 1994 to May 1995. He has served as a
director of and consultant to Counsel Corporation, a Canadian corporation
primarily engaged in the healthcare industry ("Counsel"), since September 1992,
and as President of Counsel since January 1994. Mr. Perlis has served as a
director of American HomePatient since March 1993, and as its Chairman since May
1994. He served as a director of NOMA, Inc., a manufacturer of consumer wire and
cable, from September 1993 to June 1996. Mr. Perlis was President of Morris A.
Perlis & Assoc., an executive management consulting firm, from September 1992
until January 1994 and President of American Express Canada, Inc. from September
1988 until September 1992. Mr. Perlis served as interim President of Stadtlander
Drug Co., Inc., a mail order pharmacy company ("Stadtlander"), from September
1996 to December 1996. He has served as director of Stadtlander since July 1996
and as Chief Executive Officer since September 1996.
Mr. Powell became a Director of PharMerica in December 1997 in connection
with the Merger. Mr. Powell was the founder and has been President of OMNI
Interactive Systems since 1993 and has served as a consultant to Lister Bestcare
since 1996. Mr. Powell founded Rehab Systems Company in 1987 and served as its
Chairman of the Board, President and Chief Executive Officer until 1991 when the
company merged with NovaCare Inc. and from 1993 to 1995, he served as a
consultant to NovaCare Inc. He currently serves as a board member of Alfred
University in New York and Wesley Theological Seminary in Washington, D.C., as
well as a board member of several private companies.
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<PAGE> 47
Mr. Reichmann has served as a Director of the Company since August 1995. He
has served as Chairman and a Director of Olympia & York Developments, Limited, a
privately held Canadian real estate company, for at least five years prior to
February 1993. Mr. Reichmann currently participates in major philanthropic
activities in addition to serving on the boards of several major hospitals in
Canada.
Mr. Silber has served as Chairman since February 1995 and a director of the
Company since December 1994. Mr. Silber has been Chairman, Chief Executive
Officer and a director of Counsel since August 1979. He served as President of
Counsel from August 1979 until January 1994. Mr. Silber has served as a director
of American HomePatient since September 1991. Mr. Silber served as chairman of
American HomePatient from September 1991 to May 1994. He has served as director
of Stadtlander since July 1996 and as Chairman since September 1996. Mr. Silber
is also a member of the Board of Trustees of RioCan Real Estate Investment Trust
since December 1993.
Mr. Sonshine has served as a Director of the Company since December 1994.
He has been President and Chief Executive Officer of RioCan Real Estate
Investment Trust of Toronto, Canada since July 1995. He has been a director of
RioCan Real Estate Investment Trust since December 1993. Mr. Sonshine has served
as a director of American HomePatient since September 1991. Mr. Sonshine has
served as Vice Chairman of Counsel since January 1994. He served as a director
of Counsel Management Services, Inc. from October 1993 until July 1995. Mr.
Sonshine served as Executive Vice President of Counsel from February 1987 until
January 1994. Mr. Sonshine served as President and Chief Executive Officer of
Icarus Realty Corp. from February 1987 until September 1993. He has served as a
director of Stadtlander since July 1996. He served as a director of Advocat,
Inc. from May 1995 to November 1996.
Dr. Wilensky has served as a Director of the Company since August 1995. She
has served as the John M. Olin Senior Fellow, Project HOPE since January 1993,
and as Chair, Medicare Payment Advisory Commission since October 1997. Dr.
Wilensky served as Deputy Assistant to the President for Policy Development from
March 1992 to January 1993. She was Administrator of the Health Care Financing
Administration of the Department of Health and Human Services from January 1990
to March 1992. Dr. Wilensky also serves as a director for Advanced Tissue
Sciences, Neopath Inc., Quest Diagnostics, St. Jude Medical, Syncor
International, SMS Corporation and United Healthcare.
CERTAIN TRANSACTIONS
Set forth below is a summary of various transactions involving PharMerica
and certain of its directors, officers, stockholders or other affiliates.
Joseph F. Furlong, III is a former director of the Company and a principal
of Adirondack Capital Advisors, LLC. The Company entered into an agreement with
Adirondack, as of June 1996, pursuant to which Adirondack agreed to assist the
Company in identifying and negotiating transactions with acquisition targets.
Adirondack receives as compensation 3.0% of the first $10.0 million of aggregate
transaction value plus 0.7% of aggregate transaction value in excess thereof as
well as a number of warrants to buy the Company's common stock set according to
a formula, not to exceed 200,000 shares in the aggregate, at a strike price of
$12.00. The Company has issued warrants to Adirondack to purchase 200,000 shares
of PharMerica Common Stock and since June 1996 has paid approximately $1.8
million in connection with this agreement.
Adirondack and the Company also entered into an agreement, as of December
1996, pursuant to which Adirondack served as financial advisor to the Company in
connection with the Merger. Pursuant to that agreement, Adirondack earned $4.0
million.
Directors Banks and Hendrickson are directors and officers of Beverly, the
Company's largest customer. On a pro forma basis, Beverly and its residents
accounted for approximately 16.0% of the Company's 1997 revenues. Revenues from
sales directly to Beverly facilities were approximately $74.0 million, $82.1
million and $99.5 million for 1995, 1996 and 1997, respectively. In connection
with the Merger, Beverly and the Company entered into various agreements
including: (i) a Non-Competition Agreement from Beverly; (ii) a Preferred
Provider Agreement; and (iii) an Interim Services Agreement pursuant to which
each party agreed to provide services to the other on a temporary basis to
facilitate the Merger. These agreements were
43
<PAGE> 48
negotiated on an arms length basis and the Company believes it both pays and
receives fair market value for services provided pursuant to these agreements.
Directors Banks and Hendrickson received options to purchase 50,000 and 25,000
shares of PharMerica Common Stock at the fair market value on the date of grant
in recognition of their contributions to the successful completion of the
Merger.
Prior to the Merger, Beverly provided certain administrative services to
PCA. These services included, among others, cash management, finance, legal,
tax, financial reporting, executive management, payroll and payables processing
and employee benefit plans maintenance. The responsibility for certain of these
services, including finance, tax and payables processing was transferred to PCA
in mid-1996 as part of a consolidation and reorganization of the Company's
accounting and related functions. Fees for the services amounted to
approximately $3.2 million, $1.8 million and $2.8 million for the years ended
December 31, 1997, 1996, and 1995, respectively. Beverly also allocated
insurance expense to PCA of approximately $2.6 million, $1.8 million and $1.4
million for the years ended December 31, 1997, 1996 and 1995, respectively. The
Company believes that the charges for services provided by Beverly to the
Company were a reasonable allocation of the costs incurred by Beverly on behalf
of the Company in providing these services; however, such costs are not
necessarily indicative of the costs that would have been incurred if the Company
operated as a stand-alone entity. For additional information related thereto and
in relation to the net balance sheet results of intercompany transactions
between PCA and Beverly, see Notes 1 and 12 to the Company's Consolidated
Financial Statements.
At the time the Company entered a preferred provider agreement with IHS in
1996, IHS was a significant stockholder of the Company. The Company provides
institutional pharmacy services to a significant number of long-term care
facilities owned and managed by IHS pursuant to a preferred provider agreement.
Revenues from sales to IHS facilities and their residents were over $20.0
million and $25.0 million in 1996 and 1997, respectively.
Directors Silber, Perlis and Sonshine are affiliates of Counsel, the
Company's largest shareholder as of March 1, 1998. On July 29, 1996, Counsel
purchased from the Company in a private placement transaction, 2,112,490 shares
of common stock at a price of approximately $11.83 per share, resulting in
proceeds to the Company of approximately $25 million. The proceeds were used as
part of the purchase price for the Symphony acquisition. Counsel and its
affiliates have from time to time in the past provided routine services to the
Company without compensation. Directors Silber and Perlis received $600,000 and
$400,000, respectively, in connection with finding, negotiating and closing a
1996 acquisition. Directors Silber and Perlis received options to purchase
100,000 and 25,000 shares of PharMerica Common Stock, respectively, at the fair
market value on the date of grant in recognition of their contributions to the
successful completion of the Merger. The Company entered into an agreement with
Counsel as of February 1998 pursuant to which Counsel will assist the Company
with a specific targeted acquisition. Counsel will receive, if the transaction
closes, a fee equal to approximately 1.0% of the aggregate transaction value.
An affiliate of Director Reichmann received fees of $445,000 in connection
with two 1996 acquisitions.
PharMerica and R. Dirk Allison, the Company's former chief executive
officer, are parties to a Separation Agreement dated August 15, 1997 pursuant to
which (i) Mr. Allison resigned from all positions with the Company and its
affiliates; (ii) the Company paid Mr. Allison approximately $468,000; and (iii)
previously issued options covering 392,500 shares of PharMerica Common Stock (of
which 167,500 shares were vested on such date) held by Mr. Allison (at exercise
prices ranging from $4.44 to $11.25 per share) immediately vested and became
exercisable through February 15, 1999, providing an estimated benefit to Mr.
Allison, based on the closing price of PharMerica Common Stock on December 31,
1997, of approximately $250,000.
For a description of certain transactions between Capstone and certain of
its affiliates, see Note 15 to Capstone's Consolidated Financial Statements.
The Company believes that any past transactions with its affiliates have
been at prices and on terms no less favorable to the Company than transactions
with independent third parties. The Company may enter into transactions with its
affiliates in the future. However, the Company intends to enter into such
transactions only
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<PAGE> 49
at prices and on terms no less favorable to the Company than transactions with
independent third parties and with approval of the disinterested members of the
board of directors or a committee thereof. In addition, the Indenture contains
certain restrictions on transactions with affiliates. See "Description of the
Notes -- Certain Covenants -- Transactions with Affiliates."
45
<PAGE> 50
STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND PRINCIPAL HOLDERS
The table below sets forth, as of April 15, 1998, the number and percentage
of outstanding shares of the Company's Common Stock owned by all persons known
to the Company to be holders of 5% or more of such securities, by all directors,
by each of the executive officers of the Company and by all directors and
executive officers of the Company as a group. Unless otherwise indicated, all
holdings are of record and beneficial.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY PERCENTAGE OF
NAME OWNED(1) TOTAL SHARES(2)
<S> <C> <C>
Counsel Corporation(3)...................................... 8,356,815 9.4%
Exchange Tower, Suite 1300
130 King Street West
Toronto, Ontario M5X 1E3
Franklin Resources, Inc(4).................................. 5,056,843 5.7
777 Mariners Island Blvd
San Mateo, California 94404
Mellon Bank Corporation(4).................................. 4,388,672 5.0
One Mellon Bank Center
Pittsburgh, Pennsylvania 15258
C. Arnold Renschler, M.D.(5)................................ 641,247 *
James D. Shelton(6)......................................... 113,333 *
Robert Della Valle(7)....................................... 183,333 *
R. Scott Jones(8)........................................... 78,070 *
Curtis B. Johnson(9)........................................ 60,000 *
David R. Banks(10).......................................... 175,227 *
Cecil S. Harrell(11)........................................ 2,052,729 2.3
Boyd W. Hendrickson(12)..................................... 134,045 *
Morris A. Perlis(13)........................................ 601,666 *
Fredrick C. Powell(14)...................................... 22,500 *
Albert Reichmann(15)........................................ 37,500 *
Allan C. Silber(16)......................................... 484,166 *
Edward Sonshine, Q.C.(17)................................... 47,000 *
Gail Wilensky, Ph.D.(18).................................... 40,000 *
All directors and executive officers as a group
(14 persons)(19).......................................... 4,670,816 5.1%
</TABLE>
- ---------------
* Indicates less than 1.0%
(1) Unless otherwise indicated, the persons or entities identified in this
table have sole voting and investment power with respect to all shares
shown as beneficially owned by them, subject to community property laws,
where applicable.
(2) The percentages shown are based on 88,525,258 shares of Common Stock
outstanding on April 15, 1998, plus, as to each individual and group
listed, the number of shares of Common Stock deemed to be owned by such
holder pursuant to Rule 13d-3 under the Securities Exchange Act of 1934
(the "Exchange Act"), which includes shares subject to stock options and
warrants held by such holder that are exercisable within sixty (60) days of
such date.
(3) Includes 298,181 and 238,545 shares issuable upon the exercise of warrants
at $4.50 and $5.50 per share, respectively. Directors Silber, Sonshine and
Perlis are directors of Counsel and director Silber beneficially owns or
controls approximately 18% of the common stock of Counsel, a majority of
which is pledged to a lender. Directors Sonshine and Perlis own in the
aggregate less than 5% of Counsel's common stock. All of the directors
listed in this footnote (3) disclaim beneficial ownership of shares of
46
<PAGE> 51
Common Stock in their capacity as directors of Counsel, and Mr. Silber
disclaims beneficial ownership of shares of Common Stock in his capacity as
a significant stockholder of Counsel.
(4) Based solely upon information set forth in a Schedule 13G filed by such
person pursuant to the Exchange Act.
(5) Includes 52,193, 238,596, 74,561, 59,649, and 186,667 shares issuable upon
exercise of options at $8.21, $8.47, $8.47, $8.55, and $9.56, respectively.
(6) Includes 13,333 and 100,000 shares issuable upon exercise of options at
$11.50 and $9.56 per share, respectively.
(7) Includes 16,667, 66,666 and 100,000 shares issuable upon the exercise of
options at $10.13, $10.50 and $9.56 per share, respectively.
(8) Includes 44,737 and 33,333 shares issuable upon exercise of options at
$8.38 and $9.56 per share, respectively.
(9) Includes 25,000 and 35,000 shares issuable upon exercise of options at
$4.31 and $10.19 per share, respectively.
(10) Includes 72,500 shares issuable upon exercise of options at $9.56 per share
and includes 3,991 shares held by his children.
(11) Includes 20,000 shares issuable upon exercise of options at $9.56 per share
and includes 269 shares held by his spouse.
(12) Includes 47,500 shares issuable upon exercise of options at $9.56 per share
and includes 636 shares held by his children.
(13) Includes 25,000 and 20,000 shares issuable upon the exercise of warrants at
$4.50 and $5.50 per share, respectively and 15,000, 2,500, 250,000, 75,000,
166,666, 2,500 and 45,000 shares issuable upon the exercise of options at
$4.44, $7.50, $4.31, $8.50, $10.50, $11.25, and $9.56 per share,
respectively.
(14) Includes 22,500 shares issuable upon exercise of options at $9.56 per
share.
(15) Includes 15,000, 2,500 and 20,000 shares issuable upon the exercise of
options at $4.44, $11.25 and $10.56 per share, respectively.
(16) Includes 25,000 and 20,000 shares issuable upon the exercise of warrants at
$4.50 and $5.50 per share, respectively and 15,000, 2,500, 75,000, 166,666,
2,500, and 127,500 shares issuable upon the exercise of options at $4.44,
$7.50, $8.50, $10.50, $11.25, and $9.56 per share, respectively.
(17) Includes 15,000, 2,500, 2,500 and 20,000 shares issuable upon the exercise
of options at $4.44, $7.50, $11.25 and $9.56 per share, respectively.
(18) Includes 15,000, 2,500, 20,000 and 2,500 shares issuable upon the exercise
of options at $4.44, $11.25, $10.56 and $12.06 per share, respectively.
(19) Includes 2,317,434 shares issuable upon the exercise of options and
warrants.
47
<PAGE> 52
DESCRIPTION OF THE NEW NOTES
GENERAL
Except as otherwise indicated, the following description relates both to
the Notes issued in the Offering and the New Notes to be issued in exchange for
the Notes in connection with the Exchange Offer. The form and terms of the New
Notes are the same as the form and terms of the Notes, except that the New Notes
have been registered under the Securities Act and therefore will not bear
legends restricting the transfer thereof. The description of the New Notes
contained herein assumes that all Notes will be exchanged for New Notes in the
Exchange Offer. To the extent that Notes remain outstanding after the
consummation of the Exchange Offer, references to the New Notes and the holders
thereof will apply collectively to the New Notes, the remaining, outstanding
Notes and the holders thereof.
The New Notes will be obligations of the Company evidencing the same
indebtedness as the Notes, and will be entitled to the benefits of the same
indenture, dated as of March 31, 1998, among the Company, the Guarantors and
Harris Trust and Savings Bank, as trustee. The terms of the New Notes include
those stated in the Indenture and those made part of the Indenture by reference
to the Trust Indenture Act as in effect on the date of the Indenture.
The following is a summary of the material terms and provisions of the New
Notes. This summary does not purport to be a complete description of the New
Notes and is subject to the detailed provisions of, and qualified in its
entirety by reference to, the New Notes and the Indenture (including the
definitions contained therein). A copy of the Indenture has been filed as an
exhibit to the Registration Statement of which this Prospectus is a part. The
definitions of certain capitalized terms are set forth under "-- Certain
Definitions" and throughout this description. Capitalized terms that are used
but not otherwise defined herein have meanings assigned to them in the Indenture
and such definitions are incorporated herein by reference. For purposes of this
Section, references to the Company include only the Company and not its
Subsidiaries. Additionally, for purposes of this Section, any reference to a
"Holder" means a holder of the Notes or the New Notes, as the context may
require.
The New Notes will be general unsecured obligations of the Company,
subordinated in right of payment to all existing and future Senior Debt of the
Company, including Indebtedness pursuant to the Bank Credit Facility. See
"-- Subordination." The New Notes will be guaranteed (the "Subsidiary
Guarantees"), jointly and severally, on a full and unconditional senior
subordinated basis by the Guarantors. Each Subsidiary Guarantee is a guarantee
of payment and not a guarantee of collection. The Subsidiary Guarantees are
subordinated in right of payment to all existing and future Senior Debt of the
Guarantors, including the guarantees of the Guarantors of the Company's
obligations under the Bank Credit Facility. See "-- Subsidiary Guarantees." At
May 12, 1998, the Company and the Guarantors had approximately $198 million of
Senior Debt outstanding and the Company would have had approximately $352
million of availability under the Bank Credit Facility. The Indenture provides
that the obligations of the Guarantors are limited to amounts that will not
result in the Subsidiary Guarantees being fraudulent conveyances under
applicable law.
As of the date of this Prospectus, all of the Company's Subsidiaries are
Restricted Subsidiaries. However, under certain circumstances, the Company will
be able to designate current or future Subsidiaries as Unrestricted
Subsidiaries. Unrestricted Subsidiaries are not subject to many of the
restrictive covenants set forth in the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The New Notes will be limited in aggregate principal amount to $325.0
million and will mature on April 1, 2008. Interest on the New Notes will accrue
at the rate of 8 3/8% per annum and will be payable semi-annually in arrears on
April 1 and October 1 of each year, commencing October 1, 1998, to Holders of
record on the immediately preceding March 15 and September 15, respectively.
Interest on the New Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Principal, premium, if any, and interest and
Liquidated Damages, if any, on the New Notes will be
48
<PAGE> 53
payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the option of the Company, payment
of interest may be made by check mailed to the Holders of the New Notes at their
respective addresses set forth in the register of Holders of New Notes. Until
otherwise designated by the Company, the Company's office or agency in New York
is the office of the Trustee maintained for such purpose. The New Notes will be
issued in denominations of $1,000 and integral multiples thereof.
SUBSIDIARY GUARANTEES
The Company's payment obligations under the New Notes will be jointly and
severally guaranteed pursuant to the Subsidiary Guarantees on a full and
unconditional senior subordinated basis by the Guarantors. Each Subsidiary
Guarantee is a guarantee of payment and not a guarantee of collection. Each
Guarantor has waived diligence, presentment, demand of payment, filing of claims
with a court in the event of the insolvency or bankruptcy of the Company, any
right to require a proceeding first against the Company, protest, notice and all
demands whatsoever. The Subsidiary Guarantee of each Guarantor is subordinated
to the prior payment in full of all existing and future Senior Debt of such
Guarantor on substantially the same terms as the New Notes are subordinated to
the Senior Debt of the Company. The obligations of each Guarantor under its
Subsidiary Guarantee are limited so as not to constitute a fraudulent conveyance
under applicable law. See "Risk Factors -- Fraudulent Conveyance Risk."
The Guarantors are Capstone Med., Inc., MediDyne Corp., Premier Pharmacy,
Inc., Compuscript, Inc., DOC Pharmacy, Inc., PharMerica Drug Systems, Inc.,
Rombro's Drug Center, Inc., Capstone Pharmacy of Delaware, Inc., Family Center
Pharmacy, Inc., Hollins Manor I, LLC, Goot's Goodies, Inc., Southwest
Pharmacies, Inc., Goot Westbridge Pharmacy, Inc., Goot Nursing Home Pharmacy,
Inc., Goot's Pharmacy & Orthopedic Supply, Inc., Management Systems of America,
Inc., Pharmacy Corporation of America, Medical Health Industries, Inc.,
Insta-Care Holdings, Inc., Insta-Care Pharmacy Services Corporation, Pharmacy
Dynamics Group, Inc., Healthcare Prescription Services, Inc., Dunnington Drug,
Inc., Dunnington Rx Services of Massachusetts, Inc., DD Wholesale, Inc.,
Pharmacy Corporation of America -- Massachusetts, Inc., Dunnington Rx Services
of Rhode Island, Inc., Computran Systems, Inc., Beverly Acquisition Corporation,
Alliance Health Services, Inc., Alliance Home Health Care, Inc., Brownstone
Pharmacy, Inc., Omni Med B, Inc., Express Pharmacy Services, Inc., Tmesys, Inc.
Management Systems of America, Inc., any other Subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture, and
their respective successors and assigns.
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another Person
whether or not affiliated with such Guarantor unless, among other things: (i)
subject to the provisions of the following paragraph, the Person formed by or
surviving any such consolidation or merger (if other than such Guarantor) is a
corporation and assumes all the obligations of such Guarantor pursuant to a
supplemental indenture in form and substance reasonably satisfactory to the
Trustee, under the New Notes and the Indenture; (ii) immediately after giving
effect to such transaction, no Default or Event of Default exists; and (iii) the
Company would be permitted by virtue of the Company's pro forma Fixed Charge
Coverage Ratio, immediately after giving effect to such transaction, to incur at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the Fixed Charge Coverage Ratio set forth in "Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock."
The Indenture provides that in the event of a sale or other disposition of
all or substantially all of the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the capital
stock of any Guarantor, then such Guarantor (in the event of a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all of the
capital stock of such Guarantor) or the corporation acquiring the property (in
the event of a sale or other disposition of all of the assets of such Guarantor)
will be released and relieved of any obligations under its Subsidiary Guarantee;
provided that the Net Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture. See "-- Asset
Sales." In addition, the Guarantee by any Guarantor will be released if such
Guarantor does not guarantee any other Indebtedness of the Company. See "Certain
Covenants -- Limitations on Issuances of Guarantees of Indebtedness."
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SUBORDINATION
The payment of principal of, premium, if any, and interest or Liquidated
Damages, if any, on the New Notes will be subordinated in right of payment, as
set forth in the Indenture, to the prior payment in full of all Senior Debt,
whether outstanding on the date of the Indenture or thereafter incurred.
Upon any payment or distribution of assets to creditors of the Company in a
liquidation or dissolution of the Company or in a bankruptcy, reorganization,
liquidation, insolvency, receivership or similar proceeding relating to the
Company or its property, an assignment for the benefit of creditors or any
marshaling of the Company's assets and liabilities, the holders of Senior Debt
will be entitled to receive payment in full of all Obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether or not
such interest is in an allowed claim under applicable law) before the Holders of
New Notes will be entitled to receive any payment or distribution with respect
to the New Notes, and until all Obligations with respect to Senior Debt are paid
in full, any payment or distribution to which the Holders of New Notes would be
entitled shall be made to the holders of Senior Debt (except that Holders of New
Notes may receive Permitted Junior Securities and any other Permitted Junior
Securities issued in exchange for any Permitted Junior Securities and payments
made from the trust described below under "-- Legal Defeasance and Covenant
Defeasance").
The Company also may not make any payment upon or in respect of the New
Notes (except in such Permitted Junior Securities, Permitted Junior Securities
issued in exchange for such Permitted Junior Securities or from the trust
described below under "-- Legal Defeasance and Covenant Defeasance") if (i) any
amount of principal, premium, if any, or interest or other payments due under
any Designated Senior Debt is not paid when due and remains outstanding or (ii)
any other default occurs and is continuing with respect to Designated Senior
Debt that permits holders of the Designated Senior Debt as to which such default
relates to accelerate its maturity and the Trustee receives a notice of such
default (a "Payment Blockage Notice") from a representative of the holders of
any Designated Senior Debt. Payments on the New Notes may and shall be resumed
(a) in the case of a payment default, upon the date on which such payment
default is cured or waived or such Designated Senior Debt is discharged or paid
in full and (b) in case of a nonpayment default, the earlier of the date on
which such nonpayment default is cured or waived or such Designated Senior Debt
is discharged or paid in full or 179 days after the date on which the applicable
Payment Blockage Notice is received, unless the maturity of any Designated
Senior Debt has been accelerated. No new period of payment blockage may be
commenced unless and until (i) 360 consecutive days have elapsed since the
effectiveness of the immediately prior Payment Blockage Notice and (ii) all
scheduled payments of principal, premium, if any, and interest on the New Notes
that have come due have been paid in full. No nonpayment default that existed or
was continuing on the date of delivery of any Payment Blockage Notice to the
Trustee shall be, or can be, made the basis for a subsequent Payment Blockage
Notice whether or not within a period of 360 consecutive days, unless such
default has been cured or waived for a period of not less than 90 consecutive
days.
Nothing in the Indenture or in the New Notes affects the obligations of the
Company, which is absolute and unconditional, to pay principal of and premium,
if any, and interest on the New Notes. The failure to make any payment on the
New Notes by reason of the provisions of the Indenture described under this
"-- Subordination" section will not be construed as preventing the occurrence of
an Event of Default with respect to the New Notes arising from any such failure
to make payment.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of the New Notes may recover less
ratably than creditors of the Company who are holders of Senior Debt. See "Risk
Factors -- Subordination."
OPTIONAL REDEMPTION
Except as provided in the next paragraph, the New Notes will not be
redeemable at the Company's option prior to April 1, 2003. Thereafter, the New
Notes will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below, together
with accrued and unpaid interest and
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Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the twelve-month period beginning on April 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003........................................................ 104.19%
2004........................................................ 102.79%
2005........................................................ 101.40%
2006 and thereafter......................................... 100.00%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 1, 2001, the
Company may on one or more occasions redeem up to 33 1/3% of the aggregate
principal amount of the New Notes originally issued with the net cash proceeds
from one or more Public Offerings of Common Stock of the Company within 60 days
of any such Public Offering at a redemption price of 108.375% of principal
amount, together with accrued and unpaid interest and Liquidated Damages, if
any, thereon to the applicable redemption date; provided that immediately after
giving effect to any such redemption, at least $200 million aggregate principal
amount of the New Notes remains outstanding.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to make any mandatory redemption or sinking fund
payments with respect to the New Notes.
REPURCHASE AT THE OPTION OF HOLDERS
Upon the occurrence of a Change of Control, each Holder of New Notes will
have the right to require the Company to purchase all or any part (equal to
$1,000 or an integral multiple thereof) of such Holder's New Notes pursuant to
the offer described below (the "Change of Control Offer") at a purchase price in
cash equal to 101% of the aggregate principal amount thereof plus accrued and
unpaid interest, and Liquidated Damages, if any, thereon to the date of purchase
(the "Change of Control Payment"). The source of funds for any such purchase
will be dependent upon the Company's available cash or cash generated from
operating or other sources, including borrowing, sales of assets, sales of
equity or funds provided by a new controlling person. There can be no assurance,
however, that sufficient funds will be available at the time of any Change of
Control to make the required repurchases of New Notes tendered, or that, if
applicable, restrictions in the Bank Credit Facility will allow the Company to
make such required repurchases. See "Risk Factors -- Payment upon a Change of
Control."
Within ten days following any Change of Control, the Company will mail a
notice to each Holder describing the transaction or transactions that constitute
the Change of Control and offering to repurchase New Notes pursuant to the
procedures required by the Indenture and described in such notice. The Company
will comply with the requirements of Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the New Notes as
a result of a Change of Control.
On or prior to the Change of Control Payment Date, the Company will, to the
extent lawful, (1) accept for payment all New Notes or portions thereof properly
tendered pursuant to the Change of Control Offer, (2) deposit with the paying
agent an amount equal to the Change of Control Payment in respect of all New
Notes or portions thereof so tendered and (3) deliver or cause to be delivered
to the Trustee the New Notes so accepted together with an officers' certificate
stating the aggregate principal amount of New Notes or portions thereof being
purchased by the Company. The Paying Agent will promptly mail to each Holder of
New Notes so tendered the Change of Control Payment for such New Notes, and the
Trustee will promptly authenticate and mail (or cause to be transferred by book
entry) to each Holder a new Note equal in principal amount to any unpurchased
portion of the New Notes surrendered, if any; provided that each such new Note
will be in a principal amount of $1,000 or an integral multiple thereof.
The Indenture provides that, prior to being required to comply with the
provisions of this covenant, but in any event within 90 days following a Change
of Control, the Company will either repay all outstanding Senior
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Debt or obtain the requisite consents, if any, under all agreements governing
outstanding Senior Debt to permit the repurchase of New Notes required by this
covenant. The Company will publicly announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Payment
Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the New Notes to require that the Company
repurchase or redeem the New Notes in the event of a takeover, recapitalization
or similar restructuring.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precisely established definition of the phrase under
applicable law. Accordingly, the ability of a Holder of New Notes to require the
Company to repurchase such New Notes as a result of a sale, lease, transfer,
conveyance or other disposition of less than all of the assets of the Company
and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
ASSET SALES
The Indenture will provide that the Company will not, and will not permit
any of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash; provided that the amount of (x) any Senior Debt of the
Company or any Restricted Subsidiary that is assumed by the transferee of any
such asset pursuant to a customary novation agreement that releases the Company
or such Subsidiary from such liability and (y) any notes or other obligations
received by the Company or any such Restricted Subsidiary from such transferee
that are immediately converted by the Company or such Restricted Subsidiary into
cash (to the extent of the cash received), will be deemed to be cash for
purposes of this provision; provided that any Designated Noncash Consideration
received by the Company or any Restricted Subsidiary in an Asset Sale having an
aggregate fair market value, taken together with all other Designated Noncash
Consideration received pursuant to this provision that is at that time
outstanding, not in excess of $20 million (with the fair market value of each
item of Designated Noncash Consideration being measured at the time received and
without giving effect to subsequent changes in value), shall be deemed to be
cash for the purposes of this covenant.
Pursuant to the Indenture, within 365 days after the receipt of any Net
Proceeds from an Asset Sale, the Company or such Restricted Subsidiary may apply
such Net Proceeds (i) to purchase one or more Related Businesses and/or a
controlling interest in the Capital Stock of a Person owning one or more Related
Businesses (and no other material assets), or to invest in a Permitted Joint
Venture (provided such Investment is otherwise permitted under the Indenture);
(ii) to make a capital expenditure or to acquire other long-term tangible
assets, in each case, that are used or useful in any Related Business; or (iii)
to permanently reduce Senior Debt (and in the case of revolving Indebtedness, to
permanently reduce the commitments with respect thereto). Any Net Proceeds from
Asset Sales that are not applied or invested as provided in the first sentence
of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10 million, the
Company will be required to make an offer to all Holders and holders of any
other Indebtedness of the Company ranking senior to or pari passu with the New
Notes with similar provisions requiring the Company to make an offer to purchase
or to redeem such Indebtedness with the proceeds from any Asset Sales pro rata
in proportion to the respective principal amounts of New Notes and such other
Indebtedness then outstanding (collectively, an "Asset Sale Offer") to purchase
the maximum principal amount of the New Notes and such other Indebtedness that
may be purchased out of the Excess Proceeds, at an offer price in cash equal to
100% of the principal amount thereof plus accrued and unpaid interest thereon
and Liquidated Damages, if any, to the date of purchase (the
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<PAGE> 57
"Asset Sale Payment"), in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate principal amount of New Notes and
such other Indebtedness tendered pursuant to an Asset Sale Offer is less than
the Excess Proceeds, the Company may use any remaining Excess Proceeds for
general corporate purposes not prohibited at the time under the Indenture. If
the aggregate principal amount of New Notes and such other Indebtedness
surrendered by holders thereof exceeds the amount of Excess Proceeds, the New
Notes and such other Indebtedness will be purchased on a pro rata basis. Upon
completion of an Asset Sale Offer, the amount of Excess Proceeds shall be reset
at zero.
The Bank Credit Facility prohibits the Company, except in certain
circumstances, from prepaying the indebtedness evidenced by the New Notes and
also provides that certain change of control events with respect to the Company
and certain asset sales will constitute a default thereunder. Any future credit
agreements or other agreements relating to Senior Debt to which the Company
becomes a party may contain similar restrictions and provisions. In the event a
Change of Control occurs or the Company is required to make an Asset Sale Offer
at a time when the Company is prohibited from purchasing New Notes, the Company
could seek the consent of its lenders to the purchase of New Notes or could
attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing New Notes. In such case, the Company's
failure to purchase tendered New Notes would constitute an Event of Default
under the Indenture which would, in turn, constitute a default under the Bank
Credit Facility. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the Holders of the New Notes. See
"Risk Factors -- Subordination."
SELECTION AND NOTICE
If less than all of the New Notes are to be redeemed at any time, selection
of New Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
New Notes are listed or, if the New Notes are not so listed, on a pro rata
basis, by lot or by such other method as the Trustee deems fair and appropriate,
provided that no New Notes with a principal amount of $1,000 or less shall be
redeemed in part. Notice of redemption shall be mailed by first class mail at
least 30 but not more than 60 days before the redemption date to each Holder of
New Notes to be redeemed at its registered address. If any New Note is to be
redeemed in part only, the notice of redemption that relates to such New Note
shall state the portion of the principal amount thereof to be redeemed. A new
New Note in principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original New
Note. On and after the redemption date, interest will cease to accrue on New
Notes or portions thereof called for redemption.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any distribution (including in connection with any merger
or consolidation) on account of any Equity Interests of the Company or any of
its Restricted Subsidiaries (other than dividends or distributions payable in
Equity Interests (other than Disqualified Stock) of the Company or dividends or
distributions payable to the Company or any Wholly Owned Restricted Subsidiary
of the Company); (ii) purchase, redeem or otherwise acquire or retire for value
any Equity Interests of the Company, any of its Restricted Subsidiaries or any
other Affiliate of the Company (other than any such Equity Interests owned by
the Company or any Wholly Owned Restricted Subsidiary of the Company); (iii)
make any principal payment on, or purchase, redeem, defease or otherwise acquire
or retire for value any Indebtedness that is subordinated in right of payment to
the New Notes or a Subsidiary Guarantee, except at the original final maturity
thereof or in accordance with the scheduled mandatory redemption or scheduled
repayment provisions set forth in the original documentation governing such
Indebtedness (but not pursuant to any mandatory offer to repurchase upon the
occurrence of any event); or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through
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(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, and
(b) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii), (iii) and (v) of the next succeeding paragraph), is less than
the sum of (1) 50% of the Consolidated Net Income of the Company for the
period (taken as one accounting period) from the beginning of the first
fiscal quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, minus 100% of
such deficit), plus (2) 100% of the aggregate net cash proceeds received by
the Company from contributions of capital or the issue or sale since the
date of the Indenture of Equity Interests of the Company or of debt
securities of the Company issued after the date of the Indenture that have
been converted into such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Subsidiary of the Company and other
than Disqualified Stock or debt securities that have been converted into
Disqualified Stock), plus (3) to the extent that any Restricted Investment
that was made after the date of the Indenture is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (A) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) and (B) the initial amount of such Restricted Investment; provided
that no cash proceeds received by the Company from the issue or sale of any
Equity Interests issued by the Company will be counted in determining the
amount available for Restricted Payments under this clause (b) to the
extent such proceeds were used to redeem, repurchase, retire or acquire any
Equity Interests of the Company pursuant to clause (ii) of the next
succeeding paragraph, to defease, redeem or repurchase any subordinated
Indebtedness pursuant to clause (iii) of the next succeeding paragraph or
to repurchase, redeem or acquire any Equity Interests of the Company
pursuant to clause (iv) of the next succeeding paragraph, and
(c) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of the covenant entitled "-- Incurrence of
Indebtedness and Issuance of Preferred Stock."
The foregoing provisions do not prohibit any or all of the following (each
and all of which: (1) constitutes an independent exception to the foregoing
provisions and (2) may occur in addition to any action permitted to occur under
any other exception): (i) the payment of any dividend within 60 days after the
date of declaration thereof, if at such date of declaration such payment would
have complied with the provisions of the Indenture; (ii) the redemption,
repurchase, retirement or other acquisition of any Equity Interests of the
Company in exchange for, or out of the net cash proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other Equity
Interests of the Company (other than Disqualified Stock); provided that the
amount of any such net cash proceeds that are utilized for any such redemption,
repurchase, retirement or other acquisition shall be excluded from clause (b)(2)
of the preceding paragraph; and (iii) the defeasance, redemption or repurchase
of subordinated Indebtedness with the net proceeds from an incurrence of
Permitted Refinancing Indebtedness or the substantially concurrent sale (other
than to a Subsidiary of the Company) of Equity Interests of the Company (other
than Disqualified Stock); provided that the amount of any such net proceeds that
are utilized for any such redemption, repurchase, retirement or other
acquisition shall be excluded from clause (b)(2) of the preceding paragraph;
(iv) a Restricted Payment to fund the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company held
by any member of the Company's or any of its Restricted Subsidiaries' management
pursuant to any management equity subscription agreement or stock option
agreement; provided that (A) the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $5 million in
any twelve-month period plus the aggregate cash proceeds received by the Company
during such twelve-month period
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from any reissuance of Equity Interests by the Company to members of management
of the Company and its Restricted Subsidiaries and (B) no Default or Event of
Default shall have occurred and be continuing immediately after such
transaction; (v) the payment of dividends by a Restricted Subsidiary on any
class of common stock of such Restricted Subsidiary if such dividend is paid pro
rata to all holders of such class of common stock; (vi) the repurchase of any
joint venture interests in a Permitted Joint Venture; and (vii) the repurchase
or other acquisition of the common stock of a Restricted Subsidiary in an
aggregate amount not to exceed $10 million during the term of the Indenture.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such designation, all Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary
so designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such Investments will be deemed to
constitute Restricted Investments in an amount equal to the greater of (i) the
net book value of such Investments at the time of such designation and (ii) the
fair market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Investments would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by this covenant were computed, which calculations shall be based upon
the Company's latest available financial statements.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, Incur any
Indebtedness (including Acquired Debt) and the Company will not issue any
Disqualified Stock and will not permit any of its Restricted Subsidiaries to
issue any shares of Preferred Stock; provided, however, that the Company and any
Guarantor may Incur Indebtedness or issue shares of Disqualified Stock, if the
Fixed Charge Coverage Ratio for the Company's most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is Incurred
or such Disqualified Stock is issued would have been at least 2.5 to 1, in each
case, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred, or
the Disqualified Stock had been issued, as the case may be, at the beginning of
such four-quarter period.
The foregoing provisions will not apply to any of the following ("Permitted
Indebtedness"):
(i) the incurrence by the Company or any Guarantor of Indebtedness and
letters of credit pursuant to any Bank Credit Facility (with letters of
credit being deemed to have a principal amount equal to the maximum
potential liability of the Company or the relevant Guarantor thereunder) in
an aggregate principal amount outstanding at any one time not to exceed
$550 million less the aggregate amount of all repayments of the principal
of any Indebtedness under the Bank Credit Facility that permanently reduces
the amount of Indebtedness (and, in the case of revolving Indebtedness, the
commitments thereunder) under the Bank Credit Facility;
(ii) the incurrence by the Company and any Guarantor of Indebtedness
represented by the New Notes and any Subsidiary Guarantee;
(iii) Existing Indebtedness;
(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted by the Indenture;
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(v) the incurrence by Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Restricted Subsidiaries; provided, however, that (a) if the Company is the
obligor on such Indebtedness, such Indebtedness is expressly subordinate to
the payment in full of all obligations with respect to the New Notes and
(b) any subsequent issuance or transfer of Equity Interests and any
subsequent sale or other transfer of such Indebtedness, in each case, that
results in any such Indebtedness being held by a Person other than the
Company or any of its Restricted Subsidiaries shall be deemed to constitute
an incurrence of such Indebtedness by the Company or such Restricted
Subsidiary, as the case may be, not permitted pursuant to this clause (v);
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging (a) interest rate risk with respect to any floating rate
Indebtedness of such Person so long as such floating rate Indebtedness is
permitted by the terms of the Indenture to be outstanding or (b) exchange
rate risk with respect to agreements or indebtedness of such Person payable
or denominated in a currency other than U.S. dollars;
(vii) Obligations in respect of performance and surety bonds provided
by the Company or any Guarantor in the ordinary course of business;
(viii) Indebtedness evidenced by letters of credit issued in the
ordinary course of business of the Company to secure workers compensation
and other insurance coverages;
(ix) the incurrence by the Company or any Restricted Subsidiary of
Indebtedness represented by Capital Lease Obligations, mortgage financings
or Purchase Money Obligations, in each case, incurred for the purpose of
financing all or any part of the purchase price or cost of construction or
improvement of property used in the business of the Company or such
Restricted Subsidiary, in an aggregate principal amount at any time
outstanding not to exceed $10 million;
(x) the guarantee by the Company of Indebtedness of any Restricted
Subsidiary permitted under the Indenture and the guarantee by a Guarantor
of Indebtedness of the Company permitted in accordance with the Indenture;
and
(xi) the incurrence by the Company and any Guarantor of Indebtedness
in an aggregate principal amount at any time outstanding not to exceed $50
million.
Sale and Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company and any Guarantor may enter into a sale
and leaseback transaction if (i) the Company or such Guarantor could have
incurred Indebtedness in an amount equal to the Attributable Debt relating to
such sale and leaseback transaction pursuant to the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock," (ii) the Lien to
secure such Indebtedness does not extend to or cover any assets of the Company
or such Guarantor other than the assets which are the subject of the sale and
leaseback transaction, (iii) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors of the Company and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction and (iv) the transfer of assets in such sale
and leaseback transaction is permitted by, and the proceeds of such transaction
are applied in compliance with, the covenant entitled "Asset Sales."
Liens
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur or
assume any Lien (other than Permitted Liens) on any property or asset now owned
or hereafter acquired, or on any income or profits therefrom or assign or convey
any right to receive income therefrom, to secure any Indebtedness that is pari
passu with or subordinate in right of payment to the New Notes or any Subsidiary
Guarantee, as applicable, unless the New Notes and the Subsidiary Guarantees, as
applicable, are either (i) secured by a Lien on such property, assets, income or
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profits, if such other Indebtedness is subordinated in right of payment to the
New Notes and/or the Subsidiary Guarantees, that is senior in priority to the
Lien securing such other Indebtedness or (ii) equally and ratably secured by a
Lien on such property, assets, income or profits with the Lien securing such
other Indebtedness, if such other Indebtedness is pari passu in right of payment
to the New Notes and/or the Subsidiary Guarantees; provided that any Liens on
any such property, asset, income or profits granted pursuant to this provision
shall be released if no other Indebtedness that is pari passu with or
subordinated in right of payment to the New Notes is secured by any Lien on such
property, assets, income or profits.
Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause to become effective any encumbrance or consensual restriction on the
ability of any Restricted Subsidiary to: (i)(x) pay dividends or make any other
distributions to the Company or any of its Restricted Subsidiaries (1) on their
Capital Stock or (2) with respect to any other interest or participation in, or
measured by, its profits or (y) pay any Indebtedness owed to the Company or any
of its Restricted Subsidiaries; (ii) make loans or advances to the Company or
any of its Restricted Subsidiaries; (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries; or (iv) guarantee
any Indebtedness of the Company or any Restricted Subsidiary, except for such
encumbrances or restrictions existing under or by reasons of (a) Existing
Indebtedness, as in effect on the date of the Indenture; (b) the Bank Credit
Facility, as in effect on the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof; provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings are no more restrictive in the aggregate with
respect to such dividend and other payment restrictions than those contained in
the Bank Credit Facility (or, if more restrictive, than those contained in the
Indenture) as in effect on the date of the Indenture; (c) the Indenture and the
New Notes; (d) applicable law; (e) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries, as in effect at the time of acquisition (except to the extent such
Indebtedness was incurred in connection with, or in contemplation of, such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired; provided that in the case of
Indebtedness, such Indebtedness would be permitted by the terms of the Indenture
to be incurred if deemed to be incurred on the date of acquisition; (f)
customary non-assignment provisions in leases and other agreements entered into
in the ordinary course of business and consistent with past practices; (g)
Purchase Money Obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired; (h) Permitted Refinancing Indebtedness; provided
that, the restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are no more restrictive in the aggregate than those
contained in the agreements governing the Indebtedness being refinanced; or (i)
an agreement that has been entered into for the sale or disposition of all or
substantially all of the Equity Interests or property or assets of a Restricted
Subsidiary; provided that such restrictions are limited to (A) the Restricted
Subsidiary that is the subject of such agreement and (B) six months following
the execution of such agreement.
Merger, Consolidation, or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving entity), or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of its
properties or assets in one or more related transactions to, another Person
unless (i) the Company is the surviving corporation or the Person formed by or
surviving any such consolidation or merger (if other than the Company) or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition will have been made assumes all the obligations
of the Company under the New Notes and the Indenture pursuant to a supplemental
indenture in form reasonably satisfactory to the Trustee;
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(iii) immediately after giving effect to such transaction on a pro forma basis,
no Default or Event of Default exists; (iv) immediately after giving effect to
such transaction on a pro forma basis, the Consolidated Net Worth of the Company
is equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction; and (v) the Company or the Person formed
by or surviving any such consolidation or merger, or to which such sale,
assignment, transfer, lease, conveyance or other disposition will have been
made, will, at the time of such transaction after giving pro forma effect
thereto as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock."
Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, sell, lease, transfer or otherwise dispose of
any of its properties or assets to, or purchase any property or assets from, or
enter into any contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or such Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) if such Affiliate
Transaction involves aggregate payments in excess of $1 million, the Company
delivers to the Trustee a resolution of the Board of Directors of the Company
set forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above and either (x) such Affiliate Transaction is
approved by a majority of the disinterested members of the Board of Directors of
the Company or (y) the Company delivers to the Trustee a written opinion of an
investment banking firm of national standing or other recognized independent
expert with experience appraising the terms and conditions of the type of
transaction contemplated thereby stating that the Affiliate Transaction is fair
to the Company from a financial point of view; provided, however, that (a) any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business of the Company or such
Restricted Subsidiary in accordance with the past practice, (b) transactions
between or among the Company and/or its Wholly Owned Restricted Subsidiaries and
(c) any agreements regarding indemnification of directors or payment of employee
benefits, including bonuses, retirement plans and stock options, and director
fees in the ordinary course of business in accordance with the past practice of
the Company or such Restricted Subsidiary, shall not be deemed Affiliate
Transactions.
Anti-layering
The Indenture provides that (i) the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Indebtedness that is both
(a) subordinate or junior in right of payment to any Senior Debt and (b) senior
in any respect in right of payment to the New Notes; and (ii) no Guarantor will
incur, create, issue, assume, guarantee or otherwise become liable for any
Indebtedness that is both (a) subordinate or junior in right of payment to its
Senior Debt and (b) senior in any respect in right of payment to its Subsidiary
Guarantee.
Line of Business
The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in any line of business other than (i) the same or a
similar line of business as the Company and its Restricted Subsidiaries are
engaged in on the date of the Indenture and (ii) such business activities as are
complementary to, or are incidental, ancillary or related to, the foregoing.
Limitations on Issuances of Guarantees of Indebtedness
The Indenture provides that the Company will not permit any Restricted
Subsidiary, directly or indirectly, to Guarantee or pledge any assets to secure
the payment of any other Indebtedness of the Company
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unless either such Restricted Subsidiary (x) is a Guarantor or (y)
simultaneously executes and delivers a supplemental indenture to the Indenture
providing for the Guarantee of the payment of the New Notes by such Restricted
Subsidiary.
Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the New Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged (i) upon any sale,
exchange or transfer, to any Person not an Affiliate of the Company, of all of
the Company's stock in, or all or substantially all the assets of, such
Restricted Subsidiary, which sale, exchange or transfer is made in compliance
with the applicable provisions of the Indenture or (ii) if such Restricted
Subsidiary does not guarantee any other Indebtedness of the Company or have
guarantees outstanding with respect to any undrawn commitments of the Company.
The form of such Guarantee will be attached as an exhibit to the Indenture.
Reports
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any New Notes are outstanding, the
Company will furnish to the Holders of New Notes (i) all quarterly and annual
financial information that would be required to be contained in a filing with
the Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" that describes the financial condition and results of
operations of the Company and its Restricted Subsidiaries and, with respect to
the annual information only, a report thereon by the Company's certified
independent accountants and (ii) all current reports that would be required to
be filed with the Commission on Form 8-K if the Company were required to file
such reports. In addition, whether or not required by the rules and regulations
of the Commission, from and after the consummation of the Exchange Offer or the
effectiveness of the Shelf Registration Statement, the Company will file a copy
of all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, the Company and the Guarantors have agreed that, for so long as any
New Notes remain outstanding, they will furnish to Holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an "Event of
Default":
(i) default for 30 days in the payment when due of interest with
respect to or Liquidated Damages with respect to the New Notes (whether or
not prohibited by the subordination provisions of the Indenture);
(ii) default in payment when due of principal or premium, if any, on
the New Notes at maturity, upon redemption or otherwise including pursuant
to a Change of Control Offer or an Asset Sale Offer (whether or not
prohibited by the subordination provisions of the Indenture);
(iii) failure by the Company or any Guarantor to comply with the
provisions described under the covenants entitled "Change of Control,"
"Asset Sales" or "Merger, Consolidation or Sale of Assets" (in any case
whether or not prohibited by the subordination provisions of the
Indenture);
(iv) failure by the Company or any Guarantor for 60 days after notice
from the Trustee or the Holders of at least 25% in principal amount of the
New Notes then outstanding to comply with its other agreements in the
Indenture or the New Notes;
(v) default under any mortgage, indenture or instrument under which
there may be issued or by which there may be secured or evidenced any
Indebtedness for money borrowed by the Company or any of its Restricted
Subsidiaries (or the payment of which is guaranteed by the Company or any
of its Restricted Subsidiaries) whether such Indebtedness or Guarantee now
exists, or is created after the date of the Indenture, which default (A)
(i) is caused by a failure to pay when due at final stated maturity
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principal of (a "Payment Default") or (ii) results in the acceleration of
such Indebtedness prior to its express maturity and (B) in each case, the
principal amount of any such Indebtedness due to be paid, together with the
principal amount of any other such Indebtedness under which there has been
a Payment Default or the maturity of which has been accelerated as a result
of any matter contemplated in clause (v)(A)(i) or (v)(A)(ii), aggregates
$15 million or more;
(vi) failure by the Company or any of its Restricted Subsidiaries to
pay final judgments (to the extent not covered by insurance and as to which
the insurer has not acknowledged coverage in writing) aggregating in excess
of $15 million, which judgments are not paid, fully bonded, discharged or
stayed within 60 days after their entry;
(vii) certain events of bankruptcy or insolvency with respect to the
Company or any Restricted Subsidiary of the Company that is a Significant
Subsidiary or group of Restricted Subsidiaries of the Company that,
together, would constitute a Significant Subsidiary; and
(viii) the termination of the Subsidiary Guarantee(s) of either a
Guarantor that is a Significant Subsidiary or group of Guarantors that
together constitute a Significant Subsidiary for any reason not permitted
by the Indenture, or the denial of any Person acting on behalf of any such
Guarantor or group of Guarantors of its Obligations under any such
Subsidiary Guarantee(s).
To the extent that the last day of the period referred to in clauses (i),
(iv) or (vi) of the immediately preceding paragraph is not a Business Day, then
the first Business Day following such day shall be deemed to be the last day of
the period referred to in such clauses. Any "day" will be deemed to end as of
11:59 p.m., New York City time.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding New Notes
may declare all the New Notes to be due and payable by notice in writing to the
Company and the Trustee. Notwithstanding the foregoing, in the case of an Event
of Default arising from certain events of bankruptcy or insolvency with respect
to the Company, any Significant Subsidiary or any group of Subsidiaries that,
taken together, would constitute a Significant Subsidiary, all outstanding New
Notes will become due and payable without further action or notice. Holders of
the New Notes may not enforce the Indenture or the New Notes except as provided
in the Indenture. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding New Notes may direct the Trustee in its
exercise of any trust or power.
The Holders of a majority in aggregate principal amount of the New Notes
then outstanding, by notice to the Trustee, may on behalf of the Holders of all
of the New Notes waive any existing Default or Event of Default and its
consequences under the Indenture, except a continuing Default or Event of
Default in the payment of interest or premium on, or principal of, the New
Notes. The Trustee may withhold from Holders of the New Notes notice of any
continuing Default or Event of Default (except a Default or Event of Default
relating to the payment of principal, premium or interest) if it determines that
withholding notice is in such Holders' interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required, upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement within five days of so becoming aware specifying such Default or Event
of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, shall have any liability for any obligations of the
Company under the New Notes, any Subsidiary Guarantee or the Indenture or for
any claim based on, in respect of, or by reason of, such obligations or their
creation. Each Holder of New Notes by accepting a New Note waives and releases
all such liability. The waiver and release are part of the consideration for
issuance of the New Notes and the Subsidiary Guarantees. Such waiver may not be
effective to waive liabilities under the federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all
obligations of the Company and the Guarantors discharged with respect to the
outstanding New Notes and the Subsidiary Guarantees ("Legal Defeasance"). Such
Legal Defeasance means that the Company will be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding New Notes,
except for (a) the rights of Holders of outstanding New Notes to receive
payments in respect of the principal of, premium, if any, and interest and
Liquidated Damages on the New Notes when such payments are due, or on the
redemption date, as the case may be, (b) the Company's obligations with respect
to the New Notes concerning issuing temporary New Notes, registration of New
Notes, mutilated, destroyed, lost or stolen New Notes and the maintenance of an
office or agency for payment and money for security payments held in trust, (c)
the rights, powers, trust, duties and immunities of the Trustee and the
Company's obligations in connection therewith and (d) the legal defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to have the obligations of the Company and the Guarantors
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the New Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "-- Events of Default and Remedies" will no longer
constitute an Event of Default with respect to the New Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the New Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants
selected by the Trustee, to pay the principal of, premium and Liquidated
Damages, if any, and interest on the outstanding New Notes on the stated
maturity or on the applicable redemption date, as the case may be, and the
Company must specify whether the New Notes are being defeased to maturity or to
a particular redemption date; (ii) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding New Notes will not recognize income, gain or loss for federal income
tax purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the cease if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding New Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing on the date of such deposit (other than a
Default or Event of Default resulting from the borrowing of funds to be applied
to such deposit) or insofar as Events of Default from bankruptcy or insolvency
events are concerned, at any time in the period ending on the 91st day after the
day of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result
in a breach or violation of, or constitute a default under any material
agreement or instrument (other than the Indenture) to which the Company or any
of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of New Notes over the other creditors of the Company
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange New Notes in accordance with the
Indenture. The Registrar and the Trustee may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and the
Company may require a Holder to pay any taxes and fees required by law or
permitted by the Indenture. The Company is not required to transfer or exchange
any New Note selected for redemption. Also, the Company is not required to
transfer or exchange any New Note for a period of 15 days before a selection of
New Notes to be redeemed. The registered Holder of a New Note will be treated as
the owner of such New Note for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two paragraphs, the Indenture, the New Notes
or the Subsidiary Guarantees may be amended or supplemented with the consent of
the Holders of a majority in principal amount of the New Notes then outstanding
(including consents obtained in connection with a tender offer or exchange offer
for New Notes), and any existing default or compliance with any provision of the
Indenture, the New Notes or the Subsidiary Guarantees may be waived with the
consent of the Holders of a majority in principal amount of the then outstanding
New Notes (including consents obtained in connection with a tender offer or
exchange offer for New Notes).
Without the consent of each Holder affected, however, an amendment or
waiver may not (with respect to any New Note held by a non-consenting Holder):
(i) reduce the principal amount of New Notes whose Holders must consent to an
amendment, supplement or waiver; (ii) reduce the principal of or change the
fixed maturity of any New Note or alter the provisions with respect to the
redemption of the New Notes or any Change of Control Offer or any of the
definitions related thereto; (iii) reduce the rate of or change the time for
payment of interest on any New Notes; (iv) waive a Default or Event of Default
in the payment of principal of or premium, if any, or interest or Liquidated
Damages, if any, on the New Notes (except a rescission of acceleration of the
New Notes by the Holders of a majority in aggregate principal amount of the New
Notes and a waiver of the payment default that resulted from such acceleration);
(v) make any New Note payable in money other than that stated in the New Notes;
(vi) waive a redemption or repurchase payment with respect to any New Note or
alter the redemption provisions thereof; (vii) make any change in the foregoing
amendment and waiver provisions; or (viii) except as provided under " -- Legal
Defeasance and Covenant Defeasance" or the third paragraph under " -- Subsidiary
Guarantees," release any of the Guarantors from their obligations under the
Subsidiary Guarantees or make any change in the Subsidiary Guarantees that would
adversely affect the Holders. Notwithstanding the foregoing, the provisions with
respect to Asset Sales or any of the definitions related thereto may be amended
or supplemented with the consent of the Holders of at least two-thirds in
principal amount of the New Notes then outstanding (including consents obtained
in connection with a tender offer or exchange offer for the New Notes). In
addition, any amendment to the provisions of Article 10 of the Indenture (which
relate to subordination) will require the consent of the Holders of at least 75%
in aggregate principal amount of New Notes then outstanding if such amendment
would adversely affect the rights of Holders of New Notes.
Notwithstanding the foregoing, without the consent of any Holder of New
Notes, the Company, the Guarantors and the Trustee may amend or supplement the
Indenture, the Subsidiary Guarantees or the New Notes to cure any ambiguity,
defect or inconsistency, to provide for uncertificated New Notes in addition to
or in place of certificated New Notes, to provide for the assumption of the
Company's or a Guarantor's obligations to Holders of the New Notes in the case
of a merger or consolidation, to make any change that would provide any
additional rights or benefits to the Holders of the New Notes or that does not
adversely affect the legal rights under the Indenture of any such Holder, to
comply with requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act or to allow any
Guarantor to guarantee the New Notes.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should the Trustee become a creditor of the Company, to obtain payment of claims
in certain cases, or to realize on certain property
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received in respect of any such claim as security or otherwise. The Trustee will
be permitted to engage in other transactions with the Company; however, if the
Trustee acquires any conflicting interest, it must eliminate such conflict
within 90 days, apply to the Commission for permission to continue as Trustee or
resign.
The Holders of a majority in principal amount of the then outstanding New
Notes have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of New Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to the Company, 3611 Queen Palm Drive, Tampa, Florida
33619, Attention: Corporate Secretary.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the New Notes will initially be issued in the
form of one registered note in global form without coupons (the "Global Note").
Upon issuance, the Global Note will be deposited with, or on behalf of, the DTC
and registered in the name of Cede & Co., as nominee of the Depository.
If a holder tendering Existing Notes so requests, such holder's New Notes
will be issued as described below under "Certificated Securities" in registered
form without coupons (the "Certificated Securities").
EXCEPT AS SET FORTH BELOW, THE GLOBAL NOTES MAY BE TRANSFERRED, IN WHOLE
AND NOT IN PART, ONLY TO ANOTHER NOMINEE OF DTC OR TO A SUCCESSOR OF DTC OR ITS
NOMINEE. BENEFICIAL INTERESTS IN THE GLOBAL NOTES MAY NOT BE EXCHANGED FOR NEW
NOTES IN CERTIFICATED FORM EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED BELOW.
SEE "-- CERTIFICATED NEW NOTES."
Depositary Procedures
DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic
book-entry changes in accounts of Participants. The Participants include
securities brokers and dealers (including the Initial Purchasers), banks, trust
companies, clearing corporations and certain other organizations. Access to
DTC's system is also available to other entities such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a Participant, either directly or indirectly (collectively, the "Indirect
Participants"). Persons who are not Participants may beneficially own securities
held by or on behalf of DTC only through the Participants or Indirect
Participants. The ownership interest and transfer of ownership interest of each
actual purchaser of any beneficial interest in a security held by or on behalf
of DTC are recorded on the records of the Participants and Indirect
Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Notes, the Depository will credit the
accounts of Participants who elect to exchange Existing Notes with an interest
in the Global Note and (ii) ownership of the New Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depository (with respect to the interest of Participants), the
Participants and the Indirect Participants. The laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own and that securities interests in negotiable instruments can only be
perfected by delivery of certificates representing the instruments.
So long as the Depository or its nominee is the registered owner of the
Global Note, the Depository or such nominee, as the case may be, will be
considered the sole owner or holder of the New Notes represented
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by the Global Note for all purposes under the Indenture. Except as provided
below, owners of beneficial interests in the Global Note will not be entitled to
have New Notes represented by such Global Note registered in their names, will
not receive or be entitled to receive physical delivery of Certificated
Securities, and will not be considered the owners or holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instruction or approval to the Trustee thereunder. As a result, the
ability of a person having a beneficial interest in New Notes represented by the
Global Note to pledge such interest to persons or entities that do not
participate in the Depository's system, or to otherwise take action with respect
to such interest, may be affected by the lack of a physical certificate
evidencing such interest.
The Company understands that under existing industry practice, in the event
the Company requests any action of holders or an owner of a beneficial interest
in the Global Note desires to take any action that the Depository, as the holder
of such Global Note, is entitled to take, the Depository would authorize the
Participants to take such action and the Participant would authorize persons
owning through such Participants to take such action or would otherwise act upon
the instruction of such persons. Neither the Company nor the Trustee will have
any responsibility or liability for any aspect of the records relating to or
payments made on account of New Notes by the Depository, or for maintaining,
supervising or reviewing any records of the Depository relating to such New
Notes.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NEW NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NEW NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS
OR HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Payments in respect of the principal and premium, if any, and interest on a
Global Note registered in the name of DTC or its nominee will be payable by the
Trustee to DTC or its nominee in its capacity as the registered holder under the
Indenture. Under the terms of the Indenture, the Company and the Trustee will
treat the persons in whose names the New Notes, including the Global Notes, are
registered as the owners thereof for the purpose of receiving such payments and
for any and all other purposes whatsoever. Consequently, none of the Company,
the Trustee nor any agent of the Company or the Trustee has or will have any
responsibility or liability for (i) any aspect of DTC's records or any
Participant's or Indirect Participant's records relating to or payments made on
account of beneficial ownership interests in the Global Notes, or for
maintaining, supervising or reviewing any of DTC's records or any Participant's
or Indirect Participant's records relating to the beneficial ownership interests
in the Global Notes or (ii) any other matter relating to the actions and
practices of DTC or any of its Participants or Indirect Participants.
The Company expects that pursuant to procedures established by DTC, upon
receipt of any payment in respect of securities such as the New Notes (including
principal and interest), is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the relevant
security such as the Global Notes as shown on the records of DTC. Payments by
Participants and the Indirect Participants to the beneficial owners of New Notes
will be governed by standing instructions and customary practices and will not
be the responsibility of DTC, the Trustee or the Company. Neither the Company
nor the Trustee will be liable for any delay by DTC or its Participants in
identifying the beneficial owners of the New Notes, and the Company and the
Trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee as the registered owner of the New Notes
for all purposes.
Except for trades involving only Euroclear and Cedel participants,
interests in the Global Notes will trade in DTC's Same-Day Funds Settlement
System and secondary market trading activity in such interests will therefore
settle in immediately available funds, subject in all cases to the rules and
procedures of DTC and its Participants.
Transfers between Participants in DTC will be effected in accordance with
DTC's procedures, and will be settled in same-day funds. Transfers between
Participants in Euroclear and Cedel will be effected in the ordinary way in
accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the New
Notes described herein, cross-market transfers between Participants in DTC, on
the one hand, and Euroclear or Cedel participants, on the
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other hand, will be effected through DTC in accordance with DTC's rules on
behalf of Euroclear or Cedel, as the case may be, by their respective
depositories; however, such cross-market transactions will require delivery of
instructions to Euroclear or Cedel, as the case may be, by the counterparty in
such system in accordance with the rules and procedures and within the
established deadlines (Brussels time) of such system. Euroclear or Cedel, as the
case may be, will, if the transaction meets its settlement requirements, deliver
instructions to its depository to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant Global Note in DTC,
and making or receiving payment in accordance with normal procedures for
same-day fund settlement applicable to DTC. Euroclear participants and Cedel
participants may not deliver instructions directly to the depositaries for
Euroclear or Cedel.
Because of time zone differences, the securities accounts of a Euroclear or
Cedel participant purchasing an interest in a Global Note from a Participant in
DTC will be credited, and any such crediting will be reported to the relevant
Euroclear or Cedel participant, during the securities settlement processing day
(which must be a business day for Euroclear or Cedel) immediately following the
settlement date of DTC. Cash received in Euroclear or Cedel as a result of sales
of interests in a Global Note by or through a Euroclear or Cedel participant to
a Participant in DTC will be received with value on the settlement date of DTC
but will be available in the relevant Euroclear or Cedel cash account only as of
the business day for Euroclear or Cedel following DTC's settlement date.
The Company expects that pursuant to procedures established by DTC that DTC
will take any action permitted to be taken by a holder of Notes only at the
direction of one or more participants to whose account DTC has credited
interests in the Global Notes and only in respect of such portion of the
aggregate principal amount of the Notes as to which such Participant or
Participants have given direction. However, if there is an Event of Default
under the Notes, DTC reserves the right to exchange Global Notes for legended
Notes in certificated form, and to distribute such Notes to its Participants.
The information in this section concerning DTC, Euroclear and Cedel and
their book-entry systems has been obtained from sources that the Company
believes to be reliable but the Company takes no responsibility for the accuracy
thereof.
Although DTC, Euroclear and Cedel have agreed to the foregoing procedures
to facilitate transfers of interests in the Global Notes among Participants in
DTC, and participant in Euroclear and Cedel, they are under no obligation to
perform or to continue to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC, Euroclear or Cedel or their
respective participants or indirect participants of their respective obligations
under the rules and procedures governing their operations.
Certificated New Notes
A Global Note is exchangeable for definitive New Notes in registered
certificated form if (i) DTC (x) notifies the Company that it is unwilling or
unable to continue as depositary for the Global Note and the Company thereupon
fails to appoint a successor depositary or (y) has ceased to be a clearing
agency registered under the Exchange Act, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of the New
Notes in certificated form or (iii) there shall have occurred and be continuing
to occur a Default or an Event of Default with respect to the New Notes. In
addition, beneficial interests in a Global Note may be exchanged for
certificated New Notes upon request but only upon at least 20 days' prior
written notice given to the Trustee by or on behalf of DTC in accordance with
DTC's customary procedures. In all cases, certificated New Notes delivered in
exchange for any Global Note or beneficial interest therein will be registered
in the names, and issued in any approved denominations, requested by or on
behalf of the depositary (in accordance with its customary procedures).
SAME-DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, and interest and
Liquidated Damages, if any) be made by wire transfer of immediately available
funds to the accounts specified by the Global Note Holder. With respect to
certificated
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Notes, the Company will make all payments of principal, premium, if any, and
interest by wire transfer of immediately available funds to the accounts
specified by the Holders thereof or, if no such account is specified, by mailing
a check to each such Holder's registered address. The Company expects that
secondary trading in the certificated Notes will be settled in immediately
available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merges
with or into or becomes a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person's merging with or into or becoming a Subsidiary of such specified Person,
and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
notwithstanding the foregoing, beneficial ownership of 5% or more of the voting
securities of a Person shall be deemed to be control of such Person.
"ASSET SALE" means (i) the sale, lease, conveyance, or other disposition of
any assets (including, without limitation, by way of a sale and leaseback) other
than in the ordinary course of business (provided that the sale, lease,
conveyance or other disposition of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole will be governed by the provisions
of the Indenture described above under the covenant entitled "Change of Control"
and/or the provisions described above under the covenant entitled "Merger,
Consolidation or Sale of Assets" and not by the provisions of the Asset Sales
covenant), and (ii) the issue or sale by the Company or any of its Restricted
Subsidiaries of Equity Interests of any of the Company's Restricted
Subsidiaries, in the case of clauses (i) and (ii), whether in a single
transaction or a series of related transactions (a) that have a fair market
value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing, the following shall not be deemed Asset
Sales: (i) a transfer of assets by the Company to a Wholly Owned Restricted
Subsidiary or by a Restricted Subsidiary to the Company or to a Wholly Owned
Restricted Subsidiary; (ii) an issuance of Equity Interests by a Wholly Owned
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary; and (iii) the sale of property or equipment that has become worn
out, obsolete or damaged or otherwise unusable in connection with the business
of the Company or any Restricted Subsidiary, as the case may be.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"BANK CREDIT FACILITY" means that certain credit agreement, dated as of
December 3, 1997 by and among the Company, the lenders party thereto, CIBC
Oppenheimer Corp., as Syndication Agent, Bank of America National Trust and
Savings Association, as Documentation Agent and The Chase Manhattan Bank as
Administrative Agent, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced or refinanced from
time to time (together with any amendment, modification, renewal, refunding,
replacement or refinancing to or of any of the foregoing (collectively, a
"Modification") or to any Modification, ad infinitum), including, without
limitation, any agreement modifying the maturity or amortiza-
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tion schedule of or refinancing or refunding all or any portion of the
Indebtedness thereunder or increasing the amount that may be borrowed under such
agreement or any successor agreement, whether or not among the same parties.
"BANK INDEBTEDNESS" means (i) the Indebtedness outstanding or arising under
the Bank Credit Facility, (ii) all obligations and other amounts owing to the
holders of such Indebtedness or any agent or representative thereof outstanding
or arising under the Bank Credit Facility (including, but not limited to,
interest (including interest accruing on or after the filing of any petition in
bankruptcy, reorganization or similar proceeding relating to the Company or any
Restricted Subsidiary, whether or not a claim for such interest is allowed in
such proceeding), fees, charges, indemnities, expense reimbursement obligations
and other claims under the Bank Credit Facility), and (iii) all Hedging
Obligations arising in connection therewith to any party to the Bank Credit
Facility (or any affiliate thereof).
"CAPITAL LEASE OBLIGATION" means, with respect to any obligation of any
Person at the time any determination thereof is to be made, the amount of the
liability in respect of a capital lease that would at such time be so required
to be capitalized on a balance sheet of such Person in accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock and (iii) in the case of a partnership, partnership interests
(whether general or limited).
"CHANGE OF CONTROL" means the occurrence of any of the following events:
(i) any sale, lease, transfer, conveyance or other disposition (other than by
way of merger or consolidation), in one or a series of related transactions, of
all or substantially all of the assets of the Company and its Subsidiaries taken
as a whole to any "person" (as defined in Section 13(d) of the Exchange Act) or
"group" (as defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act); (ii)
the adoption of a plan for the liquidation or dissolution of the Company; (iii)
the Company consolidates with, or merges with or into, another "person" (as
defined above) or "group" (as defined above) in a transaction or series of
related transactions in which the Voting Stock of the Company is converted into
or exchanged for cash, securities or other property, other than any transaction
where (A) the outstanding Voting Stock of the Company is converted into or
exchanged for Voting Stock (other than Disqualified Stock) of the surviving or
transferee corporation and (B) either (1) the "beneficial owners" (as defined in
Rule 13d-3 under the Exchange Act) of the outstanding Voting Stock of the
Company immediately prior to such transaction own beneficially, directly or
indirectly through one or more Subsidiaries, not less than a majority of the
total outstanding Voting Stock of the surviving or transferee corporation
immediately after such transaction or (2) if, immediately prior to such
transaction the Company is a direct or indirect Subsidiary of any other Person
(each such other Person, the "Holding Company"), the "beneficial owners" (as
defined above) of the outstanding Voting Stock of such Holding Company
immediately prior to such transaction own beneficially, directly or indirectly
through one or more Subsidiaries, not less than a majority of the outstanding
Voting Stock of the surviving or transferee corporation immediately after such
transaction; (iv) the consummation of any transaction or series of related
transactions (including, without limitation, by way of merger or consolidation)
the result of which is that any "person" (as defined above) or "group" (as
defined above) becomes the "beneficial owner" (as defined above) of more than
40% of the voting power of the Voting Stock of the Company; or (v) during any
consecutive two-year period, the first day on which a majority of the members of
the Board of Directors of the Company who were members of the Board of Directors
at the beginning of such period are not Continuing Directors. For purposes of
this definition, any transfer of an equity interest of any entity that was
formed for the purpose of acquiring Voting Stock of the Company will be deemed
to be a transfer of such portion.
"COMMON STOCK" means the common stock, par value $.01 per share, of the
Company.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any period,
the Consolidated Net Income of such Person and its Restricted Subsidiaries for
such period, plus, to the extent deducted in computing Consolidated Net Income,
(i) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, (ii) Consolidated Interest Expense of
such Person for such period, (iii) depreciation and amortization (including
amortization of goodwill and other intangibles) and all other
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non-cash charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period, (iv) any extraordinary
loss and any net loss realized in connection with either an Asset Sale or the
extinguishment of Indebtedness, in each case, on a consolidated basis determined
in accordance with GAAP less any cash payments related to non-cash charges in
prior periods which were previously added back in the calculation of
Consolidated Cash Flow in prior periods and (v) restructuring charges taken in
the fourth quarter of 1997 and/or the first quarter of 1998 in connection with
the merger between Capstone Pharmacy Services, Inc. and Pharmacy Corporation of
America in an aggregate amount not to exceed $35 million. Notwithstanding the
foregoing, the provision for taxes based on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Restricted
Subsidiary of a Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in the same proportion) that the
Net Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to the Company by
such Subsidiary without governmental approval (that has not been obtained) and
without direct or indirect restriction pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the interest expense of such Person and its Restricted Subsidiaries for
such period, on a consolidated basis, determined in accordance with GAAP
(including amortization of original issue discount and deferred financing costs,
non-cash interest payments, the interest component of all payments associated
with Capital Lease Obligations, net payments, if any, pursuant to Hedging
Obligations, imputed interest with respect to Attributable Debt), all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers acceptance financings.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (i) the Net Income (but not loss) of any Person that is
not a Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of cash dividends
or distributions paid to the referent Person or a Wholly Owned Restricted
Subsidiary thereof that is a Guarantor, (ii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded, (iii) the cumulative effect of a change
in accounting principles shall be excluded, and (iv) the Net Income of any
Restricted Subsidiary shall be excluded to the extent that the declaration or
payment of dividends or similar distributions by that Restricted Subsidiary of
Net Income is not, at the date of determination, permitted without any prior
governmental approval (which has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary.
"CONSOLIDATED NET WORTH" means for any Person, as of any date of
determination, the consolidated stockholders equity (excluding Disqualified
Stock) of such Person and its Restricted Subsidiaries as determined in
accordance with GAAP.
"CONTINUING DIRECTORS" means, as of any date of determination, any member
of the Board of Directors of the relevant Person who (i) was a member of such
Board of Directors on the date of the Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
"DEFAULT" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"DESIGNATED NONCASH CONSIDERATION" means the fair market value of non-cash
consideration received by the Company or a Restricted Subsidiary in connection
with an Asset Sale that is so
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designated as Designated Noncash Consideration pursuant to an officers'
certificate, setting forth the basis of such valuation, executed by the
principal executive officer and the principal financial officer of the Company.
"DESIGNATED SENIOR DEBT" means (i) so long as any Bank Indebtedness is
outstanding, the Bank Indebtedness, and (ii) thereafter, any other Senior Debt
permitted under the Indenture the principal amount of which is $50 million or
more and that has been designated by the Company as "Designated Senior Debt."
"DISQUALIFIED STOCK" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable, except to the extent such Capital Stock is exchangeable into
indebtedness at the option of the issuer thereof and only subject to the terms
of any debt instrument to which such issuer is a party), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, or convertible or exchangeable into Indebtedness on or prior
to date that is 91 days after the date on which the Notes mature; provided,
however that any Capital Stock that would not qualify as Disqualified Stock but
for change of control provisions shall not constitute Disqualified Stock if the
provisions are not more favorable to the holders of such Capital Stock than the
provisions described under "-- Change of Control" applicable to the holders of
the Notes.
"ELIGIBLE INSTITUTION" means a commercial banking institution that has
combined capital and surplus of not less than $500.0 million or its equivalent
in foreign currency, whose short-term debt is rated "A-1" (or higher) according
to Standard & Poor's Ratings Group ("S&P") or "P-1" or higher according to
Moody's Investors Service, Inc. ("Moody's") or carrying an equivalent rating by
a nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the Bank Credit Facility)
in existence on the date of the Indenture until such amounts are repaid.
"FIXED CHARGES" means, with respect to any Person for any period, the sum
of (i) the Consolidated Interest Expense of such Person for such period, plus
(ii) any interest expense on Indebtedness of another Person that is (A)
Guaranteed by the referent Person or one of its Restricted Subsidiaries (whether
or not such Guarantee is called upon) or (B) secured by a Lien on assets of such
Person or one of its Restricted Subsidiaries (whether or not such Lien is called
upon), plus (iii) the product of (a) all cash dividend payments (and non-cash
dividend payments in the case of a Person that is a Subsidiary) on any series of
Preferred Stock of such Person, times (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues or redeems
Preferred Stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but on or prior to the date on which
the event occurred for which the calculation of the Fixed Charge Coverage Ratio
is required (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall
be calculated giving pro forma effect to such incurrence, assumption, Guarantee
or redemption of Indebtedness, or such issuance or redemption of Preferred
Stock, as if the same had occurred at the beginning of the applicable
four-quarter reference period. For purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date shall be deemed to have occurred on the first day of the four-quarter
reference period
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and shall give pro forma effect to the Indebtedness and the Consolidated Cash
Flow of the Person which is the subject of any such acquisition for such period
and shall give pro forma effect to all other pro forma adjustments which would
be made in accordance with Rule 11-02 of Regulation S-X under the Securities Act
of 1933 or any successor provision (provided that any cost savings included in
such adjustments are set forth in an officer's certificate delivered to the
Trustee), and (ii) the Consolidated Cash Flow attributable to operations or
businesses disposed of prior to the Calculation Date shall be excluded.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, the Securities and Exchange Commission
or in such other statements by such other entity as may be approved by a
significant segment of the accounting profession of the United States, which are
in effect from time to time.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"GUARANTOR" means any Restricted Subsidiary of the Company that executes a
Subsidiary Guarantee in accordance with the terms of the Indenture and each of
their respective successors and assigns unless and until any successor replaces
any such Guarantor in accordance with the Indenture and thereafter includes each
such successor.
"HEDGING OBLIGATIONS" means, with respect to any Person, the obligations of
such Person under (i) interest rate swap agreements, interest rate cap
agreements and interest rate collar agreements, (ii) other agreements or
arrangements designed to protect such Person against fluctuations in interest
rates or foreign exchange rates and (iii) indemnity agreements and arrangements
entered into in connection with the agreements and arrangements described in
clauses (i) and (ii).
"INCUR" means, with respect to any Indebtedness (including Acquired Debt),
to create, incur, issue, assume, guaranty or otherwise become directly or
indirectly liable for or with respect to, or become responsible for, the payment
of such Indebtedness (including Acquired Debt); provided that (i) neither the
accrual of interest nor the accretion of original issue discount shall be
considered an incurrence of Indebtedness and, (ii) the issuance of any New Notes
in exchange for a like principal amount of Notes shall not be deemed to be an
Incurrence of Indebtedness. The term "incurrence" has corresponding meaning.
"INDEBTEDNESS" means, with respect to any Person without duplication, any
indebtedness of such Person, whether or not contingent, in respect of borrowed
money or evidenced by bonds, notes, debentures or similar instruments or letters
of credit (or reimbursement agreements in respect thereof) or representing
Capital Lease Obligations or Purchase Money Obligations or the deferred and
unpaid balance of the purchase price of any property, excluding any such balance
that constitutes an accrued expense or trade payable, or representing any
Hedging Obligations if and to the extent any of the foregoing indebtedness
(other than letters of credit and Hedging Obligations) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
as well as all indebtedness of others secured by a Lien on any asset of such
Person (whether or not such indebtedness is assumed by such Person), the maximum
fixed repurchase price of Disqualified Stock issued by such Person and the
liquidation preference of Preferred Stock issued by such Person, in each case if
held by any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company, and, to the extent not otherwise included, the
Guarantee by such Person of any such indebtedness of any other Person.
"ISSUE DATE" means the date the Notes are initially issued under the
Indenture.
"INVESTMENTS" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of loans (including
guarantees), advances or capital contributions
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(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, and all
other items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. If the Company or any Restricted Subsidiary of
the Company sells or otherwise disposes of any Equity Interests of any direct or
indirect Restricted Subsidiary of the Company, or any Restricted Subsidiary of
the Company issues Equity Interests, such that, after giving effect to any such
sale, disposition or issuance, such Person is no longer a Wholly Owned
Restricted Subsidiary of the Company, the Company shall be deemed to have made
an Investment on the date of any such sale, disposition or issuance equal to the
fair market value of the Equity Interests of such Person held by the Company or
such Restricted Subsidiary immediately following any such sale, disposition or
issuance.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in such asset and any filing of an agreement or any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"MARKETABLE SECURITIES" means (i) Government Securities, (ii) any
certificate of deposit maturing not more than 180 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution or any lender
under the Bank Credit Facility, (iii) commercial paper maturing not more than
180 days after the date of acquisition of an issuer (other than an Affiliate of
the Company) with a rating, at the time as of which any investment therein is
made, of "A-1" (or higher) according to S&P or "P-1" (or higher) according to
Moody's or carrying an equivalent rating by a nationally recognized rating
agency if both of the two named rating agencies cease publishing ratings of
investments, (iv) any bankers acceptances or money market deposit accounts
issued by an Eligible Institution and (v) any fund investing exclusively in
investments of the types described in clauses (i) through (iv) above.
"NET INCOME" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the extinguishment of any Indebtedness of such Person or any of its
Restricted Subsidiaries, and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof, amounts
required to be applied to the repayment of Indebtedness (other than long-term
Indebtedness of a Restricted Subsidiary of such Person and Indebtedness under
the Bank Credit Facility) secured by a Lien on the asset or assets that are the
subject of such Asset Sale and any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP.
"NON-RECOURSE DEBT" means Indebtedness (i) no default with respect to which
(including any rights that the holders thereof may have to take enforcement
action against an Unrestricted Subsidiary) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or cause
the payment thereof to be accelerated or payable prior to its stated maturity
and (ii) as to which the lenders have been notified in writing that they will
not have any recourse to the stock or assets of the Company or any of its
Restricted Subsidiaries.
"OBLIGATIONS" means any principal, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided in the documentation with respect thereto, whether or not
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such interest is an allowed claim under applicable law), penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"PERMITTED INVESTMENTS" means (i) Investments in the Company or in a Wholly
Owned Restricted Subsidiary of the Company (including, without limitation,
Guarantees of the Indebtedness and/or other Obligations of the Company and/or
any Wholly Owned Restricted Subsidiary of the Company, so long as such
Indebtedness and/or other Obligations are permitted under the Indenture), (ii)
Investments in Marketable Securities, (iii) Investments by the Company or any
Restricted Subsidiary of the Company in, or the purchase of the securities of, a
Person if, as a result of such Investment, (a) such person becomes a Wholly
Owned Restricted Subsidiary of the Company or (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Wholly Owned
Restricted Subsidiary of the Company, (iv) Investments in accounts and notes
receivable acquired in the ordinary course of business, (v) any non-cash
consideration received in connection with an Asset Sale that complies with the
covenant entitled "Asset Sales," (vi) Investments in connection with Hedging
Obligations permitted to be incurred under the covenant entitled "Incurrence of
Indebtedness and Issuance of Preferred Stock," (vii) Investments in Permitted
Joint Ventures in an amount not to exceed $20 million in the aggregate at any
one time outstanding and (viii) other Investments in an amount not to exceed $10
million in the aggregate at any one time outstanding.
"PERMITTED JOINT VENTURE" means a Person (i) which owns, leases, operates
or services a Related Business or manufactures or markets healthcare products
and (ii) of which the Company, directly or indirectly, beneficially owns at
least a majority of the Equity Interests.
"PERMITTED JUNIOR SECURITIES" means (i) equity securities of the Company
and (ii) debt securities of the Company that are unsecured and subordinated at
least to the same extent as the Notes to Senior Debt of the Company and
guarantees of any such debt by any Guarantor that are unsecured and subordinated
at least to the same extent as the Guarantee of such Guarantor to the Senior
Debt of such Guarantor, as the case may be, and has a final maturity date at
least as late as the final maturity date of, and has a Weighted Average Life to
Maturity equal to or greater than the Weighted Average Life to Maturity of, the
Notes.
"PERMITTED LIENS" means; (i) Liens in favor of the Company or any of its
Restricted Subsidiaries, (ii) Liens on property of a Person existing at the time
such Person is merged with or into or consolidated with the Company or any
Restricted Subsidiary of the Company; provided, that such Liens were not
incurred in connection with, or in contemplation of, such merger or
consolidation and do not extend to any assets of the Company or any Restricted
Subsidiary of the Company other than the assets acquired in such merger or
consolidation; (iii) Liens on property of a Person existing at the time such
Person becomes a Restricted Subsidiary of the Company; provided that such Liens
were not incurred in connection with, or in contemplation of, such Person
becoming a Restricted Subsidiary and do not extend to any assets of the Company
or any other Restricted Subsidiary of the Company; (iv) Liens on property
existing at the time of acquisition thereof by the Company or any Restricted
Subsidiary of the Company; provided that such Liens were not incurred in
connection with, or in contemplation of, such acquisition and do not extend to
any assets of the Company or any of its Restricted Subsidiaries other than the
property so acquired; (v) Liens to secure the performance of statutory
obligations, surety or appeal bonds or performance bonds, or landlords',
carriers', warehousemen's, mechanics', suppliers', materialmen's or other like
Liens, in any case incurred in the ordinary course of business and with respect
to amounts not yet delinquent or being contested in good faith by appropriate
process of law, provided that a reserve or other appropriate provision, if any,
as is required by GAAP shall have been made therefor; (vi) Liens existing on the
date of the Indenture; (vii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded; provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (viii) Liens to
secure Indebtedness (including Capital Lease Obligations) permitted by clause
(iii) or clause (ix) of the second paragraph of the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock" covering only the
assets acquired, constructed or improved with such Indebtedness or the assets
which are the subject of the sale and leaseback transaction, as the case may be,
(ix) Liens securing Indebtedness
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incurred to refinance Indebtedness that has been secured by a Lien permitted
under the Indenture; provided that (a) any such Lien shall not extend to or
cover any assets or property not securing the Indebtedness so refinanced and (b)
the refinancing Indebtedness secured by such Lien shall have been permitted to
be incurred under the covenant entitled "Incurrence of Indebtedness and Issuance
of Preferred Stock;" (x) Liens in favor of the lessee on instruments which are
the subject of leases entered into in the ordinary course of business; provided
that any such Lien shall not extend to or cover any assets or property of the
Company and its Restricted Subsidiaries that is not the subject of any such
lease; (xi) Liens to secure Attributable Debt that is permitted to be incurred
pursuant to the covenant entitled "Sale and Leaseback Transactions;" provided
that any such Lien shall not extend to or cover any assets of the Company or any
Guarantor other than the assets which are the subject of the sale leaseback
transaction in which the Attributable Debt is incurred; (xii) judgment and
attachment Liens not giving rise to a Default; (xiii) easements, rights-of-way,
zoning or other restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with the
business of the Company or any of its Restricted Subsidiaries incurred in the
ordinary course of business; (xiv) pledges or deposits to secure obligations
under workers' compensation laws or similar legislation or to secure public or
statutory obligations; and (xv) liens to secure Purchase Money Obligations.
"PERMITTED REFINANCING INDEBTEDNESS" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount of such Permitted Refinancing
Indebtedness does not exceed the principal amount of the Indebtedness so
extended, refinanced, renewed, replaced, defeased or refunded (plus the amount
of premiums and reasonable expenses incurred in connection therewith); (ii) such
Permitted Refinancing Indebtedness has a final maturity date at least as late as
the final maturity date of, and has a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or refunded
is subordinated in right of payment to the Notes, such Permitted Refinancing
Indebtedness has a final maturity date later than the final maturity date of,
and is subordinated in right of payment to, the Notes on terms at least as
favorable to the Holders of Notes as those contained in the documentation
governing the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PREFERRED STOCK" means, with respect to any Person, any Capital Stock of
any class or classes (however designated) which is preferred as to the payment
of dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"PUBLIC OFFERING" means an underwritten offer and sale of Common Stock of
the Company pursuant to a registration statement that has been declared
effective by the Commission pursuant to the Securities Act of 1933, as amended
(other than a registration statement on Form S-8 or otherwise related to equity
securities issuable upon any employee benefit plan of the Company).
"PURCHASE MONEY OBLIGATION" means any Indebtedness secured by a Lien on
assets related to the business of the Company and its Restricted Subsidiaries
and any additions and accessions thereto, which are purchased by the Company and
its Restricted Subsidiaries at any time after the Notes are issued; provided
that (i) the security agreement or conditional sales or other title retention
contract pursuant to which the lien on such assets is created (collectively a
"Purchase Money Security Agreement") shall be entered into within 90 days after
the purchase or substantial completion of the construction of such assets and
shall at all times be confined solely to the assets so purchased or acquired,
any additions and accessions thereto and any proceeds therefrom, (ii) at no time
shall the aggregate principal amount of the outstanding Indebtedness secured
thereby be increased, except in connection with the purchase of additions and
accessions thereto and
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except in respect of fees and other obligations in respect of such Indebtedness
and (iii) (A) the aggregate outstanding principal amount of Indebtedness secured
thereby (determined on a per asset basis in the case of any additions and
accessions) shall not at the time such Purchase Money Security Agreement is
entered into exceed 100% of the purchase price to the Company and its Restricted
Subsidiaries of the assets subject thereto or (B) the Indebtedness secured
thereby shall be with recourse solely to the assets so purchased or acquired,
any additions and accessions thereto and any proceeds therefrom.
"RELATED BUSINESS" means any business in the same or similar business as
the Company and its Restricted Subsidiaries are engaged in on the date of the
Indenture and such business activities as are complementary to, or are
incidental, ancillary or related to, the foregoing.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"SENIOR DEBT" means (a) with respect to the Company, (i) all Indebtedness
permitted to be incurred pursuant to the Indenture under or in respect of the
Bank Credit Facility and (ii) any other Indebtedness permitted to be incurred by
the Company under the terms of the Indenture and any Hedging Obligation
permitted to be incurred under the terms of the Indenture, unless the instrument
under which the foregoing is incurred expressly provides that the Indebtedness
thereunder is on a parity with or subordinated in right of payment to the Notes
and (b) with respect to any Guarantor, (i) all guarantees of such Guarantor
permitted to be incurred pursuant to the Indenture under or in respect of the
Bank Credit Facility and (ii) any other Indebtedness permitted to be incurred by
such Guarantor under the terms of the Indenture and any Hedging Obligation
permitted to be incurred under the terms of the Indenture, unless the instrument
under which the foregoing is incurred expressly provides that the Indebtedness
thereunder is on parity with or subordinated in right of payment to the
Subsidiary Guarantee of such Guarantor. Notwithstanding anything to the contrary
in the foregoing, Senior Debt of the Company will not include (i) Indebtedness
evidenced by the Notes; (ii) Indebtedness of the Company that is expressly
subordinated in right of payment to any Indebtedness of the Company; (iii)
Indebtedness of the Company that by operation of law is subordinate to any
general unsecured obligation of the Company; (iv) Indebtedness which when
incurred and without respect to any election under Section 1111(b) of Title 11
of the United States Code is without recourse to the Company or any of its
Subsidiaries; (v) any liability for federal, state, local or other taxes; (vi)
any Indebtedness of the Company or any Guarantor to the Company or any
Subsidiary of the Company or any of their respective Affiliates; (vii) any trade
payables; or (viii) any Indebtedness that is incurred in violation of the
Indenture.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be a
"significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of Voting Stock is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or one
or more Subsidiaries of such Person (or any combination thereof).
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by the
Board of Directors of the Company as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only if such Subsidiary: (i) has no Indebtedness other
than Non-Recourse Debt; (ii) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (iii) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (a) to subscribe for additional Equity Interests or (b) to
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maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; and (iv) has not
guaranteed or otherwise directly or indirectly provided credit support for any
Indebtedness of the Company or any of its Restricted Subsidiaries. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions and was permitted by the
covenant described above under the covenant entitled "Restricted Payments." If,
at any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of the Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant entitled "Incurrence of Indebtedness
and Issuance of Preferred Stock," the Company shall be in default of such
covenant from the date of such incurrence). The Board of Directors of the
Company may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (i) such Indebtedness is permitted under the covenant entitled
"Incurrence of Indebtedness and Issuance of Preferred Stock" and (ii) no Default
or Event of Default would be in existence following such designation.
"VOTING STOCK" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the then outstanding
principal amount of such Indebtedness into (ii) the total of the product
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person or by such
Person and one or more Wholly Owned Subsidiaries of such Person.
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DESCRIPTION OF BANK CREDIT FACILITY
The Company is the borrower under the Bank Credit Facility, which provides
for a $550 million revolving credit facility, that matures on December 3, 2002.
The Chase Manhattan Bank is the administrative agent for the lenders under the
Bank Credit Facility. All obligations under the Bank Credit Facility are
guaranteed by the Company's subsidiaries. The Bank Credit Facility is unsecured.
The Company plans to use the net proceeds of the Offering to repay a portion of
the outstanding balance of the Bank Credit Facility and to pay fees and expenses
related to the Offering.
Interest is payable on borrowings under the Bank Credit Facility, at the
election of the Company, at either (a) the Alternate Base Rate (the greater of
the prime rate, the federal funds effective rate plus 50 basis points or a three
month secondary CD rate plus 100 basis points), or (b) the Adjusted LIBOR Rate
plus a margin of from 0.2000% to 0.3750%, based upon the Company's leverage
ratio. As of March 31, 1998, the weighted average borrowing rate was
approximately 7.3%. A facility fee of from 0.1000 to 0.2500% per annum (0.1875%
as of March 31, 1998) is payable by the Company on the daily amount of the
commitment of each lender. The amount of the facility fee is based upon the
Company's leverage ratio.
The Bank Credit Facility contains various financial covenants, including an
Adjusted Leverage Ratio, a Consolidated Interest Expense Coverage Ratio and a
Net Worth covenant (each as defined in the Bank Credit Facility). The Adjusted
Leverage Ratio, which is the ratio of principal indebtedness of the Company to
the cash flow of the Company, subject to certain adjustments, cannot be in
excess of 4:1. The Consolidated Interest Expense Coverage Ratio, which is the
ratio of the cash flow of the Company to the interest expense of the Company,
cannot be less than 2.5:1 for any four fiscal quarter period. The Net Worth of
the Company cannot be less than the sum of $394.2 million plus 50% of positive
net income plus 100% of the proceeds of an equity offering.
The Bank Credit Facility also contains certain covenants which, among other
things, impose certain limitations or prohibitions on the Company with respect
to the incurrence of certain indebtedness, the creation of security interests on
the assets of the Company, certain mergers or consolidations, certain
investments, loans or guarantees, certain hedging agreements not entered into to
mitigate risk, payment of cash dividends and the redemption or repurchase of
securities of the Company, sales of all or substantially all of the assets or
stock of the Company, non-arm's length transactions with affiliates, and
entering into certain restrictive agreements. The Company is generally
restricted from making acquisitions of less than all of the equity interests or
all or substantially all of the assets of an acquired entity. The Company also
is restricted from making acquisitions while a Default or Event of Default (as
defined therein) has occurred and is continuing or an acquisition that would
result in a breach of certain financial covenants.
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CERTAIN TAX CONSIDERATIONS
GENERAL
The following is a general discussion of certain material federal income
tax consequences to Holders of Notes of the Exchange Offer and the purchase,
ownership and disposition of the Exchange Notes. The summary is based on the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury Regulations promulgated thereunder, and administrative and judicial
interpretations thereof, all as in effect as of the date hereof and all of which
are subject to change (possibly on a retroactive basis). The following
discussion does not purport to deal with all aspects of federal income taxation
that may be relevant to a particular investor in light of such investor's
personal investment circumstances. Nor does the discussion address special rules
applicable to certain types of investors subject to special treatment under the
Code (including, without limitation, financial institutions, broker-dealers,
regulated investment companies, life insurance companies, tax-exempt
organizations, foreign corporations and non-resident aliens). Moreover, the
description is generally limited to investors who will hold the Exchange Notes
as capital assets (generally, property held for investment) within the meaning
of Section 1221 of the Code. No consideration of any aspects of state, local or
foreign taxation is included herein.
EACH HOLDER IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISOR AS TO THE
SPECIFIC TAX CONSEQUENCES OF A PURCHASE OF NOTES IN LIGHT OF SUCH HOLDER'S OWN
PARTICULAR TAX SITUATION, INCLUDING THE APPLICATION AND EFFECT OF THE CODE, AS
WELL AS STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
THE EXCHANGE OFFER
The exchange of Notes for New Notes pursuant to the Exchange Offer will not
constitute a material modification of the terms of the Notes and, accordingly,
such exchange will not constitute an exchange for federal income tax purposes.
Accordingly, such exchange will have no federal income tax consequences to a
Holder, regardless of whether such Holder participates in the Exchange Offer,
and a Holder will continue to be required to include interest on such Note or
New Note in its gross income in accordance with such Holder's method of
accounting for federal income tax purposes. The Company intends, to the extent
required, to treat the Exchange Offer for federal income tax purposes in
accordance with the position described above.
INTEREST
Interest paid or accrued on the New Notes will be taxable to a Holder as
ordinary income in accordance with the holder's method of accounting for federal
income tax purposes.
DISPOSITION OF THE NEW NOTES
Generally, any sale or redemption of an New Note will result in taxable
gain or loss equal to the difference between the amount of cash or other
property received by the Holder in exchange for such New Note and the Holder's
adjusted tax basis in such New Note. Any gain or loss upon a sale or other
disposition of a New Note will generally be capital gain or loss, which will be
long term if the New Note has been held by the Holder for more than one year.
BACKUP WITHHOLDING
A Holder may be subject, under certain circumstances, to backup withholding
at a 31 percent rate with respect to payments received with respect to New
Notes. This withholding generally applies only if the Holder (i) fails to
furnish its social security or taxpayer identification number ("TIN"), (ii)
furnishes an incorrect TIN, (iii) is notified by the Internal Revenue Service
that it has failed to report properly payments of interest and dividends and the
service has notified the Company that the Holder is subject to withholding, or
(iv) fails under certain circumstances, to provide a certified statement, signed
under penalty of perjury, that the TIN provided is its correct number and that
it is not subject to backup withholding. Any amount withheld from a
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payment to a Holder under the backup withholding rules is allowable as a credit
against such Holder's federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service. Certain Holders
(including, among others, corporations and foreign individuals who comply with
certain certification requirements described below under "Foreign Holders") are
not subject to backup withholding. Holders should consult their tax advisors as
to their qualification for exemption from backup withholding and the procedure
for obtaining such an exemption.
FOREIGN HOLDERS
The following discussion is a summary of certain U.S. federal income tax
consequences to a Foreign Person that holds a New Note. The term "Foreign
Person" means a nonresident alien individual or foreign corporation, but only if
such person's income or gain on the New Note would not be "effectively connected
with the conduct of a trade or business within the United States." If such
person's income or gain on the New Note would be "effectively connected with the
conduct of a trade or business within the United States," then such person will
generally be subject to tax on such income or gain in essentially the same
manner as a U.S. citizen or resident or a domestic corporation, as discussed
above, and in the case of a foreign corporation, may also be subject to U.S.
branch profits tax.
Under the "portfolio interest" exception to the general rules for the
withholding of tax on interest paid to a Foreign Person, a Foreign Person will
not be subject to U.S. tax (or to withholding) on interest on a New Note,
provided that (i) the Foreign Person does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of the
Company entitled to vote, (ii) the Foreign Person is not a controlled foreign
corporation with respect to the United States that is related to the Company
through stock ownership, (iii) the Foreign Person is not a bank receiving
interest on a loan entered into in the ordinary course of business, and (iv) the
Company, its paying agent, or the person who would otherwise be required to
withhold tax receives either (A) a statement (an "Owner's Statement") signed
under penalties of perjury by the beneficial owner of the New Note in which the
owner certifies that the owner is not a U.S. person and which provides the
owner's name and address, or (B) a statement signed under penalties of perjury
by the "Financial Institution" holding the New Note on behalf of the beneficial
owner to the effect that an Owner's Statement has been filed on behalf of the
beneficial owner, together with a copy of the Owner's Statement. The term
"Financial Institution" means a securities clearing organization, bank or other
financial institution that holds customers' securities in the ordinary course of
its trade or business and that holds a New Note on behalf of the owner of the
New Note. A Foreign Person who does not qualify for the "portfolio interest"
exception would generally be subject to U.S. withholding tax at a flat rate of
30% (or a lower applicable treaty rate) on interest payments (including
redemption proceeds) attributable to the New Notes.
In general, gain recognized by a Foreign Person upon the redemption, sale
or exchange of a New Note will not be subject to U.S. tax. However, a Foreign
Person may be subject to United States tax at a flat rate of 30% (unless exempt
by applicable treaty) on any such gain if the Foreign Person is an individual
present in the United States for 183 days or more during the taxable year in
which the New Note is redeemed, sold or exchanged, and certain other
requirements are met.
A New Note held by a Foreign Person will not be includible in such person's
gross estate subject to U.S. federal estate tax as a result of such person's
death provided that the individual did not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the Company
entitled to vote.
Information reporting and backup withholding will not apply to payments
made on a New Note to a Foreign Person provided that the certification described
in clause (iv) of the second paragraph in this section is received, and provided
further that the payor does not have actual knowledge that the information is
false.
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PLAN OF DISTRIBUTION
Based on certain interpretive letters issued by the staff of the Commission
to third parties in unrelated transactions, the Company believes that New Notes
issued pursuant to the Exchange Offer may be offered for resale, resold or
otherwise transferred by holders thereof (other than any holder who is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that such New Notes are acquired in the ordinary
course of the holders' business and such holders have no arrangement or
understanding with any person to participate in a distribution of such New Notes
and are not participating in, and do not intend to participate in, the
distribution of such New Notes. In addition, to comply with the securities laws
of certain jurisdictions, if applicable, the New Notes may not be offered or
sold unless they have been registered or qualified for sale in such jurisdiction
or an exemption from registration or qualification is available and complied
with. The Company has agreed, subject to certain specified limitations therein,
to register or qualify the New Notes for offer or sale under the state
securities laws of such jurisdictions as any holder of the New Notes reasonably
requests in writing.
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Existing Notes
where such Existing Notes were acquired as a results of market-making activities
or other trading activities. The Company has agreed that, for a period of two
years, it will make this Prospectus, as amended or supplemented, available to
any broker-dealer for use in connection with such resale.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any broker-dealer that
resells New Notes that were received by it for its own account pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes and any commission
or concessions received by any such persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that, by
acknowledging that it will deliver and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 90 days after the close of the Exchange Offer, the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all expenses
incident to the Exchange Offer and will indemnify the Holders of the New Notes
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the New Notes will
be passed upon for the Company by Harwell Howard Hyne Gabbert & Manner, P.C.,
Nashville, Tennessee.
79
<PAGE> 84
INDEPENDENT PUBLIC ACCOUNTANTS
The financial statements of PharMerica, Inc. as of December 31, 1997 and
for the year then ended, included in this Prospectus, have been audited by
Arthur Andersen LLP, independent public accountants, as stated in their report
appearing herein.
The financial statements of Capstone Pharmacy Services, Inc. as of December
31, 1996 and 1995 and for the year ended December 31, 1996, the ten months ended
December 31, 1995 and the year ended February 28, 1995, included in this
Prospectus, have been audited by Arthur Andersen LLP, independent public
accountants, as stated in their report appearing herein.
The consolidated financial statements of PharMerica, Inc. (formerly the
consolidated financial statements of PCA) as of December 31, 1996 and for the
two years then ended, included in this Prospectus, have been audited by Ernst &
Young LLP, independent auditors, as stated in their report appearing herein.
AVAILABLE INFORMATION
The Company has agreed pursuant to the Indenture that, whether or not
required by the rules and regulations of the Commission, so long as any Notes
are outstanding, the Company will furnish to the Holders of Notes (i) all
quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K if the Company
were required to file such Forms, including a "Management's Discussion and
Analysis of Financial Condition and Results of Operations" that describes the
financial condition and results of operations of the Company and its Restricted
Subsidiaries and, with respect to the annual information only, a report thereon
by the Company's certified independent accountants and (ii) all current reports
that would be required to be filed with the Commission on Form 8-K if the
Company were required to file such reports. In addition, whether or not required
by the rules and regulations of the Commission, the Company will file a copy of
all such information and reports with the Commission for public availability
(unless the Commission will not accept such a filing) and make such information
available to securities analysts and prospective investors upon request. In
addition, the Company and the Guarantors have agreed that, for so long as any
Notes remain outstanding, they will furnish to the Holders and to securities
analysts and prospective investors, upon their request, the information required
to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. See
"Description of the Notes."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company incorporates by reference into this Prospectus all documents
filed by the Company pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act subsequent to the date of this Prospectus and prior to the closing
of the Offering.
Any statement contained herein or in a document incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained in any
other document subsequently filed with the SEC which is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
80
<PAGE> 85
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
PHARMERICA, INC.
Report of Independent Public Accountants.................... F-2
Report of Ernst & Young LLP, Independent Auditors........... F-3
Audited Financial Statements and Schedule:
Consolidated Balance Sheets as of December 31, 1996 and
1997................................................... F-4
Consolidated Statements of Income for the years ended
December 31, 1995, 1996 and 1997....................... F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1995, 1996 and 1997........... F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1996 and 1997....................... F-7
Notes to Consolidated Financial Statements................ F-8
Schedule II -- Valuation and Qualifying Accounts.......... F-23
CAPSTONE PHARMACY SERVICES, INC.
Unaudited Financial Statements:
Consolidated Balance Sheets as of December 31, 1996 and
September 30, 1997..................................... F-24
Consolidated Statements of Income for the nine months
ended September 30, 1996 and 1997...................... F-25
Consolidated Statements of Changes in Stockholders' Equity
for the nine months ended September 30, 1997........... F-26
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1996 and 1997...................... F-27
Notes to Unaudited Consolidated Financial Statements...... F-28
CAPSTONE PHARMACY SERVICES, INC.
Report of Independent Public Accountants.................... F-33
Audited Financial Statements:
Consolidated Balance Sheets as of December 31, 1995 and
1996................................................... F-34
Consolidated Statements of Operations for the year ended
February 28, 1995, the ten months ended December 31,
1995 and the year ended December 31, 1996.............. F-35
Consolidated Statements of Changes in Stockholders' Equity
for the year ended February 28, 1995, the ten months
ended December 31, 1995 and the year ended December 31,
1996................................................... F-36
Consolidated Statements of Cash Flows for the year ended
February 28, 1995, the ten months ended December 31,
1995 and the year ended December 31, 1996.............. F-37
Notes to Consolidated Financial Statements................ F-38
</TABLE>
F-1
<PAGE> 86
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of PharMerica, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheet of PharMerica,
Inc. and subsidiaries (a Delaware corporation and formerly Pharmacy Corporation
of America and subsidiaries) as of December 31, 1997, and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit. The financial statements of PharMerica,
Inc. and subsidiaries as of December 31, 1996 and 1995, were audited by other
auditors whose report dated April 18, 1997, expressed an unqualified opinion on
those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of PharMerica, Inc. and
subsidiaries as of December 31, 1997, and the results of their operations, and
their cash flows for the year then ended in conformity with generally accepted
accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements, and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
Baltimore, Maryland
February 9, 1998
F-2
<PAGE> 87
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
PharMerica, Inc.
We have audited the accompanying consolidated balance sheet of PharMerica,
Inc. and subsidiaries (formerly Pharmacy Corporation of America) as of December
31, 1996, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the two years in the period ended December
31, 1996. Our audits also included the financial statement schedule II-Valuation
and Qualifying Accounts for each of the two years in the period ended December
31, 1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
PharMerica, Inc. and subsidiaries at December 31, 1996, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
/s/ ERNST & YOUNG LLP
Little Rock, Arkansas
April 18, 1997
F-3
<PAGE> 88
PHARMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1997
-------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 7,575 $ 34,215
Accounts receivable, net of allowance for doubtful
accounts of $13,890 and $22,096........................ 94,461 205,225
Inventories............................................... 22,025 51,766
Prepaid expenses and other current assets................. 335 6,307
Deferred tax asset........................................ -- 35,360
-------- ----------
Total current assets.............................. 124,396 332,873
Equipment and leasehold improvements, net................... 36,784 46,599
Goodwill, net of accumulated amortization of $17,865 and
$26,653................................................... 276,430 723,954
Other assets, net........................................... 3,966 10,822
-------- ----------
Total assets...................................... $441,576 $1,114,248
======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses..................... $ 31,294 $ 109,483
Current portion of long-term debt......................... 968 7,533
Accrued restructuring charges............................. -- 14,269
-------- ----------
Total current liabilities......................... 32,262 131,285
Deferred income taxes....................................... 3,980 21,216
Long-term debt, net of current portion...................... 1,334 427,889
Due to former parent........................................ 312,395 --
Accrued restructuring charges, net of current portion....... -- 4,980
-------- ----------
Total liabilities................................. 349,971 585,370
-------- ----------
Commitments and Contingencies
Stockholders' Equity
Common stock, $0.01 par value; 1,000 shares authorized at
December 31, 1996; and 300,000,000 shares authorized at
December 31, 1997; and 1,000 shares issued and
outstanding as of December 31, 1996 and 87,930,184
shares issued and 87,591,722 shares outstanding as of
December 31, 1997...................................... 1 876
Preferred stock, $.01 par value; and 0 shares authorized
at December 31, 1996; 500,000 shares authorized at
December 31, 1997; 0 shares issued and outstanding as
of December 31, 1996 and 1997.......................... -- --
Additional paid-in capital................................ 3,866 413,567
Retained earnings......................................... 87,738 114,435
-------- ----------
Total stockholders' equity........................ 91,605 528,878
-------- ----------
Total liabilities and stockholders' equity........ $441,576 $1,114,248
======== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 89
PHARMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Net sales.................................................. $ 451,685 $ 516,400 $ 652,179
Cost of sales.............................................. 242,761 280,468 355,577
---------- ---------- ----------
Gross profit............................................. 208,924 235,932 296,602
---------- ---------- ----------
Operating expenses:
Selling, general and administrative expenses............. 175,599 184,585 216,087
Depreciation and amortization............................ 13,219 16,392 21,408
Restructuring charges.................................... -- -- 5,780
Impairment of long-lived assets.......................... 9,543 -- 5,155
---------- ---------- ----------
Total operating expenses......................... 198,361 200,977 248,430
---------- ---------- ----------
Operating income................................. 10,563 34,955 48,172
Interest expense, net...................................... -- -- 2,483
---------- ---------- ----------
Income before provision for income taxes......... 10,563 34,955 45,689
Provision for income taxes................................. 5,977 14,668 18,992
---------- ---------- ----------
Net income....................................... $ 4,586 $ 20,287 $ 26,697
========== ========== ==========
Pro forma earnings per common share........................ $ 0.50
==========
Shares used in computing pro forma earnings per common
share.................................................... 52,896
==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 90
PHARMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- ADDITIONAL RETAINED
SHARES AMOUNT PAID-IN CAPITAL EARNINGS
------ ------ --------------- --------
<S> <C> <C> <C> <C>
Balance at January 1, 1995............................ 1 $ 1 $ 3,866 $ 62,865
Net income............................................ -- -- -- 4,586
------ ---- -------- --------
Balance at December 31, 1995.......................... 1 1 3,866 67,451
Net income............................................ -- -- -- 20,287
------ ---- -------- --------
Balance at December 31, 1996.......................... 1 1 3,866 87,738
Recapitalization in connection with the acquisition of
Capstone Pharmacy Services, Inc..................... 49,999 499 (499) --
Capital contribution from Beverly Enterprises,
Inc. ............................................... -- -- 15,076 --
Issuance of common stock:
Stock issued in connection with acquisition of
Capstone Pharmacy Services, Inc. ................ 34,980 350 377,150 --
Stock issued in connection with acquisition of
Resident Care Pharmacy, Inc. .................... 811 8 9,092 --
Stock issued in connection with exercise of
warrants......................................... 1,800 18 8,882 --
Net income............................................ -- -- -- 26,697
------ ---- -------- --------
Balance at December 31, 1997.......................... 87,591 $876 $413,567 $114,435
====== ==== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 91
PHARMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- -------- --------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income................................................ $ 4,586 $ 20,287 $ 26,697
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization.......................... 13,219 16,392 21,408
Restructuring charges.................................. -- -- 5,780
Impairment of long-lived assets........................ 9,543 -- 5,155
Gain on dispositions of assets......................... -- (250) --
Deferred income taxes (benefit)........................ (909) 4,159 (4,879)
Changes in operating assets and liabilities, net of
acquisitions and dispositions:
Accounts receivable.................................. (4,810) (7,974) (30,471)
Inventories.......................................... 2,282 3,510 (10,581)
Prepaid expenses and other current assets............ 614 (44) 5,419
Accounts payable and accrued expenses................ (2,836) (7,498) 14,202
Accrued restructuring charges........................ -- -- (273)
--------- -------- --------
Total adjustments................................. 17,103 8,295 5,760
--------- -------- --------
Net cash flows from operating activities.................... 21,689 28,582 32,457
--------- -------- --------
Cash Flows from Investing Activities:
Payments for acquisitions, net of cash acquired........... (2,151) (10,835) (19,178)
Proceeds from dispositions................................ -- 2,152 --
Purchases of property and equipment....................... (13,098) (9,616) (15,600)
Other, net................................................ 1,852 329 (4,299)
--------- -------- --------
Net cash flows from investing activities.................... (13,397) (17,970) (39,077)
--------- -------- --------
Cash Flows from Financing Activities:
Advances (to) from former Parent, net..................... (9,716) (5,064) (275,000)
Proceeds from exercise of warrants........................ -- -- 8,900
Proceeds from issuance of long-term obligations........... 143 -- 424,524
Repayments of long-term obligations....................... (877) (1,288) (125,164)
--------- -------- --------
Net cash flows from financing activities.................... (10,450) (6,352) 33,260
--------- -------- --------
Net (decrease) increase in cash and cash equivalents........ (2,158) 4,260 26,640
Cash and cash equivalents, beginning of year................ 5,473 3,315 7,575
--------- -------- --------
Cash and cash equivalents, end of year...................... $ 3,315 $ 7,575 $ 34,215
========= ======== ========
Supplemental Schedule of Cash Flow Information:
Cash paid during the year for:
Interest............................................... $ 35 $ 11 $ 2,716
========= ======== ========
Taxes.................................................. $ -- $ -- $ 6,792
========= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 92
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
PharMerica, Inc., (the surviving company of the merger (the "Merger") of
Capstone Pharmacy Services, Inc. (Capstone) and Pharmacy Corporation of America
(PCA)) together with its subsidiaries (the "Company"), is a Delaware corporation
(Note 2).
The Company is one of the nation's largest institutional pharmacies
principally engaged in the business of providing pharmaceuticals and related
services to long-term care facilities, correctional institutions, hospitals and
health maintenance organizations. The Company also provides mail service
pharmacy services, including the delivery of drugs and medical equipment to
workers' compensation payors, claimants and employers. As of December 31, 1997,
the Company operated 124 pharmacies and pharmacy related outlets.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of PharMerica,
Inc. and its wholly-owned subsidiaries. All material intercompany accounts and
transactions have been eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues,
expenses, gains and losses during the reporting periods. Actual results could
differ from these estimates.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the current
year presentation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist principally of purchased pharmaceuticals.
EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements are recorded at cost. Depreciation and
amortization are computed using the straight-line method over the following
estimated useful lives or, with respect to leasehold improvements, over the term
of the lease if shorter:
<TABLE>
<S> <C>
Furniture, fixtures and equipment........................... 3-15 years
Software and computer equipment............................. 3-5 years
Leasehold improvements...................................... 5 years
</TABLE>
Equipment and leasehold improvements obtained in acquisitions of
subsidiaries are depreciated or amortized based on their remaining useful lives
at the acquisition date.
F-8
<PAGE> 93
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLE ASSETS
Goodwill
Costs in excess of fair values of businesses acquired are recorded as
goodwill and amortized using the straight-line method over 40 years.
Amortization of goodwill amounted to approximately $6,414,000, $7,279,000, and
$8,795,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
On an ongoing basis, the Company reviews the carrying value of its
intangible assets in light of any events or circumstances that indicate they may
be impaired or that the amortization period may need to be adjusted. If such
circumstances suggest the intangible value cannot be recovered, calculated based
on undiscounted cash flows over the remaining amortization period, the carrying
value of the intangible will be reduced by such shortfall. As of December 31,
1997, the Company does not believe there is any indication that the carrying
value or the amortization period of its intangibles needs to be adjusted.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of," ("SFAS No. 121")
which requires impairment losses to be recognized for long-lived assets used in
operations when indicators of impairment are present and the undiscounted future
cash flows are not sufficient to recover the assets' carrying amounts. The
impairment loss is measured by comparing the fair value of an asset to its
carrying amount.
In 1995, the Company recorded an impairment loss of approximately
$5,392,000 upon adoption of SFAS No. 121. The impairment indicators which led to
recording this loss were as follows: two pharmacies, purchased by the Company in
late 1994, had operating losses in 1995, and the Company anticipated future
operating losses for these facilities primarily related to Beverly's lack of
presence in the markets; one pharmacy, located in a state where Beverly had
recently sold all of its interest, began to lose the contracts that had been
assumed by the new owners, and it became apparent that the operations would not
recover to their previous level; and, lastly, the Company operates a medical
records servicing business which lost approximately half of its business in 1995
when Beverly pursued a different vendor for this service. Accordingly,
management estimated the undiscounted future cash flows to be generated by each
business. The undiscounted future cash flow estimates were less than the
carrying value of such businesses, so management estimated the fair value of
such businesses based on such cash flows and wrote the carrying values down to
their estimates of fair value. Management calculated the fair values of the
impaired businesses by using the present values of estimated future cash flows.
In addition to the SFAS No. 121 charge, the Company recorded an impairment
loss in 1995 of approximately $4,151,000 primarily related to the write-off of
software costs. In conjunction with the Company's 1995 acquisition of Pharmacy
Management Services, Inc. ("PMSI") (see Note 2), PMSI's Vice President of
Management Information Systems assumed the management information systems'
functions for the Company and redirected the Company's systems development
initiatives, which caused a write-off of certain software and systems
development costs.
In 1997, the Company recorded an impairment loss of approximately
$5,155,000 related to the planned closure of certain pharmacies as a result of
the merger with Capstone (see Note 2). The impairment loss includes the
write-off of various fixed assets, such as leasehold improvements and furniture
and fixtures, which are specific to the pharmacies to be closed. Additionally,
the Company has capitalized software costs which have also been included in the
SFAS 121 loss. These assets have been written-down to their estimated fair
value, and management anticipates the disposal of these assets will occur during
the next year.
F-9
<PAGE> 94
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INSURANCE
The Company was previously insured for general liability and workers'
compensation risks through the self-insurance programs of Beverly. Beverly
allocated expense to the Company based on the relative percentage of insurance
costs incurred by Beverly on behalf of the Company. Total insurance allocations
to the Company were approximately $1,409,000, $1,829,000 and $2,558,000 for the
years ended December 31, 1995, 1996 and 1997, respectively. Management believes
these charges represent a reasonable allocation of the costs incurred by Beverly
on behalf of the Company.
401(K) BENEFIT PLAN
The Company sponsors a supplemental retirement program established under
Section 401(k) of the Internal Revenue Code, as amended. Contributions by the
Company may be made to the plan subject to the discretion of the Board of
Directors. No Company contribution was made for the years ended December 31,
1995, 1996 and 1997.
REVENUE RECOGNITION
Revenues are recorded as products are shipped and services rendered. A
portion of the Company's sales are covered by various state and Federal
reimbursement programs, which are subject to review and/or audit. Reimbursement
programs are also subject to change from time to time. Revenues are reported at
the estimated net amounts to be received from individuals, third party payors,
nursing facilities and others. Approximately 41%, 37% and 37% of the Company's
operating revenues for 1995, 1996 and 1997, respectively, were derived from
funds under federal and state medical assistance programs.
The Company also recognizes revenue under certain capitated arrangements.
However, these revenues are insignificant and any losses related to these
contracts are accrued as they are incurred.
CONCENTRATION OF CREDIT RISK
A significant portion of the Company's revenue and related receivables are
reimbursed from two primary payors, Medicaid and Medicare. Collectively,
Medicaid and Medicare accounted for 43% and 34%, respectively, of accounts
receivable reported on the consolidated balance sheets at December 31, 1996 and
1997.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," ("SFAS No. 123") which encourages, but does not require,
companies to recognize compensation expense for stock-based awards based on
their fair value on the date of grant. The Company has elected to continue to
account for stock-based compensation in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees," and,
accordingly, recognizes no compensation expense for stock option grants. See
Note 8 for the pro forma effects on the Company's reported net income assuming
the election had been made to recognize compensation expense on stock-based
awards in accordance with SFAS No. 123.
INCOME TAXES
The Company files a consolidated Federal income tax return. Income tax
expense is based on reported earnings before income taxes. Deferred taxes on
income are provided for those items for which the reporting period and methods
used for income tax purposes differ from those used for financial statement
purposes, using the asset and liability method. Deferred income taxes are
recognized for the tax consequences of
F-10
<PAGE> 95
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"temporary differences" by applying enacted statutory rates applicable to future
years to differences between the financial statement carrying amounts and the
tax bases of existing assets and liabilities.
PRO FORMA EARNINGS PER SHARE
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 simplifies the standards for computing
earnings per share previously found in APB Opinion No. 15, "Earnings Per Share."
It replaces the presentation of primary and fully-diluted EPS with a
presentation of basic and diluted EPS and requires a reconciliation of the
numerator and denominator of the basic EPS calculation to the numerator and
denominator of the diluted EPS calculation. Basic EPS excludes dilution and is
computed by dividing income available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted EPS is
computed similarly to primary EPS pursuant to APB Opinion No. 15. SFAS No. 128
was effective for fiscal years ending after December 15, 1997.
As a result of the significant change in the Company's capital structure
during the year, caused by the Merger, the Company has reported pro forma
earnings per share. Pro forma earnings per share is computed using the weighted
average number of shares of common stock outstanding giving effect to the
issuance of 50,000,000 shares in connection with the Merger for all of 1997.
F-11
<PAGE> 96
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. ACQUISITIONS
1997 Acquisitions
In January 1997, the Company acquired Interstate Pharmacy Corp., which
provides institutional pharmacy services from twelve pharmacies throughout the
state of Hawaii. The purchase price was $20,138,000, and goodwill at the date of
acquisition was $12,000,000.
In March 1997, the Company acquired the assets of Intramed, Inc. and
Black-Hills Pharmaceutical Services, Inc., providers of institutional pharmacy
and infusion therapy services in the state of South Dakota. The total purchase
price was $2,429,000, and goodwill at the date of acquisition was $1,669,000.
In April 1997, the Company acquired the assets of River City Pharmacy,
Inc., an Indiana based Institutional pharmacy. The purchase price was
$5,407,000, and goodwill at the date of acquisition was $4,450,000.
On December 3, 1997, Capstone issued 50,000,000 shares of its common stock
and paid $15,732,000 to acquire all of the outstanding stock of Beverly
Enterprises, Inc. Immediately prior to this transaction, Beverly had completed a
distribution of its long-term care business to New Beverly Holdings, Inc. (New
Beverly) leaving only its institutional pharmacy business, PCA, to be acquired
by Capstone. Because Beverly's shareholders own a majority of the surviving
corporation, for accounting purposes, the transaction has been treated as an
acquisition of Capstone by PCA.
In accordance with EITF 95-19, the purchase price has been determined using
the fair value of Capstone's common stock over a reasonable period of time
before and after the transaction was agreed to and announced. In a reverse
merger transaction, the shares of Capstone at the date of close represent the
consideration for the merger, plus the fair value of Capstone's outstanding
options and warrants, calculated using the Black-Scholes option pricing model.
After the merger was consummated, the historical financial statements of the
Company became those of PCA.
In December 1997, the Company acquired Hollins Manor I, LLC, which provides
institutional pharmacy services to long-term care facilities in the state of
Virginia. The purchase price was $7,700,000 and goodwill at the date of
acquisition was $7,398,000.
In December 1997, the Company purchased Family Center Pharmacy, Inc., a
Pittsburgh, Pennsylvania based provider of institutional pharmacy services doing
business as Medical Arts Pharmacy. The purchase price was $9,216,000. The
agreement also provides for an earn-out based on the future adjusted earnings of
the business, payable in cash. Goodwill at the date of acquisition was
$8,384,000.
Also, in December 1997, the Company purchased Resident Care Pharmacy, Inc.
(Resident Care), a North Carolina based institutional pharmacy. The total
consideration was $12,967,000, including $9,100,000 representing the issuance of
811,341 shares of the Company's common stock, a non-compete note payable of
$1,444,000, assumed debt of $1,592,000 and a cash payment of $831,000. Goodwill
at the date of acquisition was $13,610,000.
1996 Acquisitions
During 1996, the Company acquired three institutional pharmacies for cash
of approximately $10,835,000 and disposed of one institutional pharmacy for cash
proceeds of approximately $2,152,000.
1995 Acquisitions
In June 1995, Beverly acquired Pharmacy Management Services, Inc. ("PMSI")
in exchange for approximately 12,361,000 shares of Beverly common stock, plus
closing and related costs, for a total purchase price of approximately
$162,900,000. As a leading independent nationwide provider of medical cost
F-12
<PAGE> 97
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
containment and managed care services to workers' compensation payors and
claimants, PMSI's services included pharmacy benefit management through both a
national retail pharmacy network and home delivery of prescription drugs,
medical supplies and medical equipment (the "mail service business") as well as
a workers' compensation preferred provider organization (the "PPO business").
The mail service business was contributed by Beverly to the Company in June 1995
and has been operated by the Company since that time. The PPO business was
transferred to another of Beverly's wholly-owned subsidiaries. Beverly's
acquisition of PMSI resulted in additional goodwill to Beverly of approximately
$139,600,000. Based on the fair value of the mail service net assets, Beverly
allocated approximately $97,700,000 of the PMSI purchase price to the Company,
including goodwill of approximately $83,800,000. The Company also purchased one
institutional pharmacy during 1995 for cash of approximately $2,492,000.
All business acquisitions described above have been accounted for by the
purchase method of accounting with the assets and liabilities of the acquirees
recorded at their estimated fair market values at the date of acquisition. The
operations of the acquirees, since the dates of acquisition, are included in the
accompanying consolidated statements of income. Goodwill for these business
acquisitions is being amortized over forty years.
PRO FORMA FINANCIAL INFORMATION
Unaudited pro forma combined results of operations of the Company for the
years ended December 31, 1996 and 1997, are presented below. Such pro forma
presentation has been prepared assuming that the acquisitions described above
and previous acquisitions of Capstone had been made as of January 1, 1996 (in
thousands, except per share data).
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED DECEMBER 31,
--------------------------
1996 1997
---------- ----------
<S> <C> <C>
Net sales................................................... $ 883,619 $1,019,349
Income before taxes, interest, depreciation and
amortization.............................................. 86,522 126,213
Income before extraordinary items........................... $ 20,098 $ 35,524
========== ==========
Diluted income per share.................................... $ 0.24 $ 0.42
========== ==========
</TABLE>
The unaudited pro forma results include the historical accounts of the
Company and the acquired businesses adjusted to reflect (1) depreciation and
amortization of the acquired identifiable tangible and intangible assets based
on the new cost basis of the acquisitions, (2) the interest expense resulting
from the financing of the acquisitions, (3) the per share effect of stock issued
as part of the acquisitions, and (4) the related income tax effects and exclude
certain nonrecurring and restructuring costs. The pro forma results do not
reflect any anticipated operating efficiencies or synergies and are not
necessarily indicative of actual results which might have occurred had the
operations and management teams of the Company and the acquired companies been
combined in prior years.
F-13
<PAGE> 98
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements at December 31, 1996 and 1997, are
comprised of the following (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Furniture, fixtures and equipment........................... $ 32,691 $ 41,409
Software and computer equipment............................. 21,225 25,457
Leasehold improvements...................................... 11,460 13,022
Construction in progress.................................... 345 1,376
-------- --------
65,721 81,264
Accumulated depreciation and amortization................... (28,937) (34,665)
-------- --------
Equipment and leasehold improvements, net................... $ 36,784 $ 46,599
======== ========
</TABLE>
Depreciation and amortization of equipment and leasehold improvements
amounted to approximately $4,534,000, $6,737,000 and $9,452,000 for the years
ended December 31, 1995, 1996 and 1997, respectively.
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
To finance the repayment of the intercompany debt between Beverly and the
Company as well as provide capital for future acquisitions, Capstone
extinguished its outstanding debt under its credit facility with five commercial
banks just prior to the merger and replaced it with a new $550,000,000 credit
agreement with several commercial banks. Extinguishment of the existing debt,
including the payoff of the outstanding balance of $113,700,000 and the
write-off of $1,074,000 in deferred financing costs was reflected in the
purchase price allocation. The Company incurred approximately $840,000 in debt
acquisition costs associated with the new credit agreement, which are to be
amortized over the life of the debt. The credit agreement allows PharMerica to
obtain loans at any time and matures on December 3, 2002.
Under the new credit agreement, the Company has the option to borrow under
an alternate base rate or a Eurodollar loan rate. Interest rates on the
alternate base rate loans are at the greatest of (a) the prime rate, (b) the
base certificate of deposit rate plus 1% or (c) the federal funds effective rate
on the date of the loan. Interest on the alternate base rate loans is due
quarterly in arrears. Interest rates on the Eurodollar loans are calculated
using the adjusted LIBOR rate for the interest period in effect, plus the
applicable rate. The adjusted LIBOR rate is the LIBOR rate for such interest
period multiplied by the statutory reserve rate. The applicable rate and the
statutory reserve rate are defined in the credit agreement. Interest on the
Eurodollar loans is due on the last day of the interest period applicable to the
borrowing. As of December 31, 1997, the Company's outstanding borrowings total
$424,524,000 under a Eurodollar loan at an effective interest rate, including
the amortization of deferred financing costs of 7.3%. The weighted average and
the highest outstanding balance under this agreement for the period outstanding
through December 31, 1997 was $416,776,000 and $424,524,000, respectively.
The new credit agreement stipulates certain covenants relating to various
financial ratios, including a leverage ratio and a minimum net worth
requirement, among other restrictive covenants.
In connection with the acquisition of Capstone, the Company assumed all the
long-term obligations that had previously existed under Capstone.
On November 1, 1995, Capstone elected not to make a scheduled installment
payment on a note payable to former stockholders of a subsidiary in the
aggregate principal amount of $1,000,000, due to a dispute with these former
stockholders. This amount is recorded as current portion of long-term debt in
the accompanying consolidated balance sheets as of December 31, 1997.
F-14
<PAGE> 99
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt at December 31, 1996 and 1997, consisted of the following
(in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Borrowings under a $550,000 credit agreement with a group of
several commercial banks, interest at varying rates based
on the type of borrowing, secured by substantially all
assets of the Company, due at scheduled maturity in
December 2002............................................. $ -- $424,524
Unsecured notes payable to former stockholders of a previous
Capstone acquiree, interest at 6%, currently payable...... -- 1,000
Unsecured note payable to former owners of a previous
Capstone acquiree, non-interest bearing, payable in
monthly installment of $20 beginning in March 1998,
remaining balance due January 1999........................ -- 1,100
Unsecured note payable to former stockholders of Hollins
Manor, non-interest bearing with $1,000 installments due
and payable on June 3, 1998 and December 7, 1998.......... 2,000
Assumed note payable from Resident Care acquisition, due
currently................................................. -- 1,592
Non-Compete payable to eight individuals, payable in
installments ranging from $25 to $128, through 2001....... -- 1,644
Capital lease obligations (Note 7).......................... 2,262 3,224
Other....................................................... 40 338
-------- --------
2,302 435,422
Less: Current portion....................................... 968 7,533
-------- --------
Long-term portion........................................... $ 1,334 $427,889
======== ========
</TABLE>
Future maturities of long-term debt, exclusive of capital lease obligations
at December 31, 1997, follow (in thousands):
<TABLE>
<S> <C>
1998........................................................ $ 5,975
1999........................................................ 1,599
2000........................................................ 50
2001........................................................ 50
2002........................................................ 424,524
--------
$432,198
========
</TABLE>
Interest expense for the years ended December 31, 1995, 1996 and 1997, was
approximately $35,000, $11,000 and $2,754,000, respectively. These amounts
include amortization of deferred financing costs of approximately $0, $0 and
$113,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
Based on the borrowing rates currently available to the Company, the fair
value of long-term debt, exclusive of capital lease obligations, as of December
31, 1997, is not materially different than the recorded value.
5. RESTRUCTURING CHARGES
During December 1997, in connection with the merger with Capstone, the
Company adopted a plan to restructure its long-term care pharmacy operations. In
connection with this plan, management intends to close 6 former PCA pharmacies,
14 former Capstone pharmacies, and will relocate Capstone's corporate
headquarters from Irving, Texas to Tampa, Florida. Management anticipates that
the restructuring activities in connection with the merger will be substantially
completed within the next fiscal year.
F-15
<PAGE> 100
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has recorded restructuring costs of $5,780,000 related to the
closure of the former PCA pharmacies, consisting of $3,621,000 of severance
covering approximately 180 pharmacy employees, $739,000 of lease termination
costs and $1,420,000 of other exit costs.
The Company has also assumed liabilities, included in the Capstone purchase
price allocation, of $9,583,000 related to the closure of the former Capstone
pharmacies and the relocation of Capstone's former headquarters, consisting of
$5,036,000 of severance covering approximately 260 employees, $3,059,000 of
lease termination costs and $1,488,000 of relocation costs. The terminated
positions were comprised primarily of pharmacy employees and several regional
and corporate positions.
As of December 31, 1997, approximately $200,000 has been charged against
these restructuring accruals.
In connection with the Capstone acquisition, the Company assumed
approximately $3,886,000 of liabilities from previous Capstone restructurings
consisting primarily of remaining lease termination costs.
6. INCOME TAXES
Prior to the merger with Capstone and the spin-off of the Beverly nursing
home business, the Company was included in the consolidated federal income tax
returns of Beverly. The tax provisions for Beverly subsidiaries, including the
Company, were determined on a separate company basis. The resultant income taxes
payable to, or tax benefit receivable from, Beverly flowed through the "Due to
Former Parent" account. The Company's provision for income taxes consists of the
following for the years ended December 31, 1995, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
Federal:
Current............................................... $5,667 $ 8,649 $12,963
Deferred.............................................. (748) 3,423 2,668
State:
Current............................................... 1,219 1,860 2,788
Deferred.............................................. (161) 736 573
------ ------- -------
$5,977 $14,668 $18,992
====== ======= =======
</TABLE>
The actual income tax expense for the years ended December 31, 1995, 1996
and 1997, is different from the amounts computed by applying the statutory
Federal income tax rates to income before taxes. The reconciliation of these
differences follow:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER
31,
-----------------------------
1995 1996 1997
------- ------ --------
<S> <C> <C> <C>
Tax benefit at statutory rate............................... 35.0% 35.0% 35.0%
State income taxes, net of federal income tax effect........ 6.5 4.8 4.6
Tax effect of permanent differences......................... 14.4 1.6 2.0
Other items, net............................................ 0.7 0.6 --
----- ---- ------
Provision for income taxes.................................. 56.6% 42.0% 41.6%
===== ==== ======
</TABLE>
F-16
<PAGE> 101
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effect of cumulative temporary differences at December 31, 1996 and
1997 follow (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------
1996 1997
------- -------
<S> <C> <C>
Current Deferred Taxes:
Accounts receivable allowances............................ $ 5,014 $11,568
Inventory................................................. 363 686
Accrued restructuring charges............................. -- 1,537
Other accrued liabilities................................. 212 21,569
------- -------
Net current deferred tax asset.............................. $ 5,589 $35,360
======= =======
Non-Current Deferred Taxes:
Goodwill.................................................. $ -- $14,784
Accumulated depreciation and other........................ 9,569 6,432
------- -------
Net non-current deferred tax liability...................... $ 9,569 $21,216
======= =======
</TABLE>
As of December 31, 1996, due to former parent includes cumulative amounts
for current and deferred taxes payable of $56,700,000 and $3,980,000,
respectively.
7. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases office and warehouse space, automobiles and equipment.
Rental expense under these leases aggregated approximately $13,005,000,
$12,142,000 and $13,642,000 for the years ended December 31, 1995 and 1996, and
1997, respectively.
Future minimum lease payments are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, CAPITAL LEASES OPERATING LEASES
- ------------------------ -------------- ----------------
<S> <C> <C>
1998..................................................... $1,787 $ 9,676
1999..................................................... 1,145 5,112
2000..................................................... 425 3,206
2001..................................................... 224 2,153
2002..................................................... 33 1,306
2003 and thereafter...................................... -- 3,129
------ -------
Total minimum lease payments............................. 3,614 $24,582
=======
Less: amount representing interest....................... 390
------
Present value of net minimum lease payments.............. 3,224
Less: current portion.................................... 1,557
------
Long-term portion........................................ $1,667
======
</TABLE>
CONTINGENCIES
The Company is subject to various claims and litigation in the ordinary
course of its business. In the opinion of management and outside counsel, the
ultimate settlement of these claims and litigation will not have a material
adverse effect on the financial position or future operating results of the
Company.
As of December 31, 1997, the Company has recorded $4,880,000 of accrued
liabilities related to certain loss contingencies that are both probable and
reasonably estimable.
F-17
<PAGE> 102
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. STOCKHOLDERS' EQUITY
STOCK OPTION PLANS
The Company has eight stock option plans and an employee stock purchase
plan covering up to 12,385,000 shares of the Company's common stock, pursuant to
which officers, directors and employees of the Company are eligible to receive
either incentive or non-qualified options. Stock options generally expire five
or ten years from the date of grant. The exercise price of an incentive stock
option is equal to the fair market value of the Company's common shares on the
date such option was granted. The exercise price of non-qualified stock options
may be less than the fair market value on the date of grant.
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for its fixed option plans and its stock purchase plan. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS No. 123, the Company's net income and
pro forma earnings per share would have been reduced to the pro forma amounts
indicated below (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Net income:
As reported.......................................... $4,586 $20,287 $26,697
Pro forma............................................ 4,577 20,019 25,083
Pro forma earnings per share:
As reported.......................................... 0.50
Pro forma............................................ 0.47
</TABLE>
A summary of option transactions during the years ended December 31, 1995,
1996 and 1997 follow:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------
1995 1996 1997
-------------------------- ------------------------ --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- ------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year....... 89,000 $6.41 92,000 $6.26 753,000 $7.99
Granted................... 3,000 1.03 661,000 8.23 5,207,000 8.68
--------- ----- ------- ----- --------- -----
Options outstanding, end
of year................. 92,000 $6.26 753,000 $7.99 5,960,000 $8.60
Shares available for
future grant............ 3,952,500
Options exercisable at end
of year................. 92,000 $6.26 753,000 $7.99 3,818,000 $8.06
Weighted average fair
value of options
granted................. $8.70 $4.56 $5.34
===== ===== =====
</TABLE>
F-18
<PAGE> 103
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The following key assumptions were used
in the Black-Scholes option pricing model:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1995 1996 1997
-------- ---------- --------
<S> <C> <C> <C>
Risk-free interest rate............................. 6.0% 6.5% 6.5%
Expected life....................................... 10 years 10 years 10 years
Volatility.......................................... 35% 34% 34%
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE
OPTIONS OUTSTANDING ---------------------------------
------------------------------------------------------- NUMBER
NUMBER EXERCISABLE AT
RANGE OF OUTSTANDING AT REMAINING WEIGHTED AVERAGE DECEMBER 31, WEIGHTED AVERAGE
EXERCISE PRICES DECEMBER 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE 1997 EXERCISE PRICE
- --------------- ----------------- ---------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$ 1.03 - $ 5.00...... 895,000 6.9 years $ 4.10 870,000 $ 4.09
$ 5.00 - $ 7.50...... 293,000 7.1 years 6.46 286,000 6.48
$ 7.50 -$10.00....... 3,804,000 9.7 years 9.33 1,916,000 9.14
$10.00 - $11.50...... 968,000 8.8 years 10.52 746,000 10.53
--------- ---------
$ 1.03 -$11.50....... 5,960,000 9.0 years $ 8.60 3,818,000 $ 8.06
========= =========
</TABLE>
WARRANTS
As part of the Capstone acquisition, warrants for 1,665,293 shares were
assumed and are outstanding at December 31, 1997. The weighted average exercise
price of these warrants is $5.93.
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments," (SFAS No. 107) requires disclosure of fair
value information about financial instruments, whether or not recognized in the
balance sheet, for which it is practicable to estimate that value. In cases
where quoted market prices are not available, fair values are based on estimates
using present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. In that regard, the derived fair value estimates
cannot be substantiated by comparison to independent markets and, in many cases,
could not be realized in immediate settlement of the instrument. SFAS No. 107
excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company.
The Company used the following methods and assumptions in estimating its
fair value disclosures for financial instruments. The carrying amount of cash
and cash equivalents reported in the consolidated balance sheets approximates
its fair value. Estimated fair value for other current assets and current
liabilities are stated at the carrying amount because of the short maturity of
these instruments. The fair value of long-term obligations was estimated using
discounted cash flow analyses based on the Company's incremental borrowing rates
for similar types of borrowing arrangements.
F-19
<PAGE> 104
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1996 and 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
---------------------- ------------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Cash & cash equivalents............. $ 7,575 $ 7,575 $ 34,215 $ 34,215
Other current assets................ 116,821 116,821 263,298 263,298
Current portion of long-debt debt... 968 956 7,533 7,533
Other current liabilities........... 31,294 31,294 109,483 109,483
Long-term debt, net of current
portion........................... 1,334 1,318 427,889 427,889
</TABLE>
10. MAJOR VENDOR
The Company utilizes a primary supplier arrangement for its pharmaceutical
purchases. Purchases of inventory under primary supplier relationships during
the years ended December 31, 1995, 1996 and 1997, were approximately 90%, 92%
and 94% of total inventory purchases, respectively.
11. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following as of
December 31, 1996 and 1997 (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Trade accounts payable...................................... $ 18,017 $ 46,386
Accrued salaries, payroll taxes and benefits................ 6,656 12,109
Other accrued expenses...................................... 6,621 50,988
-------- --------
Total............................................. $ 31,294 $109,483
======== ========
</TABLE>
12. RELATED PARTIES
The Company provides its pharmaceutical dispensing, infusion therapy
products and services and its pharmacy and nursing consulting services to
nursing facilities operated by Beverly, and to the residents of Beverly
facilities. Revenues from sales directly to Beverly nursing facilities were
approximately $74,021,000, $82,083,000, and $91,228,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
Prior to the merger with Capstone, Beverly provided certain administrative
services to the Company. These services included, among others, cash management,
finance, legal, tax, financial reporting, executive management, payroll and
payables processing and employee benefit plans maintenance. The responsibility
for certain of these services, including finance, tax and payables processing
was transferred to the Company in mid-1996 as part of a consolidation and
reorganization of the Company's accounting and related functions. Substantially
all cash received by the Company was deposited daily and wired to Beverly's
corporate cash account. In turn, all of the Company's operating expenses,
capital expenditures and other cash needs were paid by Beverly, and charged back
to the Company along with a management fee for handling such services. Fees for
these services amounted to approximately $2,844,000, $1,820,000 and $3,186,000
for the years ended December 31, 1995, 1996 and 1997, respectively. See Note 1
for a description of the charges for insurance. The Company believes that the
charges for services provided by Beverly to the Company are a reasonable
allocation of the costs incurred by Beverly on behalf of the Company in
providing these services; however, such costs are not necessarily indicative of
the costs that would have been incurred if the Company operated as a stand-alone
entity.
F-20
<PAGE> 105
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net result of all intercompany transactions between the Company and
Beverly are recorded in the "Due to Former Parent" account in the accompanying
consolidated balance sheets. As of December 31, 1996 and 1997, the Company's
intercompany balances were $312,395,000 and $0, respectively. The average of
such intercompany balances was approximately $272,900,000, $315,500,000 and
$327,172,000, for the years ended December 31, 1995, 1996 and 1997,
respectively. There were no required repayment terms for this account nor did
such amounts bear interest. As part of the merger with Capstone, Beverly
accepted a payment of $275,000,000 in satisfaction of the Company's intercompany
payable. The difference between the amount of this payment and the intercompany
payable of $15,076,000 (net of certain obligations assumed by the Company), at
the date of the merger has been recorded as a capital contribution by Beverly.
The net increase in the Company's intercompany balance for the year ended
December 31, 1995 was due to the following: approximately $100,200,000 due to
the pushdown of the PMSI acquisition and the acquisition of one institutional
pharmacy; approximately $6,000,000 due to the allocation of current and deferred
income taxes; and approximately $2,800,000 due to fees charged by Beverly for
certain administrative and management services provided to the Company. These
increases in the Company's intercompany balance were partially offset by
approximately $15,400,000 due primarily to net cash transfers from the Company
to Beverly and fees charged to Beverly's nursing facilities for products and
services provided by the Company.
The net decrease in the Company's intercompany balance for the year ended
December 31, 1996 was due to the following: approximately $31,300,000 due
primarily to net cash transfers from the Company to Beverly and fees charged to
Beverly's nursing facilities for products and services provided by the Company,
and approximately $2,200,000 due to the disposition of one institutional
pharmacy. These decreases in the Company's intercompany balance were partially
offset by approximately $10,800,000 due to the pushdown of the acquisition of
three institutional pharmacies; approximately $14,700,000 due to the allocation
of current and deferred income taxes; and approximately $1,800,000 due to fees
charged by Beverly for certain administrative and management services provided
to the Company.
As a result of Capstone's acquisition of Symphony Pharmacy Services, Inc.
("Symphony") in 1996, Symphony's former parent company, IHS, was a significant
Company stockholder. The Company provides institutional pharmacy services to a
significant number of long-term care facilities owned and managed by IHS
pursuant to a preferred provider agreement.
13. NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." SFAS
No. 130 establishes standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements. The
Statement requires that all items that are to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. SFAS No. 130 does not require a specific format for that financial
statement but requires that an enterprise display an amount representing total
comprehensive income for the period in that financial statement.
SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of the balance
sheet. The statement is effective for fiscal years beginning after December 15,
1997. Reclassification of financial statements for earlier periods provided for
comparative purposes is required.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of an
Enterprise and Related Information." The Statement establishes standards for the
way that public companies report information about operating segments in their
F-21
<PAGE> 106
PHARMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
financial statements. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. Operating
segments are components of the business about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. For the Company, this would result in reporting of regional
operating segments.
SFAS No. 131 will require the Company to report a measure of segment profit
or loss, certain specific revenue and expense items and segment assets. It
requires reconciliations of total segment revenues, profit, assets and other
amounts disclosed for segments to corresponding totals in the Company's
financial statements. SFAS No. 131 will also require the Company to report
information about the revenues derived from its products and services and about
major customers, regardless of whether that information is used in making
operating decisions.
SFAS No. 131 is effective for financial statements for periods beginning
after December 15, 1997. Comparative information is also to be provided for
earlier years.
14. SUBSEQUENT EVENTS
In January 1998, the Company acquired Express Pharmacy Services, Inc., a
Tampa, Florida mail-order pharmacy company. The purchase price was approximately
$22,000,000.
In January 1998, the Company acquired the stock of Goot's Goodies, Inc. and
Southwest Pharmacies, Inc. The purchase price was approximately $3,800,000.
F-22
<PAGE> 107
PHARMERICA, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
DUE TO
BALANCE AT ACQUISITIONS BALANCE
BEGINNING CHARGED TO WRITE-OFFS, AND AT END OF
DESCRIPTION OF YEAR OPERATIONS NET DISPOSITIONS OTHER YEAR
----------- ----------- ---------- ----------- ------------ ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful
accounts....................... $ 11,561 $ 17,679 $(10,791) $ 459 $ -- $ 18,908*
=========== ========== ======== ========== ===== ==========
Year ended December 31, 1996:
Allowance for doubtful
accounts....................... $ 18,908 $ 13,500 $(17,675) $ (8) $ -- $ 14,725*
=========== ========== ======== ========== ===== ==========
Year ended December 31, 1997:
Allowance for doubtful
accounts....................... $ 14,725 $ 10,809 $(13,984) $ 11,178 $ -- $ 22,728*
=========== ========== ======== ========== ===== ==========
</TABLE>
- ---------------
* Includes amounts classified in long-term other assets as well as current
assets.
F-23
<PAGE> 108
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1996 AND SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
SEPTEMBER 30,
DECEMBER 31, 1997
1996 (UNAUDITED)
------------ -------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 9,407 $ 15,340
Accounts receivable, net of allowance for doubtful
accounts of $5,778 as of December 31, 1996, and $6,960
as of September 30, 1997, respectively................. 50,504 73,811
Inventories............................................... 13,542 23,272
Prepaid expenses and other current assets................. 1,523 3,701
Deferred tax asset........................................ 5,408 831
-------- --------
Total Current Assets................................... 80,384 116,955
EQUIPMENT AND LEASEHOLD IMPROVEMENTS, net................... 10,469 13,200
OTHER ASSETS................................................ 1,370 1,432
GOODWILL, net of accumulated amortization of $4,074 as of
December 31, 1996, and $8,723 as of September 30, 1997,
respectively.............................................. 178,778 256,419
-------- --------
Total Assets...................................... $271,001 $388,006
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 18,337 $ 20,081
Current portion of long-term debt......................... 3,557 2,288
Current portion of non-compete agreements................. 200 200
Accrued restructuring charges............................. 2,108 1,482
-------- --------
Total Current Liabilities......................... 24,202 24,051
NON-COMPETE AGREEMENTS, net of current portion.............. 200 150
LONG-TERM DEBT, net of current portion...................... 39,166 111,339
RESTRUCTURING CHARGES, net of current portion............... 2,687 2,509
-------- --------
Total Liabilities................................. 66,255 138,049
======== ========
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value; 50,000 shares authorized at
December 31, 1996, and September 30, 1997; 31,135
shares issued and 30,796 outstanding as of December 31,
1996, and 34,983 shares issued and 34,644 outstanding
as of September 30, 1997............................... 308 347
Capital in excess of par.................................. 213,594 252,618
Accumulated deficit....................................... (9,156) (3,008)
-------- --------
Total Stockholders' Equity........................ 204,746 249,957
-------- --------
Total Liabilities and Stockholders' Equity........ $271,001 $388,006
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-24
<PAGE> 109
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
--------------------
1996 1997
-------- ---------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
NET SALES................................................... $90,162 $228,048
COST OF SALES............................................... 54,370 127,355
------- --------
Gross profit...................................... 35,792 100,693
------- --------
OPERATING EXPENSES:
Selling, general and administrative expenses.............. 29,243 73,481
Depreciation and amortization............................. 2,651 7,547
Costs relating to pharmacy closure........................ 246 --
Restructuring charges..................................... 2,825 --
Merger related costs...................................... -- 3,525
------- --------
Total operating expenses.......................... 34,965 84,553
------- --------
Operating income (loss)........................... 827 16,140
------- --------
NONOPERATING EXPENSE:
Interest expense, net..................................... 947 4,577
Acquisition financing fees and expenses................... 4,574 --
------- --------
Total nonoperating expense........................ 5,521 4,577
------- --------
Net income (loss) before income tax provision.......... (4,694) 11,563
INCOME TAX PROVISION........................................ (2,137) 5,415
------- --------
Net income (loss)...................................... $(2,557) $ 6,148
======= ========
EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE:
Primary................................................... $ (0.16) $ 0.17
======= ========
Fully diluted............................................. $ (0.16) $ 0.17
======= ========
Weighted average number of common and common equivalent
shares outstanding:
Primary................................................... 16,298 36,576
======= ========
Fully diluted............................................. 16,298 37,055
======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-25
<PAGE> 110
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
COMMON STOCK
--------------- CAPITAL IN ACCUMULATED
SHARES AMOUNT EXCESS OF PAR DEFICIT
------ ------ ------------- -----------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C> <C> <C>
BALANCE, December 31, 1996............................ 30,796 $308 $213,594 $(9,156)
Common stock issued in connection with the exercise
of stock options................................. 503 6 2,698 --
Common stock issued in connection with
acquisitions..................................... 2,709 27 29,973 --
Common stock issued in connection with the
redemption of Series B warrants.................. 636 6 6,353 --
Net income for the nine months ended September 30,
1997............................................. -- -- -- 6,148
------ ---- -------- -------
BALANCE, September 30, 1997........................... 34,644 $347 $252,618 $(3,008)
====== ==== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-26
<PAGE> 111
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
-------- ---------
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ (2,557) $ 6,148
Adjustments to reconcile net income (loss) to net cash
flows
from operating activities
Depreciation and amortization.......................... 2,651 7,547
Change in assets and liabilities, net of effects from
Acquisition/disposal of businesses:
Accounts receivable............................... (6,480) (14,133)
Inventories....................................... (650) (5,101)
Prepaid expenses and other current assets......... (319) (1,887)
Deferred tax asset................................ (1,812) 4,577
Other assets...................................... 432 (52)
Accounts payable and accrued expenses............. (3,612) (13,537)
Accrued restructuring charges..................... 2,271 (804)
-------- ---------
Net cash flows from operating activities.......... (10,076) (17,242)
-------- ---------
Cash flows from investing activities:
Purchase of equipment and leasehold improvements.......... (1,339) (3,663)
Acquisitions, net of cash acquired........................ (150,737) (51,553)
Repayments advances to affiliates......................... 2,243 --
-------- ---------
Net cash flows from investing activities.......... (149,833) (55,216)
-------- ---------
Cash flows from financing activities:
Net proceeds from commercial bank borrowings.............. 27,355 71,500
Net proceeds from acquisition financing................... 100,000 --
Net repayments from acquisition financing................. (100,000) --
Repayment of subsidiary pre-acquisition indebtedness...... (1,800) --
Proceeds from exercise of stock options................... -- 2,704
Proceeds from issuance of common stock.................... 144,929 6,359
Repayment of long-term debt and other long-term
obligations, net....................................... (1,206) (2,172)
-------- ---------
Net cash flows from financing activities.......... 169,278 78,391
-------- ---------
Net increase in cash and cash equivalents................... 9,369 5,933
Cash and cash equivalents, beginning of period.............. 2,763 9,407
-------- ---------
Cash and cash equivalents, end of period.................... $ 12,132 $ 15,340
======== =========
Supplemental Disclosure of Cash Flows Information:
Cash paid for:
Interest............................................... $ 2,665 $ 3,767
======== =========
Taxes.................................................. $ 313 $ 1,474
======== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-27
<PAGE> 112
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
PART 1: FINANCIAL INFORMATION
ITEM 1.
1. ORGANIZATION AND BUSINESS
Capstone Pharmacy Services, Inc., a Delaware corporation, (together with
its wholly-owned subsidiaries, the "Company") is principally engaged in the
business of providing institutional pharmacy services to long-term care
facilities, correctional institutions, hospitals and health maintenance
organizations throughout the United States.
2. EARNINGS PER SHARE
Earnings per share is based upon the weighted average number of the
Company's common and common equivalent shares outstanding for the nine months
ended September 30, 1996 and 1997. The amount of common stock equivalents
outstanding was computed using the treasury stock method.
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 simplifies the standards for computing
earnings per share previously found in APB No. 15, "Earnings Per Share." It
replaces the presentation of primary EPS with a presentation of basic EPS and
requires a reconciliation of the numerator and denominator of the basic EPS
calculation to the numerator and denominator of the diluted EPS calculation.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS is computed similarly to primary EPS pursuant to APB
Opinion No. 15.
SFAS No. 128 is effective for fiscal years ending after December 15, 1997,
and early adoption is not permitted. When adopted, it will require restatement
of prior years' EPS. When adopted for the year ending December 31, 1997, the pro
forma EPS that would have been reported for the nine months periods ended
September 30, 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30,
--------------
1996 1997
------ -----
<S> <C> <C>
Proforma Earnings per share:
Basic..................................................... $(0.16) $0.18
====== =====
Diluted................................................... $(0.16) $0.17
====== =====
</TABLE>
3. BASIS OF PRESENTATION
The interim condensed consolidated financial statements of the Company for
the nine months ended September 30, 1996 and 1997, included herein have been
prepared by the Company, without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. In the opinion of management, the
accompanying unaudited interim consolidated financial statements reflect all
adjustments necessary to present fairly the financial position of the Company at
September 30, 1997, and the results of its operations and cash flows for the
nine months ended September 30, 1996 and 1997. Certain reclassifications
have been made to the prior period financial statements to conform with the
current period presentation.
The results of operations for the nine months ended September 30, 1996 and
1997, are not necessarily indicative of results to be expected for the full
year. These interim condensed consolidated financial statements should be read
in conjunction with the audited financial statements and notes thereto included
in the Company's annual report on Form 10-K, as filed with the Securities and
Exchange Commission for the year
F-28
<PAGE> 113
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dated December 31, 1996. The balance sheet at December 31, 1996, has been
derived from the audited financial statements at that date.
4. ACQUISITIONS
ACQUISITIONS DURING THE YEAR ENDED DECEMBER 31, 1996
In January 1996, the Company purchased Geri-Care Systems, Inc. and Scripts
& Things, Inc. ("Geri-Care"), which provides institutional pharmacy services to
long-term care facilities in the New York metropolitan area. The purchase price
was approximately $6,000, payable $1,320 in cash and promissory notes, with the
remainder representing 669 shares of the Company's common stock. The agreement
also includes an additional 338 shares of the Company's common stock held in
escrow as a contingent incentive payment for certain new business to be
generated through 1998 by the selling shareholders of Geri-Care. Total goodwill
at the date of acquisition was $6,259.
In February 1996, the Company purchased IMD Corporation ("IMD") which
provides institutional pharmacy services to long-term care facilities in the
Chicago metropolitan area. The total purchase price was $15,882. Total goodwill
at the date of acquisition was $13,146.
In July 1996, the Company acquired DCMed, Inc. and its wholly-owned
subsidiary MediDyne Corporation (collectively, "MediDyne"), a provider of
Medicare Part B services, which consist of enteral nutrition and urologic
supplies, as well as counseling and assistance with regulatory compliance in
connection with such services. The total purchase price was $7,500. The
agreement also provides for an earn-out based on the future adjusted earnings of
the business, payable in cash. Total goodwill at the date of acquisition was
$7,667.
In July 1996, the Company acquired the institutional pharmacy business of
Symphony Pharmacy Services, Inc. ("Symphony"), a subsidiary of Integrated Health
Services, Inc. ("IHS"). Symphony provides institutional pharmacy services,
including infusion therapy and Medicare Part B services, to long-term care
facilities in eight states. The total purchase price was $150,000, including
$25,000 representing the issuance of 2,112 shares of the Company's common stock.
Total goodwill at the date of acquisition was $131,303.
In October 1996, the Company acquired the institutional pharmacy business
of Happy Harry's, Inc. a Delaware-based retail drug store operator. The total
purchase price was $3,695. Total goodwill at the date of acquisition was $2,407.
In December 1996, the Company purchased Institutional Pharmacy, Inc., which
provides institutional pharmacy services to long-term care facilities in the
state of Tennessee. The total purchase price was $4,839. Total goodwill at the
date of acquisition was $4,068.
ACQUISITIONS DURING THE NINE MONTHS ENDED SEPTEMBER 30, 1997
In January 1997, the Company acquired Clinical Care-SNF, Inc., Portaro
Pharmacies, Inc. and Alger Health Services. These three acquisitions expand the
Company's presence in the state of California and represent institutional
revenues of approximately $15,000, $15,000 and $8,500, respectively. The
purchase price for Clinical Care-SNF, Inc. was $20,000, payable $5,000 in cash
and the remainder representing 1,354 shares of the Company's common stock. The
purchase price for Portaro Pharmacies, Inc. was $20,000, payable $5,000 in cash
and the remainder representing 1,354 shares of the Company's common stock. The
purchase price for Alger Health Services was $4,200. Total goodwill at the date
of acquisition for these acquisitions amounted to $50,162.
In March 1997, the Company acquired Pennsylvania Prescriptions, Inc., a
Harrisburg, Pennsylvania, institutional and retail pharmacy doing business as
Emerald Drugs. The purchase price was $6,200 and includes an earn-out provision
based upon future adjusted earnings of the Company after certain conditions
F-29
<PAGE> 114
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are met. Payments upon the satisfaction of the earn-out provision will be
recorded as an adjustment to goodwill. Total goodwill at the date of acquisition
was $4,123.
In March 1997, the Company acquired Pharmacare, Inc., a Virginia-based
provider of institutional pharmacy services. The purchase price was
approximately $8,500. Total goodwill at the date of acquisition was $7,826.
Effective March 1997, the Company acquired Macromed, a New York-based
provider of Medicare Part B services. The total purchase price was approximately
$2,800. Total goodwill at the date of acquisition approximated $2,900.
In April 1997, the Company acquired Willowood Service, Inc., a
Massachusetts-based provider of institutional pharmacy services. The total
purchase price was $2,880. Total goodwill at the date of acquisition was $2,913.
In May 1997, the Company acquired Care Health Systems, Inc., a
Pennsylvania-based provider of institutional pharmacy services doing business as
Care Apothecary. The purchase price was $2,200. Total goodwill at the date of
acquisition was $1,862.
In August 1997, the Company acquired Med-Tec Pharmaceutical Services, Inc.,
a provider of institutional pharmacy services and Medicare Part B services, to
long term care facilities in the greater Philadelphia, Pennsylvania area. The
purchase price was $16,300. Total goodwill at the date of acquisition was
$14,342.
These acquisitions have been accounted for using the purchase method of
accounting, with the assets and liabilities of the acquired companies recorded
at their estimated fair market values at the dates of acquisition. Goodwill,
representing the excess of acquisition cost over the fair value of the net
assets acquired, is amortized over 20 to 40 years.
5. ACQUISITION PRO FORMA FINANCIAL STATEMENTS
The results of operations of acquired businesses are included in the
Company's consolidated results from the date of acquisition. Had the
acquisitions discussed in Note 4 occurred on January 1, 1996, management
estimates that the unaudited pro forma results of operations for the nine months
ended September 30, 1996 and 1997 would have been:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
NET SALES................................................... $213,195 $242,763
COST OF SALES............................................... 123,371 136,292
-------- --------
Gross profit.............................................. 89,824 106,471
OPERATING EXPENSES.......................................... 81,919 89,336
NON-OPERATING EXPENSES, net................................. 10,324 5,638
-------- --------
Income before income tax provision........................ (2,419) 11,997
INCOME TAX PROVISION........................................ (1,169) 5,383
-------- --------
Net income................................................ $ (1,250) $ 6,114
======== ========
Income per share.......................................... $ (0.04) $ 0.17
======== ========
</TABLE>
These pro forma operating results reflect certain adjustments, including
amortization of goodwill acquired, incremental interest expense and adjustments
for the provision of income taxes to reflect an effective tax rate of 36%. The
pro forma results are not necessarily indicative of the operating results that
would have occurred had the acquisitions been consummated on January 1, 1996,
nor are they necessarily indicative of future results.
F-30
<PAGE> 115
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. MERGER WITH PHARMACY CORPORATION OF AMERICA
During April 1997, the company announced a proposed merger with Beverly
Enterprises, Inc. ("Beverly"), after it spins off all of its business other than
its institutional pharmacy unit, Pharmacy Corporation of America ("PCA"). In
conjunction with the transaction, the company will issue approximately 50,000
shares to existing Beverly stockholders and assume $275,000 in debt.
Additionally, the merger will be accounted for under the purchase method of
accounting and will be treated as a reverse merger/acquisition of the Company by
Beverly. Under this method of accounting, Beverly will be treated as the
acquiring entity and the assets and liabilities of the Company will be adjusted
to their fair values in accordance with the purchase method of accounting.
Additionally, all costs the Company incurs related to this merger will be
expensed as incurred. These costs are estimated to total approximately $10,000.
The amounts reported in the accompanying statements of income as merger related
costs represent investment banking, accounting and legal fees and other direct
costs incurred. Beverly and Capstone have set the date for the shareholder
meetings on November 20, 1997. The Company anticipates the merger to be
completed during the fourth quarter 1997. In conjunction with the merger the
Company will change its name to PharMerica, Inc.
7. CREDIT FACILITY
The Company maintains a Revolving Credit Facility with a syndicate of five
commercial banks under which borrowings of up to $125,000 are available.
Under the credit facility, the Company has the option to borrow under base
rate and eurodollar rate revolving loans, swing line loans and letters of
credit. Interest rates on base rate and swing line loans are at the higher of
the prime rate or 0.5% in excess of the federal funds effective rate, plus an
applicable margin based on the Company's leverage ratio at the time of
borrowing. The swing line loans are also adjusted for a commitment fee
percentage tied to the Company's leverage ratio. Interest on base rate and swing
line loans is due quarterly in arrears. Interest rates on eurodollar rate loans
are calculated at the eurodollar rate, plus an applicable margin based on the
Company's leverage ratio at the time of borrowing. Interest is due at the end of
the one, two or three-month interest period elected by the Company. If the
Company elects a nine-month eurodollar rate loan, interest is payable in arrears
at the end of the third and sixth month. Letter of credit fees are based on the
eurodollar loan margin, plus the greater of 0.25% of the maximum available to be
drawn for letters of credit, as defined in the agreement, or $500, and is to be
paid quarterly in arrears.
Scheduled reductions of the $125,000 maximum balance allowed under the
Revolving Credit Facility on December 1 of each year are as follows:
<TABLE>
<S> <C>
1997........................................................ $ --
1998........................................................ 10,000
1999........................................................ 35,000
2000........................................................ 40,000
2001........................................................ 40,000
--------
$125,000
========
</TABLE>
The Revolving Credit Facility is secured by substantially all assets of the
Company and stipulates certain covenants applicable to capital expenditures,
cash consideration on acquisitions and sale of assets, as well as minimum
financial ratios. As of September 30, 1997, the Company is in compliance with
all debt covenants.
8. STOCKHOLDERS' EQUITY
The Company's Series A Warrants expired. Series A Warrants representing 643
of a total of 650 shares of common stock were exercised before expiring, at an
exercise price of $6.00 per share. During September 1997
F-31
<PAGE> 116
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
636 of the total 643 Series B Warrants were exercised at $10.00 per share and
the unexercised Series B Warrants expired.
9. RESTRUCTURING
During July 1996, in connection with the Symphony acquisition, the Company
adopted a plan to restructure its long-term care pharmacy operations in Los
Angeles by consolidating two of its existing facilities into a new, more
centralized location. The Company has assumed liabilities, included in the
acquisition cost allocation, of approximately $1,600 for costs to involuntarily
terminate employees of Symphony and to close the pharmacy location. Included in
these liabilities are approximately $330 of severance costs related to the
termination of 79 employees, including pharmacists, technicians, IV nurses,
drivers and others. The remaining costs relate to the termination of lease
agreements.
During August 1996, the Company adopted a plan of restructuring to
consolidate its Aston, Pennsylvania and Baltimore, Maryland long-term care
pharmacies into one of its existing Mid-Atlantic pharmacies. The Company has
recorded restructuring costs of $450 for the year ended December 31, 1996 which
includes approximately $125 of employee severance costs with the remainder of
the costs for the termination of leases.
Also, during September 1996, the Company adopted a formal plan of
restructuring to close its Baltimore, Maryland corporate offices and
correctional pharmacy. The corporate offices were relocated to Irving, Texas and
the correctional pharmacy was relocated to another location in the Baltimore
area. The Company has recorded restructuring costs of $2,375 for the year ended
December 31, 1996, which primarily includes approximately $400 of employee
severance costs and approximately $1,800 of lease termination costs with the
remainder due to losses on asset impairments and disposals of assets. The
restructuring plan includes the termination of 32 accounting and clerical
personnel.
10. MAJOR VENDOR
The Company utilizes a primary supplier arrangement for its purchases of
pharmaceuticals. In light of the financial and operating significance of
purchases, the Company routinely monitors the performance of its primary
supplier and negotiates settlements and future service levels based thereon.
There were no settlements paid and no significant commitments entered into for
both periods as a result of changes in vendors. Changes in future service levels
negotiated include, among others, method of delivery, frequency of orders and
bar coding ability and are non-financial in nature. The Company changed its
primary supplier in December 1995 and 1996.
11. SUBSEQUENT EVENTS
During October 1997, the Company acquired the assets of Sweetwater
Pharmacy, Inc., a provider of institutional pharmacy services in the San Diego,
California area. Sweetwater has annualized revenues of approximately $4,500 and
services over 1400 beds, 560 of which are serviced through mail order. The
purchase price was approximately $1,200.
F-32
<PAGE> 117
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of Capstone Pharmacy Services, Inc. and subsidiaries:
We have audited the accompanying consolidated balance sheets of Capstone
Pharmacy Services, Inc. (a Delaware corporation and formerly Choice Drug
Systems, Inc.) and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for the year ended December 31, 1996, the ten months ended
December 31, 1995 and the year ended February 28, 1995. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Capstone
Pharmacy Services, Inc. and subsidiaries as of December 31, 1996 and 1995, and
the results of their operations, changes in stockholders' equity and their cash
flows for the year ended December 31, 1996, the ten months ended December 31,
1995 and the year ended February 28, 1995, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedule II is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audit of the basic
consolidated financial statement, and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
------------------------------------
Baltimore, Maryland
March 14, 1997 (except with respect
to the matters discussed in Note 18,
as to which the date is April 16,
1997)
F-33
<PAGE> 118
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1996
ASSETS
<TABLE>
<CAPTION>
1995 1996
------------ ------------
<S> <C> <C>
Current Assets:
Cash and cash equivalents................................. $ 2,763,416 $ 9,407,354
Accounts receivable, net of allowance for doubtful
accounts of $1,294,000 and $5,778,000.................. 12,646,087 50,503,619
Inventories............................................... 5,023,008 13,541,511
Refundable income taxes................................... 828,628 --
Prepaid expenses and other current assets................. 688,549 1,523,194
Deferred tax asset........................................ -- 5,408,381
------------ ------------
Total Current Assets.............................. 21,949,688 80,384,059
Equipment and leasehold improvements, net................... 2,692,298 10,468,963
Goodwill, net of accumulated amortization of $1,554,000 and
$4,074,000................................................ 14,580,564 178,778,162
Advances to affiliates...................................... 2,242,841 --
Other assets................................................ 665,204 1,369,982
------------ ------------
Total Assets...................................... $ 42,130,595 $271,001,166
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses..................... $ 6,137,272 $ 18,337,485
Current portion of long-term debt......................... 4,222,608 3,557,199
Current portion of non-compete agreements................. 200,000 200,000
Accrued restructuring charges............................. 575,349 2,107,846
------------ ------------
Total Current Liabilities......................... 11,135,229 24,202,530
Deferred income taxes....................................... 542,787 --
Non-compete agreements, net of current portion.............. 400,000 200,000
Long-term debt, net of current portion...................... 2,692,202 39,165,739
Restructuring charges, net of current portion............... 520,640 2,687,068
------------ ------------
Total Liabilities................................. 15,290,858 66,255,337
============ ============
Commitments and Contingencies:
Stockholders' Equity
Common stock $.01 par value; 30,000,000 shares authorized
at December 31, 1995 and 50,000,000 shares authorized
at December 31, 1996; 13,610,810 issued and outstanding
as of December 31, 1995 and 31,134,221 shares issued
and 30,795,769 outstanding as of December 31, 1996..... 136,108 307,957
Additional paid-in capital................................ 38,985,006 213,593,829
Accumulated deficit....................................... (12,281,377) (9,155,957)
------------ ------------
Total Stockholders' Equity........................ 26,839,737 204,745,829
------------ ------------
Total Liabilities and Stockholders' Equity........ $ 42,130,595 $271,001,166
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance sheets
F-34
<PAGE> 119
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED FEBRUARY 28, 1995, THE TEN MONTHS
ENDED DECEMBER 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED
FEBRUARY 28, DECEMBER 31, DECEMBER 31,
1995 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales.............................................. $ 43,607,946 $48,841,443 $144,397,836
Cost of sales.......................................... 27,969,532 30,654,118 85,531,996
------------ ----------- ------------
Gross profit................................. 15,638,414 18,187,325 58,865,840
------------ ----------- ------------
Operating expenses:
Selling, general and administrative expenses......... 18,637,213 17,468,930 46,591,975
Depreciation and amortization........................ 988,974 1,102,892 4,633,787
Costs in connection with litigation.................. 4,389,163 -- --
Costs relating to pharmacy closure................... -- -- 246,446
Restructuring charges................................ 2,069,432 240,000 2,825,000
------------ ----------- ------------
Total operating expenses..................... 26,084,782 18,811,822 54,297,208
------------ ----------- ------------
Operating income (loss)...................... (10,446,368) (624,497) 4,568,632
------------ ----------- ------------
Non-operating expense (income):
Interest expense, net................................ 905,404 677,009 1,899,784
Acquisition financing fees and expenses.............. -- -- 4,573,530
Other income, net.................................... (104,076) (431,900) (149,206)
------------ ----------- ------------
Total non-operating expense (income), net.... 801,328 245,109 6,324,108
------------ ----------- ------------
Loss from continuing operations before income taxes,
discontinued operations and extraordinary items... (11,247,696) (869,606) (1,755,476)
Benefit for income taxes............................... (466,214) (225,082) (5,120,857)
------------ ----------- ------------
Income (loss) from continuing operations before
discontinued operations and extraordinary items... (10,781,482) (644,524) 3,365,381
Discontinued operations:
Gain (loss) from operations of discontinued business
segments.......................................... (135,430) 18,667 --
Gain (loss) on disposal of business segments, net.... (503,067) 564,844 --
------------ ----------- ------------
Net income (loss) before extraordinary items......... (11,419,979) (61,013) 3,365,381
Extraordinary items:
Discount on repayment of vendor debt................... 283,364
Loss on extinguishment of debt, net of tax benefit of
$123,616............................................. -- -- (239,961)
------------ ----------- ------------
Net income (loss)............................ $(11,419,979) $ 222,351 $ 3,125,420
============ =========== ============
Earnings (loss) per common and common equivalent share:
Primary Continuing operations.......................... $ (1.67) $ (0.06) $ 0.15
Discontinued operations.............................. (0.10) 0.05 --
Extraordinary items.................................. -- 0.03 (0.01)
------------ ----------- ------------
Net income (loss)............................ $ (1.77) $ 0.02 $ 0.14
============ =========== ============
Fully diluted Continuing operations.................... $ (1.67) $ (0.05) $ 0.14
Discontinued operations.............................. (0.10) 0.05 --
Extraordinary items.................................. -- 0.02 (0.01)
------------ ----------- ------------
Net income (loss)............................ $ (1.77) $ 0.02 $ 0.13
============ =========== ============
Weighted average common and common equivalent shares
outstanding:
Primary................................................ 6,458,891 11,337,997 22,916,764
============ =========== ============
Fully diluted.......................................... 6,458,891 12,398,401 23,214,767
============ =========== ============
</TABLE>
The accompanying notes are an integral part of these
consolidated statements.
F-35
<PAGE> 120
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED FEBRUARY 28, 1995, THE TEN MONTHS ENDED
DECEMBER 31, 1995 AND THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
--------------------- PAID-IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT
---------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, February 28, 1994................. 6,086,810 $ 60,868 $ 9,339,340 $ (1,083,749)
Issuance of common stock:
Stock issued to Counsel Corporation in
connection with stock purchase
agreement, net of related issuance
costs................................. 2,000,000 20,000 7,171,300 --
Stock issued in connection with exercise
of stock options...................... 34,000 340 89,410 --
Stock issued in connection with
settlement of litigation.............. -- -- 600,000 --
Net loss................................... -- -- -- (11,419,979)
---------- -------- ------------ ------------
Balance, February 28, 1995................. 8,120,810 81,208 17,200,050 (12,503,728)
Issuance of common stock:
Stock issued in connection with private
placements, net of related issuance
costs................................. 5,100,000 51,000 20,769,231 --
Stock issued in connection with the
acquisition of PremierPharmacy Inc.... 35,000 350 157,150 --
Stock issued in connection with exercise
of stock options...................... 355,000 3,550 858,575 --
Net income................................. -- -- -- 222,351
---------- -------- ------------ ------------
Balance, December 31, 1995................. 13,610,810 136,108 38,985,006 (12,281,377)
Issuance of common stock:
Stock issued in connection with private
placements, net of related issuance
costs................................. 3,147,490 31,475 33,350,784 --
Stock issued in connection with
settlement of litigation.............. 98,563 986 (986) --
Stock issued in connection with the
acquisitions of Symphony Pharmacy
Services, Inc., Geri-Care Systems,
Inc. and Scripts & Things, Inc........ 2,781,720 27,817 29,469,051 --
Stock issued in connection with
conversion of warrants................ 685,010 6,850 3,928,401 --
Stock issued in connection with public
offering.............................. 10,350,000 103,500 107,235,306 --
Stock issued in connection with exercise
of stock options, net................. 122,166 1,221 626,267 --
Net income................................. -- -- -- 3,125,420
---------- -------- ------------ ------------
Balance, December 31, 1996................. 30,795,759 $307,957 $213,593,829 $ (9,155,957)
========== ======== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-36
<PAGE> 121
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED FEBRUARY 28, 1995, THE TEN MONTHS ENDED
DECEMBER 31, 1995, AND THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED
FEBRUARY 28, DECEMBER 31, DECEMBER 31,
1995 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $(11,419,979) $ 222,351 $ 3,125,420
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization......................... 988,974 1,145,669 7,316,345
Gain on sale of pharmacies............................ -- -- (150,267)
(Gain) loss on disposal of business segments.......... 503,067 (564,844) --
Settlement of litigation.............................. 3,500,000 -- --
Change in assets and liabilities, net of effects of
acquisitions and dispositions:
Accounts receivable................................. 2,161,906 (2,644,719) (9,938,491)
Inventories......................................... 1,297,829 357,029 (109,400)
Refundable income taxes............................. (108,699) (238,168) 848,726
Prepaid expenses and other current assets........... 779,825 (51,870) (508,342)
Deferred tax asset.................................. -- -- (5,408,381)
Other assets........................................ (333,011) (133,629) (439,468)
Accounts payable and accrued expenses............... (145,061) (988,497) (3,734,342)
Accrued restructuring charges....................... 1,652,033 (691,200) 2,098,925
------------ ------------ -------------
Net cash flows from operating activities......... (1,123,116) (3,587,878) (6,899,275)
------------ ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of equipment and leasehold improvements........ (252,943) (1,076,976) (2,643,629)
Proceeds from sale of equipment and leasehold
improvements.......................................... -- -- 230,960
Acquisitions, net of cash acquired...................... -- (4,168,872) (158,702,741)
Proceeds from sale of business segment.................. -- 700,000 --
Advances to affiliates.................................. -- (2,242,841) --
Repayments of notes receivable.......................... 261,555 229,571 9,277
------------ ------------ -------------
Net cash flows from investing activities......... 8,612 (6,559,118) (161,106,133)
------------ ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from commercial bank borrowings............ -- 11,600,000 82,173,525
Net repayments of commercial bank borrowings............ -- (9,650,000) (46,922,852)
Net proceeds from acquisition bridge loan............... -- -- 100,000,000
Net repayments of acquisition bridge loan............... -- -- (100,000,000)
Payment of acquisition financing costs.................. -- -- (2,500,000)
Loan proceeds from affiliate............................ -- 1,268,250 --
Loan repayments to affiliate............................ -- (1,268,250) --
Non-compete agreement payments.......................... -- (200,000) (200,000)
Repayments of other long-term debt...................... (5,902,723) (10,884,850) (2,753,210)
Principal payments of capital lease obligations......... (160,183) (183,992) (196,224)
Proceeds from issuance of common stock, net............. 7,281,050 21,682,356 145,048,107
------------ ------------ -------------
Net cash flows from financing activities......... 1,218,144 12,363,514 174,649,346
------------ ------------ -------------
Net increase in cash and cash equivalents................. 103,640 2,216,518 6,643,938
CASH AND CASH EQUIVALENTS, beginning of period............ 443,258 546,898 2,763,416
------------ ------------ -------------
CASH AND CASH EQUIVALENTS, end of period.................. $ 546,898 $ 2,763,416 $ 9,407,354
============ ============ =============
Supplemental Disclosure of Cash Flows Information
Cash paid for:
Interest......................................... $ 887,691 $ 659,184 $ 3,678,922
============ ============ =============
Taxes............................................ $ 224,477 $ 144,149 $ 181,500
============ ============ =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-37
<PAGE> 122
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1995, DECEMBER 31, 1995 AND 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Capstone Pharmacy Services, Inc., (formerly known as Choice Drug Systems,
Inc.) together with its subsidiaries (the "Company"), a Delaware Corporation, is
principally engaged in the business of providing pharmaceuticals and related
services to long-term care facilities, correctional institutions, hospitals and
health maintenance organizations.
On August 28, 1995, the Company changed its state of incorporation from New
York to Delaware. Effective October 2, 1995, the Company changed its name from
Choice Drug Systems, Inc. to Capstone Pharmacy Services, Inc. Additionally,
effective December 31, 1995, the Company changed its year-end from February 28
to December 31.
As of December 31, 1996, Counsel Corporation, an Ontario corporation
("Counsel"), owned approximately 6,020,000 shares of the Company's common stock
together with warrants to purchase approximately 2,337,000 additional shares.
Counsel is a management and business development company operating primarily in
the United States health care industry.
Principles of Consolidation
The consolidated financial statements include the accounts of Capstone
Pharmacy Services, Inc. and its wholly-owned subsidiaries. All material
intercompany accounts and transactions have been eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues,
expenses, gains and losses during the reporting periods. Actual results could
differ from these estimates.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
period presentation.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market. Inventories consist principally of purchased pharmaceuticals.
F-38
<PAGE> 123
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Equipment and Leasehold Improvements
Equipment and leasehold improvements are recorded at cost. Depreciation and
amortization are computed using the straight-line method over the following
estimated useful lives or with respect to leasehold improvements, over the term
of the lease if shorter.
<TABLE>
<S> <C>
Furniture, fixtures and equipment........................... 3-10 years
Automobiles and trucks...................................... 3-4 years
Leasehold improvements...................................... 5-10 years
Equipment under capital leases.............................. 3-5 years
</TABLE>
Equipment and leasehold improvements obtained in acquisitions of
subsidiaries are depreciated or amortized based on their remaining useful lives
at the acquisition date.
Goodwill
Costs in excess of fair values of businesses acquired are recorded as
goodwill and amortized using the straight-line method over periods of twenty to
forty years. Amortization of goodwill amounted to approximately $384,000,
$417,000, and $2,474,000 for the year ended February 28, 1995, the ten months
ended December 31, 1995 and the year ended December 31, 1996, respectively.
The Company periodically reviews the recoverability of goodwill. The
measurement of possible impairment is based primarily on the ability to recover
the balance of the goodwill from expected future operating cash flows on an
undiscounted basis. In management's opinion, no such impairment existed as of
December 31, 1996 or 1995.
401(k) Benefit Plan
Effective May 22, 1995, employees of the Company may participate in a
supplemental retirement program established under Section 401(k) of the Internal
Revenue Code, as amended. Contributions by the Company may be made to the plan
subject to the discretion of the Board of Directors. No Company contribution was
made for the ten months ended December 31, 1995, or the year ended December 31,
1996.
Revenue Recognition
Revenues are recorded as products are shipped and services rendered. A
portion of the Company's sales are covered by various state and Federal
reimbursement programs, which are subject to review and/or audit. Reimbursement
programs are also subject to change from time to time.
The Company also recognizes revenue under certain capitated arrangements.
However, these revenues are insignificant and any losses related to these
contracts are accrued as they are incurred.
Concentration of Credit Risk
A significant portion of the Company's revenue and related receivables are
reimbursable from two primary payors, Medicaid and Medicare. Collectively,
Medicaid and Medicare accounted for 20% and 32%, respectively, of accounts
receivable reported on the consolidated balance sheets at December 31, 1995 and
1996, respectively.
Income Taxes
The Company files a consolidated Federal income tax return. Income tax
expense is based on reported earnings before income taxes. Deferred taxes on
income are provided for those items for which the reporting period and methods
used for income tax purposes differ from those used for financial statement
purposes,
F-39
<PAGE> 124
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
using the asset and liability method. Deferred income taxes are recognized for
the tax consequences of "temporary differences" by applying enacted statutory
rates applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
Earnings Per Share
Net loss per common share for the year ended February 28, 1995, was
computed by dividing the net loss by the average weighted number of common
shares outstanding. For the ten months ended December 31, 1995, and the year
ended December 31, 1996, primary and fully diluted earnings per common share
were computed by dividing net income by the weighted average number of shares of
common stock and common stock equivalents outstanding. The amount of common
stock equivalents outstanding was computed using the treasury stock method.
2. ACQUISITIONS
Acquisitions during the year ended December 31, 1996
In January 1996, the Company purchased Geri-Care Systems, Inc. and Scripts
& Things, Inc. ("Geri-Care") which provide institutional pharmacy services to
long-term care facilities in the New York metropolitan area. The purchase price
was approximately $6,000,000, payable $1,320,000 in cash and promissory notes,
with the remainder representing 669,230 shares of the Company's common stock.
The agreement also includes an additional 338,462 shares of the Company's common
stock held in escrow as a contingent incentive payment for certain new business
to be generated through 1998 by the selling shareholders of Geri-Care. Total
goodwill at the date of acquisition was $6,259,000.
In February 1996, the Company purchased IMD Corporation ("IMD") which
provides institutional pharmacy services to long-term care facilities in the
Chicago metropolitan area. The total purchase price was $15,882,000. Total
goodwill at the date of acquisition was $13,146,000.
In July 1996, the Company acquired DCMed, Inc. and its wholly-owned
subsidiary MediDyne Corporation (collectively, "MediDyne"), a provider of
Medicare Part B services, which consist of enteral nutrition and urologic
supplies, as well as counseling and assistance with regulatory compliance in
connection with such services. The total purchase price was $7,500,000. The
agreement also provides for an earn-out based on the future adjusted earnings of
the business, payable in cash. Total goodwill at the date of acquisition was
$7,667,000.
In July 1996, the Company acquired the institutional pharmacy business of
Symphony Pharmacy Services, Inc. ("Symphony"), a subsidiary of Integrated Health
Services, Inc. ("IHS"). Symphony provides institutional pharmacy services,
including infusion therapy and Medicare Part B services, to long-term care
facilities in eight states. The total purchase price was $150,000,000, including
$25,000,000 representing the issuance of 2,112,490 shares of the Company's
common stock. Total goodwill at the date of acquisition was $131,303,000.
In October 1996, the Company acquired the institutional pharmacy business
of Happy Harry's, Inc., a Delaware based retail drug store operator. The total
purchase price was $3,695,000. Total goodwill at the date of acquisition was
$2,407,000.
In December 1996, the Company purchased Institutional Pharmacy, Inc., which
provides institutional pharmacy services to long-term care facilities in the
state of Tennessee. The total purchase price was $4,839,000. Total goodwill at
the date of acquisition was $4,068,000.
F-40
<PAGE> 125
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Acquisitions During the Ten Months Ended December 31, 1995
In May 1995, the Company acquired PremierPharmacy, Inc. ("Premier"), which
provides pharmacy services to long-term care facilities located in the New York
metropolitan area and hospitals located in the southeastern United States. The
total purchase price was $4,250,000. Total goodwill at the date of acquisition
was $10,494,000.
All business acquisitions described above have been accounted for by the
purchase method of accounting with the assets and liabilities of the acquirees
recorded at their estimated fair market values at the date of acquisition. The
operations of the acquirees, since the dates of acquisition, are included in the
accompanying consolidated statements of operations. Goodwill for these business
acquisitions is being amortized over twenty to forty years.
PRO FORMA FINANCIAL INFORMATION
Unaudited pro forma combined results of operations of the Company for the
ten months ended December 31, 1995, and the year ended December 31, 1996, are
presented below. Such pro forma presentation has been prepared assuming that the
acquisitions described above have been made as of March 1, 1995 (in thousands,
except per share data).
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
(UNAUDITED)
<S> <C> <C>
Net revenues............................................... $188,488 $222,504
Gross profit............................................... 81,875 95,343
Net income before extraordinary item....................... 3,795 10,077
Net income................................................. 3,506 10,077
Primary and fully diluted, net income per share............ $ 0.11 $ 0.28
======== ========
</TABLE>
The unaudited pro forma results include the historical accounts of the
Company and the acquired businesses adjusted to reflect (1) depreciation and
amortization of the acquired identifiable tangible and intangible assets based
on the new cost basis of the acquisitions, (2) the interest expense resulting
from the financing of the acquisitions, (3) the per share effect of stock issued
as part of the acquisition and (4) the related income tax effects. The pro forma
results are not necessarily indicative of actual results which might have
occurred had the operations and management teams of the Company and the acquired
companies been combined in prior years.
3. EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Equipment and leasehold improvements at December 31, 1995 and 1996, are
comprised of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -------------
<S> <C> <C>
Leasehold improvements.................................... $ 544,272 $ 474,546
Furniture, fixtures and equipment......................... 3,945,149 12,471,101
Data processing equipment................................. 1,512,500 2,376,750
Automobiles and trucks.................................... 258,379 290,186
----------- ------------
6,260,300 15,612,583
Accumulated depreciation and amortization................. (3,568,002) (5,143,620)
----------- ------------
Equipment and leasehold improvements, net................. $ 2,692,298 $ 10,468,963
=========== ============
</TABLE>
F-41
<PAGE> 126
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and amortization of equipment and leasehold improvements
amounted to approximately $605,000, $686,000 and $2,160,000 for the year ended
February 28, 1995, the ten months ended December 31, 1995 and the year ended
December 31, 1996, respectively.
4. LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS
Long term debt at December 31, 1995 and 1996, consisted of the following:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Borrowings under a $125,000,000 revolving credit facility
with a group of five commercial banks, interest at varying
rates based on the type of borrowing, secured by
substantially all assets of the Company, due at scheduled
maturities through December 2001.......................... $ -- $37,200,000
Unsecured note payable to former owners of MediDyne,
non-interest bearing, payable quarterly based on
MediDyne's financial performance, due January 1998........ -- 1,651,086
Borrowings under a $10,000,000 revolving loan with
CreditAnstalt, interest at prime plus 0.5% secured by
substantially all assets of the Company, due on demand.... 1,950,000 --
Unsecured note payable to relative of former stockholder,
payable in quarterly installments with interest at 9%
through January 2000...................................... 297,938 215,319
Amounts due under a Medicare settlement with the United
States Government, payable in quarterly installments with
interest at 7.75% through 2001............................ 2,537,500 1,933,330
Unsecured notes payable to former stockholders of a Premier
subsidiary, interest at 6%, currently payable............. 1,000,000 1,000,000
Unsecured notes payable to former stockholders of a Premier
subsidiary, due in monthly installments of $14,898,
including interest at 6% through October 31, 1998......... 464,752 309,641
Unsecured note payable to a former stockholder of a Premier
subsidiary, interest at 7%, due August 11, 1996........... 153,334 --
Unsecured notes payable to former stockholders of a Premier
subsidiary, interest at 7%, due in annual installments of
$30,000 through June 30, 1999............................. 120,000 90,000
Capital lease obligations (Note 10)......................... 364,844 316,092
Other....................................................... 26,442 7,470
----------- -----------
6,914,810 42,722,938
Less: Current portion....................................... (4,222,608) (3,557,199)
----------- -----------
Long-term portion........................................... $ 2,692,202 $39,165,739
=========== ===========
</TABLE>
F-42
<PAGE> 127
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future maturities of long-term debt, exclusive of capital lease obligations
at December 31, 1996, follow:
<TABLE>
<S> <C>
1997........................................................ $ 3,426,957
1998........................................................ 757,090
1999........................................................ 539,480
2000........................................................ 483,319
2001........................................................ 37,200,000
-----------
$42,406,846
===========
</TABLE>
To finance acquisitions, the Company extinguished its outstanding debt
under the revolving loan agreement with CreditAnstalt and replaced it with a
$125,000,000 revolving credit facility through a group of five commercial banks
("new credit facility") on December 6, 1996. Extinguishment of the existing debt
included payoff of the outstanding balance of $31,422,852 and an incurred loss
of $239,961, net of tax, resulting from the write-off of unamortized deferred
financing costs. The loss is recorded as an extraordinary item in the
accompanying consolidated statement of operations. The Company incurred
approximately $1,010,000 in debt acquisition costs associated with the new
credit facility, which are to be amortized over the life of the debt.
Under the new credit facility, the Company has the option to borrow under
base rate and eurodollar rate revolving loans, swing line loans, and letters of
credit. Interest rates on base rate and swing line loans are at the higher of
the prime rate or 0.5% in excess of the federal funds effective rate, plus an
applicable margin based on the Company's leverage ratio at the time of
borrowing. The swing line loans are also adjusted for a commitment fee
percentage tied to the Company's leverage ratio. Interest on base rate and swing
line loans is due quarterly in arrears. Interest rates on eurodollar rate loans
are calculated at the eurodollar rate plus an applicable margin based on the
Company's leverage ratio at the time of borrowing. Interest is due at the end of
the one, two, or three month interest period elected by the Company. If the
Company elects a six month eurodollar rate loan, interest is payable in arrears
at the end of the third and sixth month. Letter of credit fees are based on the
eurodollar loan margin, plus the greater of 0.25% of the maximum available to be
drawn for letters of credit, as defined in the agreement, or $500, and is to be
paid quarterly in arrears. As of December 31, 1996, the Company's outstanding
borrowings total $37,200,000 under a base rate loan at an effective interest
rate, including the amortization of deferred financing costs, of 8.29%.
Scheduled reductions of the $125,000,000 maximum balance allowed under the
new credit facility on December 1 of each year are as follows:
<TABLE>
<S> <C>
1997 $ --
1998 10,000,000
1999 35,000,000
2000 40,000,000
2001 40,000,000
------------
$125,000,000
============
</TABLE>
The new revolving credit facility is secured by substantially all assets of
the Company and stipulates certain covenants applicable to capital expenditures,
cash consideration on acquisitions, and sale of assets, as well as minimum
financial ratios. As of December 31, 1996, the Company is in compliance with all
debt covenants.
The average effective interest rate on amounts outstanding under the
CreditAnstalt agreement for the periods outstanding during 1995 and 1996 were
approximately 8.75% and 7.5%, respectively. A letter of credit fee at an annual
rate of 1.25% was paid on a monthly basis. Amounts available to be borrowed
under this
F-43
<PAGE> 128
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement were based upon levels of accounts receivable and inventories. The
weighted average and highest outstanding balance under this agreement for the
period outstanding through December 6, 1996 were $21,581,000 and $31,422,852,
respectively.
In connection with the Symphony acquisition, the Company entered into a
senior subordinated credit facility with a group of lenders pursuant to which
the lenders funded a $100 million bridge loan. The proceeds of the bridge loan
were used to pay a portion of the Symphony acquisition purchase price. The
bridge loan bore interest at a floating interest rate of LIBOR plus 6.01% to
6.25%. In connection with the bridge loan, the Company incurred a commitment fee
of $2,500,000, net of an early loan repayment discount. The bridge loan was
repaid in full by the Company on September 26, 1996, using the proceeds of the
September 1996 public offering.
Included as acquisition financing fees and expenses in the accompanying
consolidated statement of operations is the $2,500,000 commitment fee, bridge
loan interest of approximately $1,813,000 and bridge loan closing costs of
approximately $261,000. In connection with the acquisition of MediDyne (See Note
2), the Company incurred a $2,900,000 note payable to the former owners of
MediDyne in consideration for the purchase. The note is non-interest bearing and
is to be repaid quarterly based on MediDyne's earnings before taxes,
depreciation and amortization in excess of $600,000. As of December 31, 1996,
the outstanding balance of $1,651,084 is expected by management to be paid
within one year and, therefore, has been included in current portion of
long-term debt in the accompanying consolidated balance sheet.
On November 1, 1995, the Company elected not to make a scheduled
installment payment on a note payable to former stockholders of a Premier
subsidiary in the aggregate principal amount of $1,000,000, due to a dispute
with these former stockholders. This amount is recorded as current portion of
long-term debt in the accompanying consolidated balance sheets as of December
31, 1996 and 1995.
On October 31, 1994, the Company entered into an agreement with the United
States Government settling an investigation conducted by the U.S. Attorney for
the Eastern District of Pennsylvania into claims for reimbursement made by
certain of the Company's subsidiaries to the Medicare Program. The subject of
the investigation was the Company's claims documentation and Medicare
reimbursement practices for December 1993 and prior. Under the terms of the
settlement, without admitting any liability, the Company has agreed to repay, as
a return of revenue previously received, over a six-year period, $3,400,000 to
settle the Government's claims. Initially, $100,000 was paid upon the execution
of the agreement and $400,000 was paid on December 31, 1994. Thereafter,
$2,900,000 plus interest at an annual rate of 7.75% is payable in quarterly
installments over a six year period ending January 1, 2001. The full amount of
the settlement, including related legal fees, is included in costs in connection
with litigation in the accompanying consolidated statement of operations for the
year ended February 28, 1995.
Interest expense for the year ended February 28, 1995, the ten months ended
December 31, 1995, and the year ended December 31, 1996, was approximately
$905,000, $677,000 and $3,713,000, respectively. These amounts include
amortization of deferred financing costs of approximately $0, $43,000 and
$183,000, respectively.
Based on the borrowing rates currently available to the Company, the fair
value of long term debt, including the current portion but exclusive of capital
lease obligations, as of December 31, 1996, is approximately $42,410,000.
5. PUBLIC STOCK OFFERING
In September 1996, the Company completed an offering of 10,350,000 shares
of common stock to the public at a price of $11.00 per share. Net proceeds of
approximately $107,235,000 were received, net of direct costs of approximately
$6,615,000. Direct costs included the underwriters discount, accounting and
legal fees, printing and marketing expenses and other miscellaneous costs.
F-44
<PAGE> 129
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PRIVATE PLACEMENTS
In December 1994, the Company entered into a Stock Purchase Agreement with
Counsel. Pursuant to the Stock Purchase Agreement, Counsel acquired 2,000,000
shares of the Company's common stock for net proceeds of approximately
$7,191,000. Counsel was also granted two three-year warrants, the first of which
grants Counsel the right to purchase up to 1,000,000 shares of the Company's
common stock at an exercise price of $4.50 per share, and the second of which
grants Counsel the right to acquire up to 800,000 shares of the Company's common
stock at an exercise price of $5.50 per share.
In May 1995, the Company completed a private placement of 1,600,000 units
(the "Units"). Each Unit consisted of one share of common stock, a three year
warrant to acquire 0.5 shares of common stock at the exercise price of $4.50 per
share, and a three year warrant to acquire 0.4 shares of common stock at the
exercise price of $5.50 per share. The offering of Units raised proceeds of
approximately $5,759,000, net of related costs, at a price of $3.65 per Unit.
The proceeds of the private placement were used to fund the acquisition of
Premier and to retire the debt to a major vendor in the amount of approximately
$1,776,000, resulting in a gain on the discount of debt of approximately
$283,000. The gain on the discount of debt is reflected in the accompanying
consolidated statement of operations for the ten months ended December 31, 1995,
as an extraordinary item.
In August 1995, the Company completed a second private placement of its
common stock. This offering consisted of 3,500,000 shares at a price of $4.38
per share. The net proceeds of this private placement were approximately
$15,061,000, net of related costs including placement commissions. There were no
warrants issued in connection with this second private placement. The proceeds
of this private placement were used to retire outstanding debt of $9,650,000 due
to CreditAnstalt and for general working capital purposes.
In April 1996, the Company completed a third private placement of its
common stock. This offering consisted of 1,035,000 shares at a price of $8.50
per share. The net proceeds of this private placement were $8,400,000, net of
related costs. The proceeds from this private placement were used to fund
acquisitions and provide general working capital for the Company.
In July 1996, the Company completed a private placement of its common stock
with Counsel. Counsel acquired 2,112,490 shares of common stock for proceeds of
$25,000,000. The proceeds from this private placement were used to fund the
acquisition of Symphony.
7. RESTRUCTURING CHARGES
In February 1995, the Company adopted a formal plan of restructuring in
order to realign and consolidate businesses, concentrate resources, and better
position itself to achieve its strategic growth objectives. The exit plan
included the termination and sale of the medical/surgical supply operations of a
wholly owned subsidiary, B.T. Smith, Inc., and the closing of the Company's
long-term care pharmacy operation in Missouri, Choice Drug Systems of Missouri,
Inc., on June 30, 1995.
Prior to the closing and ultimate sale of its medical/surgical supply
operations, the Company consolidated the medical/surgical operation of B.T.
Smith, Inc. with the medical/surgical supply division of J & J Drug & Medical
Services, Inc. in its Baltimore, Maryland pharmacy location. Accounting and
administration functions previously based at the Inwood, New York and Teaneck,
New Jersey pharmacy locations were also consolidated and moved to the Baltimore
office location. The effect of this consolidation was to refocus the Inwood and
Teaneck pharmacies on the core long-term care business; to consolidate the
Company's medical/surgical supply business in one location in anticipation of
its sale; and to consolidate accounting functions at the Baltimore headquarters
location. The Company initiated these actions to streamline and reduce the cost
of operating its medical/surgical supply business and its accounting function
and to exit the unprofitable Missouri long-term care market.
F-45
<PAGE> 130
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company recorded restructuring charges of $2,069,432 included in the
operating expenses for the year ended February 28, 1995, which includes the
write-down of accounts receivable, inventories and fixed assets to net
realizable value and the accrual for the termination of leases, employee
severance costs, and the estimated administrative costs of terminating
operations. The restructuring charges include approximately $940,000 severance
costs which were accrued and expensed related to the termination of 15 pharmacy
employees and amounts due to former executives of the Company under severance
agreements that expire in May 1997. Also included in the restructuring costs is
$560,000 related to the termination of long-term leases with the remainder of
the charges due to disposal of assets. During the ten months ended December 31,
1995, the Company recorded, as a change in estimate, an additional $100,000
accounts receivable for the medical/surgical supply operations. The
restructuring plan was completed by December 31, 1995.
In connection with the February 1995 restructuring, the Company made
severance payments of approximately $335,000 and $459,000 and paid other exit
costs of approximately $227,000 and $154,000 during the ten months ended
December 31, 1995 and the year ended December 31, 1996, respectively.
The net sales and loss from continuing operations of the medical/surgical
supply operations and the Missouri location are as follows:
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED
FEBRUARY 28, DECEMBER 31,
1995 1995
------------ ------------
<S> <C> <C>
Net Sales................................................... $ 3,983,533 $ 854,018
=========== =========
Loss from continuing operations............................. $(2,406,438) $(157,218)
=========== =========
</TABLE>
In December 1995, the Company adopted a formal plan of restructuring in
order to consolidate certain of its satellite locations. As a result of the exit
plan, one pharmacy will be closed by June 1996. The Company recorded
restructuring costs of $140,000 as an operating expense for the ten months ended
December 31, 1995, which includes the write-down of fixed assets to net
realizable value, the accrual for employee severance costs and the termination
of leases. Approximately $60,000 of severance costs were accrued and expensed in
relation to the termination of 20 pharmacy employees. At December 31, 1996, all
severance costs have been paid. The Company completed this restructuring plan
during 1996.
During July 1996, in connection with the Symphony acquisition, the Company
adopted a plan to restructure its long-term care pharmacy operations in Los
Angeles by consolidating two of its existing facilities into a new, more
centralized location. The Company has assumed liabilities, included in the
acquisition cost allocation, of approximately $1,600,000 for costs to
involuntarily terminate employees of Symphony and to close the pharmacy
location. Included in these liabilities are approximately 330,000 of severance
costs related to the termination of 79 employees, including pharmacists,
technicians, IV nurses, drivers and others. The remaining costs relate to the
termination of lease agreements. As of December 31, 1996, no severance payments
have been made. Management anticipates the completion of this plan by December
1997.
During August 1996, the Company adopted a plan of restructuring to
consolidate its Aston, Pennsylvania and Baltimore, Maryland long-term care
pharmacies into one of its existing Mid-Atlantic pharmacies. The Company has
recorded restructuring costs of $450,000 for the year ended December 31, 1996
which includes approximately $125,000 of employee severance costs with the
remainder of the costs for the termination of leases. No severance costs have
been paid to the 48 pharmacy-related employees as of December 31, 1996. The
Company plans to complete this restructuring by December 1997.
Also, during September 1996, the Company adopted a formal plan of
restructuring to close its Baltimore, Maryland corporate offices and
correctional pharmacies. The corporate offices will be relocated to Irving,
Texas and the correctional pharmacy will be relocated to another location in the
Baltimore area. The Company has recorded restructuring costs of $2,375,000 for
the year ended December 31, 1996, which primarily includes approximately
$400,000 of employee severance costs and approximately $1,800,000 of lease
F-46
<PAGE> 131
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
termination costs with the remainder due to losses on asset impairments and
disposals of assets. The restructuring plan includes the termination of 32
accounting and clerical personnel. The Company made severance payments related
to the corporate office restructuring of approximately $107,000 during the year
ended December 31, 1996 and anticipates the completion of the plan by September
1997.
8. DISCONTINUED OPERATIONS
In February 1995, in connection with adoption of its formal restructuring
plan, the Company decided to discontinue the operations of its mail order and
computerized health care software businesses. The mail order business was closed
effective August 1, 1995 and the assets of the computerized health care software
business were sold to an unrelated party on June 30, 1995 for $700,000, which
resulted in a gain in the amount of $564,844, net of related income taxes of
$38,000.
The net gains or losses of these operations for the year ended February 28,
1995 and the ten months ended December 31, 1995 are included in the consolidated
statements of operations under gain (loss) from operations of discontinued
business segments. The loss on disposal of $503,067 reflected in the
consolidated statement of operations for the year ended February 28, 1995,
includes the write-down of the assets of the mail order and computer software
businesses to estimated net realizable value and the estimated costs of
disposing of these operations, including a pro-rata share of the Company's
expense for office space in Baltimore.
The Company had net sales from discontinued operations of approximately
$2,731,000 and $909,000 for the year ended February 28, 1995 and the ten months
ended December 31, 1995, respectively.
9. INCOME TAXES
The benefit for income taxes consisted of the following:
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED
FEBRUARY 28, DECEMBER 31, DECEMBER 31,
1995 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal:
Current..................................... $(466) $(219) $ --
Deferred.................................... -- (46) (5,510)
----- ----- -------
(466) (265) (5,510)
State and local............................... -- 40 389
----- ----- -------
$(466) $(225) $(5,121)
===== ===== =======
</TABLE>
For the year ended December 31, 1996, the Federal benefit for income taxes
is primarily due to the reversal of the valuation allowance recorded on the
Company's deferred tax assets. Based on the current operating profitability of
the Company and budgeted taxable income for 1997, management believes that it is
now more likely than not that the Company's deferred tax assets will be
realized. As a result of this change in estimate, the valuation allowance of
$5,186,000 on deferred tax assets was reversed during the year ended December
31, 1996.
F-47
<PAGE> 132
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The actual income tax benefit for the year ended February 28, 1995, the ten
months ended December 31, 1995 and the year ended December 31, 1996 is different
from the amounts computed by applying the statutory Federal income tax rates to
losses from continuing operations before income taxes. The reconciliation of
these differences follow:
<TABLE>
<CAPTION>
TEN MONTHS
YEAR ENDED ENDED YEAR ENDED
FEBRUARY 28, DECEMBER 31, DECEMBER 31,
1995 1995 1996
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax benefit at statutory rate................. $(3,824) $(296) $ (597)
Additional funds received..................... -- (219) --
Increase resulting from:
State income taxes, net of federal income
tax effect............................... -- 26 257
Current loss not available for carryback.... 3,206 172 --
Tax effect of permanent differences......... 152 68 276
Reduction of valuation allowance............ -- -- (5,186)
Other items, net............................ -- 24 129
------- ----- -------
Benefit for income taxes.................... $ (466) $(225) $(5,121)
======= ===== =======
</TABLE>
At December 31, 1996, the Company had a net operating loss carryforward of
approximately $16,663,000 for Federal income tax purposes, expiring in
increments through 2011. The utilization of approximately $11,106,000 of such
losses is restricted to offset only future taxable income generated by Choice
Maryland and Premier.
The tax effect of cumulative temporary differences at December 31, 1995 and
1996 follow:
<TABLE>
<CAPTION>
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
Current Deferred Tax Assets:
Tax carryforwards........................................... $ 4,172 $ 5,665
Accounts receivable allowances.............................. 413 85
Accrued litigation costs.................................... 1,255 657
Accrued restructuring charges............................... 536 1,104
Accrued liabilities......................................... 280 440
Other....................................................... 254 1,178
------- -------
6,910 9,129
Less: Valuation allowance................................... (6,910) (1,724)
------- -------
Net deferred tax asset............................ $ -- $ 7,405
======= =======
Deferred Tax Liabilities:
Puerto Rico withholding tax................................. $ 425 $ 425
Goodwill amortization....................................... -- 1,330
Depreciation and other...................................... 118 242
------- -------
Net deferred tax liability........................ $ 543 $ 1,997
======= =======
</TABLE>
F-48
<PAGE> 133
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS
Leases
The Company leases office and warehouse space, automobiles and equipment.
Rental expense under these leases aggregated approximately $719,000, $781,000,
and $1,664,000 for the year ended February 28, 1995, the ten months ended
December 31, 1995, and the year ended December 31, 1996, respectively.
Future minimum lease payments, follow:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
------------ --------- ----------
<S> <C> <C>
1997................................................... $ 157,074 $1,741,995
1998................................................... 113,863 1,612,177
1999................................................... 74,538 1,411,448
2000................................................... 26,788 1,013,377
2001................................................... 6,571 933,803
2002 and Thereafter.................................... -- 1,938,370
--------- ----------
Total minimum lease payments................................ 378,834 $8,651,170
==========
Less: amount representing interest.......................... (62,742)
---------
Present value of net minimum lease payments............... 316,092
Less: current portion....................................... (130,242)
---------
Long-term portion........................................... $ 185,850
=========
</TABLE>
11. CONTINGENCIES
A lawsuit has been filed against the Company by the former shareholders of
a subsidiary of Premier. The plaintiffs sold their business to Premier in 1993
and claim that the company owes them approximately $1,000,000 under promissory
notes delivered to them as part of the consideration for their stock. (See Note
4). The plaintiffs also claim that the Company owes them an additional
$1,100,000 under an earn-out agreement. Finally, the plaintiffs claim the
Company is liable for tortiously interfering with their rights under the
purchase agreement and under the promissory notes. The plaintiffs seek total
judgments of $7,100,000, plus interest and costs against the Company. The
Company has answered the complaint and is vigorously contesting the plaintiff's
claims. In addition, the Company has filed a counterclaim against the plaintiffs
for breaches of certain representations and warranties in the agreement.
Management of the Company does not believe that this litigation is likely to
have a material adverse effect on its financial position and results of
operations.
The Company is subject to various claims and litigation in the ordinary
course of its business. In the opinion of management and outside counsel,
settlement of these claims and litigation will not have a material adverse
effect on the financial position or future operating results of the Company.
12. STOCKHOLDER'S EQUITY
Common Stock Authorized
On August 28, 1995, the Company's stockholders approved an increase in the
authorized common stock of the Company from 15,000,000 shares to 30,000,000
shares. On September 28, 1996 the Company's stockholders approved an increase in
the authorized common stock of the Company from 30,000,000 shares to 50,000,000
shares.
F-49
<PAGE> 134
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Stock Option Plans
The Company has eight stock option plans and an employee stock purchase
plan covering up to 3,029,168 shares of the Company's common stock, pursuant to
which officers, directors and employees of the Company are eligible to receive
either incentive or non-qualified options. Stock options generally expire five
or ten years from the date of grant. The exercise price of an incentive stock
option is equal to the fair market value of the Company's common shares on the
date such option was granted. The exercise price of non-qualified stock options
may be less than the fair market value on the date of grant.
The Company applies APB Opinion 25 and related interpretations in
accounting for its plans. Accordingly, no compensation expense has been
recognized for its fixed stock option plans and its stock purchase plan. Had
compensation cost for the Company's stock-based compensation plans been
determined based on the fair value at the grant dates for awards under those
plans consistent with the method of FASB Statement 123, the Company's net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
TEN MONTHS ENDED
DECEMBER 31, YEAR ENDED
1995 DECEMBER 31, 1996
---------------- -----------------
<S> <C> <C>
Net income:
As reported........................................... $ 222,351 $ 3,125,420
Pro forma............................................. (3,155,567) (7,763,229)
Primary earnings per share:
As reported........................................... 0.02 0.14
Pro forma............................................. (0.28) (0.34)
Fully-diluted earnings per share:
As reported........................................... 0.02 0.13
Pro forma............................................. (0.25) (0.33)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model. The following key assumptions were used
in the Black-Scholes option pricing model:
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- --------------------
<S> <C> <C>
Risk-Free Interest Rate............................ 5.00% 5.00%
Expected Life...................................... 5-10 Years 5-10 Years
Volatility......................................... 73.90% 62.90%
</TABLE>
F-50
<PAGE> 135
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of option transactions during the year ended February 28, 1995,
the ten months ended December 31, 1995 and the year ended December 31, 1996
follow:
<TABLE>
<CAPTION>
YEAR ENDED TEN MONTHS ENDED YEAR ENDED
FEBRUARY 28, 1995 DECEMBER 31, 1995 DECEMBER 31, 1996
-------------------------- -------------------------- --------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
--------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Under option:
Beginning of the
Year/Period.......... 918,500 $4.33 1,094,500 $3.73 1,564,000 $4.40
Granted.............. 564,000 3.23 949,500 4.41 1,589,000 9.99
Exercised............ (34,000) 2.64 (355,000) 2.43 (122,166) 3.02
Canceled............. (354,000) 4.15 (125,000) 3.81 (1,666) 4.31
End of the
Year/Period.......... 1,094,500 $3.73 1,564,000 $4.40 3,029,168 $7.39
Options
exercisable -- Year/
Period End.............. 1,094,500 $3.73 1,389,000 $4.40 1,828,149 6.02
Shares available for
grant -- Year/Period
End..................... 568,250 -- 693,750 -- 856,250 --
Weighted average fair
value of options
granted................. $3.56 $6.85
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED -------------------------
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
PRICES 1996 LIFE PRICE 1996 PRICE
- -------- -------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C>
$2.85-$5.00.......................... 1,052,334 7.8 Years $ 4.10 968,998 $ 4.08
$5.00-$7.50.......................... 377,000 5.1 Years $ 5.65 350,332 $ 5.63
$7.50-$10.00......................... 400,834 9.2 Years $ 8.45 134,158 $ 8.41
$10.00-$11.25........................ 1,199,000 9.9 Years $10.48 374,661 $10.55
$2.85-$11.25......................... 3,029,168 8.5 Years $ 7.39 1,828,149 $ 6.02
</TABLE>
Warrants
During 1994, in exchange for consulting services, the Company issued
warrants exercisable for 40,000 shares of common stock with an exercise price of
$3.50.
In August 1995, the Company's Board of Directors extended the expiration
date of certain outstanding redeemable warrants issued as part of the Company's
initial public offering (The "IPO Warrants") to March 31, 1996, and subsequently
extended the expiration date to August 23, 1996. During August 1996, the Company
registered the shares underlying its outstanding Series A and B warrants. Series
A warrants representing 643,344 of a total of 650,000 shares of common stock
were exercised before expiring, at an exercise price of $6.00 per share. The
expiration date of the 643,344 Series B Warrants (which are exercisable at
$10.00 per share) issued upon exercise of the IPO Warrants is August 16, 1997.
In connection with the private placements discussed in Note 5, the Company
issued warrants to purchase 3,240,000 shares of stock at prices ranging from
$4.50 to $5.50 per share. These warrants expire through May 1998.
F-51
<PAGE> 136
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In December 1995, as part of their debt agreement, the Company issued
warrants to CreditAnstalt which grants CreditAnstalt the right to purchase
15,000 shares of common stock at a price of $7.31 per share. These warrants
expire in December 2000.
In January 1996, as part of the acquisition of IMD Corporation, the Company
issued warrants to purchase 75,000 shares of common stock at a price of $7.50
per share. These warrants expire in January 1999.
Total warrants for 4,132,684 shares were outstanding at December 31, 1996,
including the IPO warrants, warrants issued in connection with private
placements and 100,000 warrants issued in connection with prior acquisitions, at
exercise prices ranging from $4.50 to $12.00 per share. 46,615 (excluding the
Series A warrants) warrants were exercised during the year, at exercise prices
ranging from $3.50 to $5.50 per share.
13. MAJOR VENDOR
The Company utilizes a primary supplier arrangement for its pharmaceutical
purchases. During both 1995 and 1996, the Company changed its primary supplier.
Purchases of inventory under primary supplier relationships during the year
ended February 28, 1995, the ten months ended December 31, 1995, and the year
ended December 31, 1996, were approximately 55%, 87% and 82% of total inventory
purchases, respectively.
14. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consisted of the following as of
December 31, 1995 and 1996:
<TABLE>
<CAPTION>
1995 1996
---------- -----------
<S> <C> <C>
Trade accounts payable...................................... $4,671,435 $11,390,194
Accrued salaries, payroll taxes and benefits................ 669,860 4,172,362
Miscellaneous accrued expenses.............................. 795,977 2,385,929
---------- -----------
$6,137,272 $17,948,485
========== ===========
</TABLE>
15. RELATED PARTIES
As a result of the Company's acquisition of Symphony (See Note 2),
Symphony's former parent company, IHS, is a significant Company stockholder. The
Company provides institutional pharmacy services to several long-term care
facilities owned and managed by IHS. Since the Company's acquisition of Symphony
during 1996, net revenues of approximately $8,139,000 have been generated from
sales to IHS owned and managed long-term care facilities. Amounts due from IHS
owned and managed long-term care facilities of approximately $6,983,000 at
December 31, 1996 are included in accounts receivable, net in the accompanying
consolidated balance sheet.
To facilitate the timely purchase of MediDyne, an interim purchase of
MediDyne was made by Counsel Corporation, a significant stockholder of the
Company. The terms of the agreement are described in Note 2.
The Company entered into arrangements with a company which owns long-term
care facilities in the state of Minnesota to provide pharmacy services and
certain administrative functions in exchange for a monthly management fee. These
management fees, totaling approximately $58,000, have been included in other
income in the accompanying consolidated statement of operations for the year
ended December 31, 1996. In addition, the Company has provided working capital
funding. At December 31, 1996, amounts due of approximately $661,000 are
included in the accompanying consolidated balance sheet.
16. NEW ACCOUNTING STANDARDS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." SFAS No. 121 requires
F-52
<PAGE> 137
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that long-lived assets and certain identifiable intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. SFAS No. 121 is effective for financial statements with fiscal
years beginning after December 15, 1995. The adoption of SFAS No. 121 as of
January 1, 1996 had no impact on the Company's financial position or results of
operations.
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 simplifies the standards for computing
earnings per share previously found in APB No. 15, "Earnings Per Share." It
replaces the presentation of primary EPS with a presentation of basic EPS and
requires a reconciliation of the numerator and denominator of the basic EPS
calculation to the numerator and denominator of the diluted EPS calculation.
Basic EPS excludes dilution and is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
for the period. Diluted EPS is computed similarly to fully diluted EPS pursuant
to APB Opinion No. 15.
SFAS No. 128 is effective for fiscal years ending after December 15, 1997,
and early adoption is not permitted. When adopted, it will require restatement
of prior years' EPS. When adopted for the year ended December 31, 1997, the
Company will report basic EPS instead of primary EPS. The pro forma basic and
diluted EPS would be as follows:
<TABLE>
<CAPTION>
TEN MONTHS
ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1995 1996
------------ ------------
<S> <C> <C>
Pro forma earnings (loss) per common and common equivalent
share:
Basic Continuing operations................................. $(0.06) $ 0.17
Discontinued operations................................... 0.05 --
Extraordinary items....................................... 0.03 (0.01)
------ ------
Net income........................................ $ 0.02 $ 0.16
====== ======
Diluted Continuing operations............................... $(0.06) $ 0.15
Discontinued operations................................... 0.05 --
Extraordinary items....................................... 0.03 (0.01)
------ ------
Net income........................................ $ 0.02 $ 0.14
====== ======
</TABLE>
17. SUBSEQUENT EVENTS
In January 1997, the Company entered into purchase agreements with Clinical
Care-SNF Pharmacy, Inc., Portaro Pharmacies, Inc. and Alger Health Services,
Inc. These three acquisitions expand the Company's presence in the State of
California and represent institutional pharmacy revenues of approximately
$15,000,000, $15,000,000 and $8,500,000, respectively.
The purchase price for Clinical Care-SNF Pharmacy, Inc. was $20,000,000,
payable $5,000,000 in cash and the remainder representing 1,354,402 shares of
the Company's common stock. The purchase price for Portaro Pharmacies, Inc. was
$20,000,000, payable $5,000,000 in cash and the remainder representing 1,354,402
shares of the Company's common stock. The purchase price for Alger Health
Services, Inc. was $4,200,000.
In March 1997, the Company acquired Pennsylvania Prescriptions, Inc., a
Harrisburg, Pennsylvania institutional and retail pharmacy doing business as
Emerald Drugs. The purchase price was $6,200,000 and includes an earn-out
provision.
In March 1997, the Company acquired Pharmacare, Inc., a Virginia-based
provider of institutional pharmacy services. The purchase price was
approximately $8,500,000.
F-53
<PAGE> 138
CAPSTONE PHARMACY SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. SUBSEQUENT EVENT -- PROPOSED MERGER
In April 1997, the Company announced a proposed merger with Beverly
Enterprises, Inc.,'s ("Beverly") pharmacy unit. After receipt of shareholder and
other required approvals, the Company will issue approximately 50,000,000 shares
to existing Beverly stockholders and assume approximately $275,000,000 in debt.
The Company anticipates that the transaction will be finalized during the fourth
quarter of 1997.
F-54
<PAGE> 139
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS OFFERING
MEMORANDUM, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE INITIAL
PURCHASERS. THIS OFFERING MEMORANDUM DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE NOTES BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING THE
OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS
OFFERING MEMORANDUM NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT INFORMATION CONTAINED IN THIS OFFERING MEMORANDUM IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 9
Capitalization........................ 16
Unaudited Pro Forma Financial
Statements.......................... 17
Selected Historical Financial Data.... 19
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
The Exchange Offer.................... 24
Business.............................. 29
Management............................ 41
Certain Transactions.................. 43
Stock Ownership of Directors,
Executive Officers and Principal
Holders............................. 46
Description of the New Notes.......... 48
Description of Bank Credit Facility... 76
Certain Tax Considerations............ 77
Plan of Distribution.................. 79
Legal Matters......................... 79
Independent Public Accountants........ 80
Available Information................. 80
Incorporation of Certain Documents by
Reference........................... 80
Index to Financial Statements......... F-1
</TABLE>
======================================================
======================================================
PHARMERICA, INC. LOGO
PHARMERICA, INC.
OFFER TO EXCHANGE ALL OUTSTANDING
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008
($325,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008
($325,000,000 PRINCIPAL AMOUNT)
---------------------
PROSPECTUS
---------------------
, 1998
======================================================
<PAGE> 140
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") applies to
PharMerica, and the relevant portion of the DGCL provides as follows:
145. Indemnification of Officers, Directors, Employees and Agents;
Insurance. (a) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
(c) To the extent that a present or former director or officer of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, such person shall
be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the present or
former director, officer, employee or agent is proper in the circumstances
because he has met the applicable standard of conduct set forth in subsections
(a) and (b) of this section. Such determination shall be made, with respect to a
person who is a director or officer at the time of such determination, (1) by a
majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (2) by a committee of such
directors designated by majority vote of such directors, even though less than a
quorum, or (3) if there are no such directors, or if such directors so direct,
by independent legal counsel in a written opinion, or (4) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action, suit
or proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of such
II-1
<PAGE> 141
director or officer to repay such amount if it shall ultimately be determined
that such person is not entitled to be indemnified by the corporation as
authorized in this section. Such expenses (including attorneys' fees) incurred
by former directors and officers or other employees and agents may be so paid
upon such terms and conditions, if any, as the corporation deems appropriate.
(f) The indemnification and advancement of expenses provided by, or granted
pursuant to, the other subsections of this section shall not be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in such person's
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the corporation would have the power to
indemnify such person against such liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under this section with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued.
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner such person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or granted
pursuant to, this section shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
(k) The Court of Chancery is hereby vested with exclusive jurisdiction to
hear and determine all actions for advancement of expenses or indemnification
brought under this section or under any bylaw, agreement, vote of stockholders
or disinterested directors, or otherwise. The Court of Chancery may summarily
determine a corporation's obligation to advance expenses (including attorneys'
fees).
The PharMerica Certificate of Incorporation limits the liability of
directors (in their capacity as directors, but not in their capacity as
officers) to PharMerica or its stockholders to the fullest extent permitted by
the DGCL, as amended. Specifically, no director of PharMerica will be personally
liable to PharMerica or its stockholders for monetary damages for breach of the
director's fiduciary duty as a director, except as provided in Section 102 of
the DGCL for liability: (i) for any breach of the director's duty of loyalty to
PharMerica or its stockholders; (ii) for acts or omissions not in good faith and
which involve intentional misconduct or knowing violation of law; (iii) under
Section 174 of the DGCL, which relates to unlawful payments of dividends or
unlawful stock repurchases or redemptions; or (iv) for any transaction from
which the director derived an improper personal benefit. The inclusion of this
provision in the PharMerica Certificate of
II-2
<PAGE> 142
Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such action, if successful, might otherwise have benefitted
PharMerica and its stockholders.
Under the PharMerica Certificate of Incorporation and in accordance with
Section 145 of the DGCL, PharMerica will indemnify any person who was or is a
party, or is threatened to be made a party, to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than a "derivative" action by or in the right of
PharMerica) by reason of the fact that such person was or is a director or
officer of PharMerica, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of PharMerica, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such acts were unlawful. A
similar standard of care is applicable in the case of derivative actions, except
that indemnification only extends to expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement of
such an action and then, where the person is adjudged to be liable to
PharMerica, only if and to the extent that the Court of Chancery of the State of
Delaware or the court in which such action was brought determines that such
person is fairly and reasonably entitled to such indemnity and then only for
such expenses as the court deems proper. PharMerica will indemnify, pursuant to
the standard enumerated in Section 145 of the DGCL, any past or present officer
or director who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed derivative action by or in the right of
PharMerica.
The PharMerica Certificate of Incorporation of PharMerica provides that
PharMerica may pay for the expenses incurred by an indemnified director or
officer in defending the proceedings specified above in advance of their final
disposition, provided that, if the DGCL so requires, such indemnified person
agrees to reimburse PharMerica if it is ultimately determined that such person
is not entitled to indemnification. The PharMerica Certificate of Incorporation
also allows PharMerica, in its sole discretion, to indemnify any person who is
or was one of its employees and agents to the same degree as the foregoing
indemnification of directors and officers. To the extent that a present or
former director or officer of PharMerica has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in
subsections (a) and (b) of Section 145 of the DGCL, or in defense of any claim,
issue or matter therein, such person shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection therewith. In addition, PharMerica may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of PharMerica or another corporation, partnership, joint venture, trust or
other enterprise against any liability asserted against and incurred by such
person in such capacity, or arising out of the person's status as such whether
or not PharMerica would have the power or obligation to indemnify such person
against such liability under the provisions of the DGCL. PharMerica maintains
insurance for the benefit of PharMerica's officers and directors insuring such
persons against certain liabilities, including civil liabilities under the
securities laws. Additionally, PharMerica has entered into indemnification
agreements with each of the Directors of PharMerica, which, among other things,
provides that PharMerica will indemnify such Directors to the fullest extent
permitted by the PharMerica Certificate of Incorporation and the DGCL and will
advance expenses of defending claims against such Directors.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Reference is made to the exhibit index immediately following the
signature page to the Registration Statement.
(b) The Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are included with the
financial statements included herein.
(c) No opinions are included in the Prospectus.
II-3
<PAGE> 143
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. (a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement.
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
Provided, however, that paragraphs (1)(i) and (1)(ii) do not apply if
the registration statement is on Form S-3, Form S-8 or Form F-3, and the
information required to be included in a post-effective amendment by
those paragraphs is contained in periodic reports filed by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration
statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
2. That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities Exchange Act
of 1934 (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
3. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-4
<PAGE> 144
4. The undersigned registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form S-4, within one business
day of receipt of such request, and to send the incorporated documents by
first class mail or other equally prompt means. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
5. The undersigned registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a transaction, and
the company being acquired involved therein, that was not the subject of
and included in the registration statement when it became Effective.
II-5
<PAGE> 145
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Registration Statement on Form S-4 to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of Tampa, State of Florida,
on the 14th day of May, 1998.
PHARMERICA, INC.
By: /s/ C. ARNOLD RENSCHLER, M.D.
------------------------------------
C. Arnold Renschler, M.D.
President and Chief Executive
Officer
POWER OF ATTORNEY
Each person whose signature to the Registration Statement appears below
hereby appoints C. Arnold Renschler, M.D. and James D. Shelton, and each of
them, as his attorneys-in-fact to execute in the name and on behalf of any such
person, individually and in the capacity stated below, and to file all
amendments and post-effective amendments to this Registration Statement, which
amendment or amendments may make such changes and additions in this Registration
Statement as such attorneys-in-fact may deem necessary or appropriate.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on the dates indicated by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ C. ARNOLD RENSCHLER, M.D. President, Chief Executive May 14, 1998
- ----------------------------------------------------- Officer and Director (Chief
C. Arnold Renschler, M.D. Executive Officer)
/s/ JAMES D. SHELTON Executive Vice President, Chief May 14, 1998
- ----------------------------------------------------- Financial Officer and
James D. Shelton Secretary (Chief Accounting
Officer)
/s/ ALLAN C. SILBER Chairman May 14, 1998
- -----------------------------------------------------
Allan C. Silber
/s/ DAVID R. BANKS Director May 14, 1998
- -----------------------------------------------------
David R. Banks
/s/ CECIL S. HARRELL Director May 14, 1998
- -----------------------------------------------------
Cecil S. Harrell
Director May , 1998
- -----------------------------------------------------
Boyd W. Hendrickson
Vice Chairman May , 1998
- -----------------------------------------------------
Morris A. Perlis
Director May , 1998
- -----------------------------------------------------
Frederick C. Powell
/s/ ALBERT REICHMANN Director May 14, 1998
- -----------------------------------------------------
Albert Reichmann
/s/ EDWARD SONSHINE Director May 14, 1998
- -----------------------------------------------------
Edward Sonshine
Director May , 1998
- -----------------------------------------------------
Dr. Gail Wilensky
</TABLE>
II-6
<PAGE> 146
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1 -- Purchase Agreement Dated March 25, 1998 by and among
PharMerica, Inc., the Guarantors, Donaldson, Lufkin, &
Jenrette Securities Corporation, Salomon Brothers Inc,
BancAmerica Robertson Stephens, Chase Securities Inc. and
CIBC Oppenheimer Corp.
2.1 -- Agreement and Plan of Merger dated December 3, 1997 by
and among Capstone Pharmacy Services, Inc. and Beverly
Enterprises, Inc. (Schedules available upon request)
(incorporated by reference to Exhibit 2.1 to the
Company's Registration Statement on Form S-4 (Reg. No.
333-28517)).
3.1 -- Certificate of Incorporation of Choice Drug Systems, Inc.
(incorporated by reference to Exhibit 3.1 to Form 10-Q
for period ending August 30, 1995).
3.2 -- Certificate of Ownership and Merger Merging Choice
Mergeco, Inc. into Choice Drug Systems, Inc.
(incorporated by reference to Exhibit 3.2 to Form 10-Q
for period ending August 30, 1995).
3.3 -- Certificate of Amendment (incorporated by reference to
Exhibit A to the Company's Proxy Statement for Special
Meeting of Stockholders on August 15, 1996).
3.4 -- Certificate of Amendment to Certificate of Incorporation
of Capstone Pharmacy Services, Inc. (incorporated by
reference to Exhibit 3.1 to Form 8-K filed December 12,
1997).
3.5 -- Bylaws of Choice Drug Systems, Inc. (incorporated by
reference to Exhibit 3.3 to Form 10-Q for period ending
August 30, 1995).
4.1 -- Form of Warrant ($4.50) for Purchase of Common Stock
(incorporated by reference to Exhibit 4.5 to Capstone's
Annual Report on Form 10-K for fiscal year ended February
29, 1995).
4.2 -- Form of Warrant ($5.50) for Purchase of Common Stock
(incorporated by reference to Exhibit 4.6 to Capstone's
Annual Report on Form 10-K for fiscal year ended February
29, 1995).
4.3 -- Warrant to Purchase Shares of Common Stock dated January
1, 1996, for the purchase of 75,000 shares. (incorporated
by reference to Exhibit 4.9 to Capstone's Annual Report
on Form 10-K for the fiscal year ended December 31,
1996).
4.4 -- Warrant to purchase shares of Common Stock dated December
20, 1995 for the purchase of 15,000 shares. (incorporated
by reference to Exhibit 4.10 to Capstone's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996)
4.5 -- Form of ACA Investors Warrant ($12.00) for purchase of
Common Stock (incorporated by reference to Exhibit 4.11
to Capstone's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996).
4.6 -- Form of Certificate of Amendment to Certificate of
Incorporation of Capstone (incorporated by reference to
Annex G to the Joint Proxy Statement/Prospectus).
4.7 -- Indenture dated March 31, 1998, related to 8 3/8% Senior
Subordinated Notes.
4.8 -- Registration Rights Agreement dated March 31, 1998 by and
among Registrant, Guarantors and Initial Purchasers.
5 -- Opinion of Harwell Howard Hyne Gabbert & Manner P.C.
10.1 -- 1995 Nonqualified Stock Option Plan for Directors of the
Company (incorporated by reference to Exhibit A to
Schedule 14A filed August 2, 1995).
10.2 -- 1995 Incentive and Nonqualified Stock Option Plan for Key
Personnel and Directors of the Company (incorporated by
reference to Exhibit B to Schedule 14A filed August 2,
1995).
10.3 -- Amendment to 1995 Incentive and Nonqualified Stock Option
Plan for Key Personnel and Directors of the Company
(incorporated by reference to Annex H to the Company's
Registration Statement on Form S-4 (Reg. No. 333-28517)).
</TABLE>
<PAGE> 147
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.4 -- 1996 Employee Stock Purchase Plan of the Company
(incorporated by reference to Exhibit D to Schedule 14A
filed August 2, 1995).
10.5 -- Amended and Restated 1996 Employee Stock Purchase Plan
(incorporated by reference to Annex K to the Company's
Registration Statement on Form S-4 (Reg. No. 333-28517)).
10.6 -- Non-Qualified Deferred Compensation Plan for Executives
(incorporated by reference to Exhibit 4 to the Company's
S-8 filed on November 21, 1997).
10.7 -- Adirondack Consulting Agreement dated June 25, 1996
(incorporated by reference to Exhibit 10.23 to Form 10-K
for year ending December 31, 1996).
10.8 -- Agreement and Plan of Distribution by and among Beverly
Enterprises, Inc., New Beverly Holdings, Inc. and the
Company, dated April 15, 1997 (incorporated by reference
to Annex C to the Company's Registration Statement on
Form S-4 (Reg. No. 333-28517)).
10.9 -- Senior Subordinated Credit Agreement dated December 3,
1997 by and between the Company and Chase Manhattan Bank
(incorporated by reference to Exhibit 10.9 to the
Company's 10-K filed on March 31, 1998).
10.10 -- Preferred Provider Agreement by and among Beverly
Enterprises, Inc. and the Company, dated December 3, 1997
(incorporated by reference to Exhibit 10.10 to the
Company's 10-K filed on March 31, 1998).
10.11 -- Adirondack Engagement Letter dated December 10, 1996
(incorporated by reference to Exhibit 10.11 to the
Company's 10-K filed on March 31, 1998).
10.12 -- Form of Employment Agreement with Officers (incorporated
by reference to Exhibit 10.12 to the Company's 10-K filed
on March 31, 1998).
10.13 -- Form of Employment Agreement with Officers (incorporated
by reference to Exhibit 10.13 to the Company's 10-K filed
on March 31, 1998).
21. -- List of Subsidiaries.
23.1 -- Consent of Arthur Andersen LLP.
23.2 -- Consent of Ernst & Young LLP.
23.3 -- Consent of Harwell Howard Hyne Gabbert & Manner P.C.
(contained in Exhibit 5)
24 -- Power of Attorney (included on signature page)
</TABLE>
- ---------------
* Denotes a management contract or compensatory plan, contract or arrangement.
<PAGE> 1
EXHIBIT 1
PHARMERICA, INC.
AND
THE GUARANTORS LISTED ON SCHEDULE A HERETO
$325,000,000
8 3/8% Senior Subordinated Notes due 2008
Purchase Agreement
March 25, 1998
<PAGE> 2
$325,000,000
8 3/8% Senior Subordinated Notes due 2008
of PharMerica, Inc.
PURCHASE AGREEMENT
March 25, 1998
Donaldson, Lufkin & Jenrette
Securities Corporation
Salomon Brothers Inc
BancAmerica Robertson Stephens
Chase Securities Inc.
CIBC Oppenheimer Corp.
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
PharMerica, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to ("DLJ"), Salomon Brothers, Inc., BancAmerica
Robertson Stephens, Chase Securities Inc. and CIBC Oppenheimer Corp. (each, an
"Initial Purchaser" and, collectively, the "Initial Purchasers") an aggregate of
$325,000,000 in principal amount of its 8 3/8% Senior Subordinated Notes due
2008 (the "Series A Notes"), subject to the terms and conditions set forth
herein. The Series A Notes are to be issued pursuant to the provisions of an
indenture (the "Indenture"), to be dated as of the Closing Date (as defined
below), among the Company, the Guarantors (as defined below) and Harris Trust
and Savings Bank, as trustee (the "Trustee"). The Series A Notes and Series B
Notes (as defined below) issuable in exchange therefor are collectively referred
to herein as the "Notes." The Notes will be guaranteed (the "Subsidiary
Guarantees") by each of the entities listed on Schedule A, hereto (each, a
"Guarantor" and collectively the "Guarantors"). Capitalized terms used but not
defined herein shall have the meanings given to such terms in the Indenture.
1. OFFERING MEMORANDUM. The Series A Notes will be offered and
sold to the Initial Purchasers pursuant to one or more exemptions from the
registration requirements under the Securities Act of 1933, as amended (the
"ACT"). The Company and the Guarantors have prepared a preliminary offering
memorandum, dated March 13, 1998 (the "PRELIMINARY OFFERING MEMORANDUM") and a
final offering memorandum, dated March 25, 1998 (the "OFFERING MEMORANDUM"),
relating to the Series A Notes and the Subsidiary Guarantees.
- 1 -
<PAGE> 3
Upon original issuance thereof, and until such time as the
same is no longer required pursuant to the Indenture, the Series A Notes (and
all securities issued in exchange therefor, in substitution thereof or upon
conversion thereof) shall bear the following legend:
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933 AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE
SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY
EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE COMPANY THAT (A) SUCH SECURITY
MAY RE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED, ONLY (1)(a) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (d)
IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT (AND IN THE CASE OF CLAUSES (b), (c), and (d) BASED UPON AN
OPINION OF COUNSEL IF THE COMPANY SO REQUESTS), (2) TO THE COMPANY OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY
OTHER APPLICABLE JURISDICTION AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE SECURITY EVIDENCED
HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE."
2. AGREEMENTS TO SELL AND PURCHASE. On the basis of the
representations, warranties and covenants contained in this Agreement, and
subject to the terms and conditions contained herein, the Company agrees to
issue and sell to the Initial Purchasers, and each Initial Purchaser agrees,
severally and not jointly, to purchase from the Company, the principal amounts
of Series A Notes set forth opposite the name of such Initial Purchaser on
Schedule B hereto at a purchase price equal to 97.50% of the principal amount
thereof (the "PURCHASE PRICE").
3. TERMS OF OFFERING. The Initial Purchasers have advised the
Company that the Initial Purchasers will make offers (the "EXEMPT RESALES") of
the Series A Notes purchased hereunder on the terms set forth in the Offering
Memorandum, as amended or supplemented, solely to (i) persons whom the Initial
Purchasers reasonably believe to be "qualified institutional buyers" as defined
in Rule 144A under the Act ("QIBS") and (ii) persons permitted to purchase the
Series A Notes in offshore transactions in reliance upon Regulation S under the
Act (each, a "REGULATION S PURCHASER") (such persons specified in clauses (i)
and (ii) being referred to herein as the "ELIGIBLE PURCHASERS"). The Initial
Purchasers will offer the Series A Notes to Eligible Purchasers initially at a
price equal to 100.00% of the principal amount thereof. Such price may be
changed at any time without notice.
Holders (including subsequent transferees) of the Series A
Notes will have the registration rights set forth in the registration rights
agreement (the "REGISTRATION RIGHTS AGREEMENT"), to be dated the Closing Date,
in substantially the form of Exhibit A hereto, for so long as such Series A
Notes
- 2 -
<PAGE> 4
constitute "TRANSFER RESTRICTED SECURITIES" (as defined in the Registration
Rights Agreement). Pursuant to the Registration Rights Agreement, the Company
and the Guarantors will agree to file with the Securities and Exchange
Commission (the "COMMISSION") under the circumstances set forth therein, (i) a
registration statement under the Act (the "EXCHANGE OFFER REGISTRATION
STATEMENT") relating to the Company's 8 3/8% Senior Subordinated Notes due 2008,
Series B (the "SERIES B NOTES"), to be offered in exchange for the Series A
Notes (such offer to exchange being referred to as the "EXCHANGE OFFER") and the
Subsidiary Guarantees thereof and (ii) a shelf registration statement pursuant
to Rule 415 under the Act (the "SHELF REGISTRATION STATEMENT" and, together with
the Exchange Offer Registration Statement, the "REGISTRATION STATEMENTS")
relating to the resale by certain holders of the Series A Notes and to use its
best efforts to cause such Registration Statements to be declared and remain
effective and usable for the periods specified in the Registration Rights
Agreement and to consummate the Exchange Offer. This Agreement, the Indenture,
the Notes, the Subsidiary Guarantees and the Registration Rights Agreement are
hereinafter sometimes referred to collectively as the "OPERATIVE DOCUMENTS."
4. DELIVERY AND PAYMENT.
(a) Delivery of, and payment of the Purchase Price
for, the Series A Notes shall be made at the offices of Fried, Frank, Harris,
Shriver & Jacobson or such other location as may be mutually acceptable. Such
delivery and payment shall be made at 9:00 a.m. New York City time, on March 31,
1998 or at such other time on the same date or such other date as shall be
agreed upon by the Initial Purchasers and the Company in writing. The time and
date of such delivery and the payment for the Series A Notes are herein called
the "CLOSING DATE."
(b) One or more of the Series A Notes in definitive
global form, registered in the name of Cede & Co., as nominee of the
Depository Trust Company ("DTC"), having an aggregate principal amount
corresponding to the aggregate principal amount of the Series A Notes
(collectively, the "GLOBAL NOTE"), shall be delivered by the Company to the
Initial Purchasers (or as the Initial Purchasers direct) in each case with any
transfer taxes thereon duly paid by the Company against payment by the Initial
Purchasers of the Purchase Price thereof by wire transfer in same day funds to
the order of the Company. The Global Note shall be made available to the Initial
Purchasers for inspection not later than 9:30 a.m., New York City time, on the
business day immediately preceding the Closing Date.
5. AGREEMENTS OF THE COMPANY AND THE GUARANTORS. Each
of the Company and the Guarantors hereby agrees with the Initial Purchasers as
follows:
(a) To advise the Initial Purchasers promptly and, if
requested by the Initial Purchasers, confirm such advice in writing, (i) of the
issuance by any state securities commission of any stop order suspending the
qualification or exemption from qualification of any Series A Notes for offering
or sale in any jurisdiction designated by the Initial Purchasers pursuant to
Section 5(e) hereof, or the initiation of any proceeding by any state securities
commission or any other federal or state regulatory authority for such purpose
and (ii) of the happening of any event during the period referred to in Section
5(c) below that makes any statement of a material fact made in the Preliminary
Offering Memorandum or the Offering Memorandum untrue or that requires any
additions to or changes in the Preliminary Offering Memorandum or the Offering
Memorandum in order to make the statements therein not misleading. The Company
and the Guarantors shall use their best efforts to prevent the issuance of any
stop order or order suspending the qualification or exemption of any Series A
Notes under any state securities or Blue Sky laws and, if at any time any state
securities commission or other federal or state regulatory authority shall issue
an order suspending the qualification or exemption of any Series A Notes under
any state securities or Blue Sky laws, the Company and the Guarantors shall use
their best efforts to obtain the withdrawal or lifting of such order at the
earliest possible time.
- 3 -
<PAGE> 5
(b) To furnish the Initial Purchasers and those
persons identified by the Initial Purchasers to the Company as many copies of
the Preliminary Offering Memorandum and the Offering Memorandum, and any
amendments or supplements thereto, as the Initial Purchasers may reasonably
request for the time period specified in Section 5(c). Subject to the Initial
Purchasers' compliance with its representations and warranties and agreements
set forth in Section 7 hereof, the Company consents to the use of the
Preliminary Offering Memorandum and the Offering Memorandum, and any amendments
and supplements thereto required pursuant hereto, by the Initial Purchasers in
connection with Exempt Resales.
(c) During such period as in the opinion of counsel
for the Initial Purchasers an Offering Memorandum is required by law to be
delivered in connection with Exempt Resales by the Initial Purchasers and in
connection with market-making activities of the Initial Purchasers for so long
as any Series A Notes are outstanding, (i) not to make any amendment or
supplement to the Offering Memorandum of which the Initial Purchasers shall not
previously have been advised or to which the Initial Purchasers shall reasonably
object after being so advised and (ii) to prepare promptly upon the Initial
Purchasers' reasonable request, any amendment or supplement to the Offering
Memorandum which may be necessary or advisable in connection with such Exempt
Resales or such market-making activities.
(d) If, during the period referred to in Section 5(c)
above, any event shall occur or condition shall exist as a result of which, in
the opinion of counsel to the Initial Purchasers, it becomes necessary to amend
or supplement the Offering Memorandum in order to make the statements therein,
in the light of the circumstances when such Offering Memorandum is delivered to
an Eligible Purchaser, not misleading, or if, in the opinion of counsel to the
Initial Purchasers, it is necessary to amend or supplement the Offering
Memorandum to comply with any applicable law, forthwith to prepare an
appropriate amendment or supplement to such Offering Memorandum so that the
statements therein, as so amended or supplemented, will not, in the light of the
circumstances when it is so delivered, be misleading, or so that such Offering
Memorandum will comply with applicable law, and to furnish to the Initial
Purchasers and such other persons as the Initial Purchasers may designate such
number of copies thereof as the Initial Purchasers may reasonably request.
(e) Prior to the sale of all Series A Notes pursuant
to Exempt Resales as contemplated hereby, to cooperate with the Initial
Purchasers and counsel to the Initial Purchasers in connection with the
registration or qualification of the Series A Notes for offer and sale to the
Initial Purchasers and pursuant to Exempt Resales under the securities or Blue
Sky laws of such jurisdictions as the Initial Purchasers may request and to
continue such registration or qualification in effect so long as required for
Exempt Resales and to file such consents to service of process or other
documents as may be necessary in order to effect such registration or
qualification; provided, however, that neither the Company nor any Guarantor
shall be required in connection therewith to qualify as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action that
would subject it to general consent to service of process or taxation other than
as to matters and transactions relating to the Preliminary Offering Memorandum,
the Offering Memorandum or Exempt Resales, in any jurisdiction in which it is
not now so subject.
(f) The Company will timely file such reports
pursuant to the Securities Exchange Act of 1934, as amended (the "EXCHANGE
Act"), as are necessary in order to make generally available to its security
holders as soon as practicable an earnings statement for the purposes of, and to
provide the benefits contemplated by, the last paragraph of Section 11(a) of the
Act.
- 4 -
<PAGE> 6
(g) For a period of 3 years after the Closing Date,
to furnish to the Initial Purchasers as soon as available copies of all reports
or other communications furnished by the Company or any of the Guarantors to its
security holders or furnished to or filed with the Commission or any national
securities exchange on which any class of securities of the Company or any of
the Guarantors is listed and such other publicly available information
concerning the Company and/or its subsidiaries as the Initial Purchasers may
reasonably request.
(h) So long as any of the Series A Notes remain
outstanding and during any period in which the Company and the Guarantors are
not subject to Section 13 or 15(d) of the Securities Exchange Act, to make
available to any holder of Series A Notes in connection with any sale thereof
and any prospective purchaser of such Series A Notes from such holder, the
information ("RULE 144A INFORMATION") required by Rule 144A(d)(4) under the Act.
(i) Whether or not the transactions contemplated in
this Agreement are consummated or this Agreement is terminated, to pay or cause
to be paid all expenses incident to the performance of the obligations of the
Company and the Guarantors under this Agreement, including: (i) the fees,
disbursements and expenses of counsel to the Company and the Guarantors and
accountants of the Company and the Guarantors (and any accountants of entities
acquired by the Company or any Guarantor whose financial statements are included
in the Offering Memorandum) in connection with the sale and delivery of the
Series A Notes to the Initial Purchasers and pursuant to Exempt Resales, and all
other fees and expenses in connection with the preparation, printing, filing and
distribution of the Preliminary Offering Memorandum, the Offering Memorandum and
all amendments and supplements to any of the foregoing (including financial
statements), including the mailing and delivering of copies thereof to the
Initial Purchasers and persons designated by it in the quantities specified
herein, (ii) all costs and expenses related to the transfer and delivery of the
Series A Notes to the Initial Purchasers and pursuant to Exempt Resales,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or producing this Agreement, the other Operative Documents and any
other agreements or documents in connection with the offering, purchase, sale or
delivery of the Series A Notes, (iv) all expenses in connection with the
registration or qualification of the Series A Notes and the Subsidiary
Guarantees for offer and sale under the securities or Blue Sky laws of the
several states and all costs of printing or producing any preliminary and
supplemental Blue Sky memoranda in connection therewith (including the filing
fees and fees and disbursements of counsel for the Initial Purchasers in
connection with such registration or qualification and memoranda relating
thereto), (v) the cost of printing certificates representing the Series A Notes
and the Subsidiary Guarantees, (vi) all expenses and listing fees in connection
with the application for quotation of the Series A Notes in the National
Association of Securities Dealers, Inc. ("NASD") Automated Quotation System -
PORTAL ("PORTAL"), (vii) the fees and expenses of the Trustee and the Trustee's
counsel in connection with the Indenture, the Notes and the Subsidiary
Guarantees, (viii) the costs and charges of any transfer agent, registrar and/or
depositary (including DTC), (ix) any fees charged by rating agencies for the
rating of the Notes, (x) all costs and expenses of the Exchange Offer and any
Registration Statement, as set forth in the Registration Rights Agreement, and
(xi) and all other costs and expenses incident to the performance of the
obligations of the Company and the Guarantors hereunder for which provision is
not otherwise made in this Section.
(j) To use its best efforts to effect the inclusion
of the Series A Notes in PORTAL and to maintain the listing of the Series A
Notes on PORTAL for so long as the Series A Notes are outstanding.
(k) To obtain the approval of DTC for "book-entry"
transfer of the Notes, and to comply with all of its agreements set forth in the
representation letters of the Company and the Guarantors to DTC relating to the
approval of the Notes by DTC for "book-entry" transfer.
- 5 -
<PAGE> 7
(l) During the period beginning on the date hereof
and continuing to and including the Closing Date, not to offer, sell, contract
to sell or otherwise transfer or dispose of any debt securities of the Company
or any Guarantor or any warrants, rights or options to purchase or otherwise
acquire debt securities of the Company or any Guarantor substantially similar to
the Notes and the Subsidiary Guarantees (other than the Notes and the Subsidiary
Guarantees), without the prior written consent of Donaldson, Lufkin & Jenrette
Securities Corporation on behalf of the Initial Purchasers.
(m) Not to sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in the Act)
that would be integrated with the sale of the Series A Notes to the Initial
Purchasers or pursuant to Exempt Resales in a manner that would require the
registration of any such sale or any sale of the Series A Notes under the Act.
(n) Not to voluntarily claim, and to actively resist
any attempts to claim, the benefit of any usury laws against the holders of any
Notes and the related Subsidiary Guarantees.
(o) To cause the Exchange Offer to be made in the
appropriate form to permit Series B Notes and guarantees thereof by the
Guarantors registered pursuant to the Act to be offered in exchange for the
Series A Notes and the Subsidiary Guarantees and to comply with all applicable
federal and state securities laws in connection with the Exchange Offer.
(p) To comply with all of its agreements set forth in
the Registration Rights Agreement.
(q) To use its best efforts to do and perform all
things required or necessary to be done and performed under this Agreement by it
prior to the Closing Date and to satisfy all conditions precedent to the
delivery of the Series A Notes and the Subsidiary Guarantees.
6. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY
AND THE GUARANTORS. As of the date hereof, each of the Company and the
Guarantors, jointly and severally, represents and warrants to, and agrees with,
each of the Initial Purchasers that:
(a) The Preliminary Offering Memorandum and the
Offering Memorandum do not, and any supplement or amendment to them will not,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except that the representations and warranties contained in this paragraph (a)
shall not apply to statements in or omissions from the Preliminary Offering
Memorandum or the Offering Memorandum (or any supplement or amendment thereto)
based upon information relating to the Initial Purchasers furnished to the
Company in writing by the Initial Purchasers expressly for use therein. No stop
order preventing the use of the Preliminary Offering Memorandum or the Offering
Memorandum, or any amendment or supplement thereto, or any order asserting that
any of the transactions contemplated by this Agreement are subject to the
registration requirements of the Act, has been issued.
(b) Each of the Company and its subsidiaries has been
duly incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power and
authority to carry on its business as described in the Preliminary Offering
Memorandum and the Offering Memorandum and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each
- 6 -
<PAGE> 8
jurisdiction in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole (a "MATERIAL ADVERSE EFFECT"). Other than the
states of California, Florida, Massachusetts, Pennsylvania and Texas, there are
no states in the United States in which the Company and its consolidated
subsidiaries generated more than 5% of their combined revenues, assets or EBITDA
during the year ended December 31, 1997 or in which the Company and its
subsidiaries on a consolidated basis held more than 10% of the combined assets
as of December 31, 1997 (in each case on a pro forma basis consistent with the
Offering Memorandum).
(c) All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid,
non-assessable and are not, and when issued were not, subject to any preemptive
or similar rights.
(d) The entities listed on Schedule A hereto are the
only subsidiaries, direct or indirect, of the Company. No subsidiary listed on
Schedule A hereto, other than Pharmacy Corporation of America and PharMerica
Drug Systems, Inc., would have (i) contributed in the fiscal year ended December
31, 1997 greater than 10% of the Company's revenues, EBITDA (as defined in the
Offering Memorandum) or net income on a pro forma basis consistent with the
Offering Memorandum or (ii) at December 31, 1997 constituted greater than 10% of
the total assets of the Company on a pro forma basis consistent with the
Offering Memorandum. All of the outstanding shares of capital stock of each of
the Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature (each, a
"LIEN").
(e) This Agreement has been duly authorized, executed
and delivered by the Company and each of the Guarantors.
(f) The Indenture has been duly authorized by the
Company and each of the Guarantors and, on the Closing Date, will have been
validly executed and delivered by the Company and each of the Guarantors. When
the Indenture has been duly executed and delivered by the Company and each of
the Guarantors, the Indenture will be a valid and binding agreement of the
Company and each Guarantor, enforceable against the Company and each Guarantor
in accordance with its terms except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting creditors' rights
generally and (ii) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability. On the
Closing Date, the Indenture will conform in all material respects to the
requirements of the Trust Indenture Act of 1939, as amended (the "TIA" or "TRUST
INDENTURE ACT"), and the rules and regulations of the Commission applicable to
an indenture which is qualified thereunder.
(g) The Series A Notes have been duly authorized and,
on the Closing Date, will have been validly executed and delivered by the
Company. When the Series A Notes have been issued, executed and authenticated in
accordance with the provisions of the Indenture and delivered to and paid for by
the Initial Purchasers in accordance with the terms of this Agreement, the
Series A Notes will be entitled to the benefits of the Indenture and will be
valid and binding obligations of the Company, enforceable in accordance with
their terms. On the Closing Date, the Series A Notes will conform to the
description thereof contained in the Offering Memorandum.
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<PAGE> 9
(h) On the Closing Date, the Series B Notes will have
been duly authorized by the Company. When the Series B Notes are issued,
executed and authenticated in accordance with the terms of the Exchange Offer
and the Indenture, the Series B Notes will be entitled to the benefits of the
Indenture and will be the valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms. When the Series
B Notes are issued, authenticated and delivered, the Series B Notes will conform
to the description thereof in the Offering Memorandum.
(i) The Subsidiary Guarantee to be endorsed on the
Series A Notes by each Guarantor has been duly authorized by such Guarantor and,
on the Closing Date, will have been duly executed and delivered by each such
Guarantor. When the Series A Notes have been issued, executed and authenticated
in accordance with the Indenture and delivered to and paid for by the Initial
Purchasers in accordance with the terms of this Agreement, the Subsidiary
Guarantee of each Guarantor endorsed thereon will be entitled to the benefits of
the Indenture and will be the valid and binding obligation of such Guarantor,
enforceable against such Guarantor in accordance with its terms. On the Closing
Date, the Subsidiary Guarantees to be endorsed on the Series A Notes will
conform to the description thereof contained in the Offering Memorandum.
(j) The Subsidiary Guarantee to be endorsed on the
Series B Notes by each Guarantor has been duly authorized by such Guarantor and,
when issued, will have been duly executed and delivered by each such Guarantor.
When the Series B Notes have been issued, executed and authenticated in
accordance with the terms of the Exchange Offer and the Indenture, the
Subsidiary Guarantee of each Guarantor endorsed thereon will be entitled to the
benefits of the Indenture and will be the valid and binding obligation of such
Guarantor, enforceable against such Guarantor in accordance with its terms. When
the Series B Notes are issued, authenticated and delivered, the Subsidiary
Guarantees to be endorsed on the Series B Notes will conform to the description
thereof in the Offering Memorandum.
(k) The Registration Rights Agreement has been duly
authorized by the Company and each of the Guarantors and, on the Closing Date,
will have been duly executed and delivered by the Company and each of the
Guarantors. When the Registration Rights Agreement has been duly executed and
delivered, the Registration Rights Agreement will be a valid and binding
agreement of the Company and each of the Guarantors, enforceable against the
Company and each Guarantor in accordance with its terms. On the Closing Date,
the Registration Rights Agreement will conform to the description thereof in the
Offering Memorandum.
(l) Neither the Company nor any of its subsidiaries
is in violation of its respective charter or by-laws or in default in the
performance of any obligation, agreement, covenant or condition contained in any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound, which default would have
a Material Adverse Effect on the Company and its subsidiaries, taken as a whole.
(m) The execution, delivery and performance of this
Agreement and the other Operative Documents by the Company and each of the
Guarantors, compliance by the Company and each of the Guarantors with all
provisions hereof and thereof and the consummation of the transactions
contemplated hereby, thereby and in the Offering Memorandum will not (i) require
any consent, approval, authorization or other order of, or qualification with,
any court or governmental body or agency (except such as may be required under
the securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement
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<PAGE> 10
or instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or their respective property is
bound, (iii) violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body or
agency having jurisdiction over the Company, any of its subsidiaries or their
respective property, (iv) result in the imposition or creation of (or the
obligation to create or impose) a Lien under, any agreement or instrument to
which the Company or any of its subsidiaries is a party or by which the Company
or any of its subsidiaries or their respective property is bound, or (v) result
in the termination, suspension or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or result in any other
impairment of the rights of the holder of any such Authorization.
(n) There are no legal or governmental proceedings
pending or threatened to which the Company or any of its subsidiaries is or
could be a party or to which any of their respective property is or could be
subject, which might result, singly or in the aggregate, in a Material Adverse
Effect.
(o) Neither the Company nor any of its subsidiaries
has violated any foreign, federal, state or local law or regulation relating to
the protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), any
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or any provisions of the Foreign Corrupt Practices Act or the rules
and regulations promulgated thereunder, except for such violations which, singly
or in the aggregate, would not have a Material Adverse Effect.
(p) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with
Environmental Laws or any Authorization, any related constraints on operating
activities and any potential liabilities to third parties) which could, singly
or in the aggregate, have a Material Adverse Effect.
(q) Each of the Company and its subsidiaries has such
permits, licenses, consents, exemptions, franchises, authorizations and other
approvals (each, an "AUTHORIZATION") of, and has made all filings with and
notices to, all governmental or regulatory authorities and self-regulatory
organizations and all courts and other tribunals, including without limitation,
under any applicable Environmental Laws, as are necessary to own, lease, license
and operate its respective properties and to conduct its business, except where
the failure to have any such Authorization or to make any such filing or notice
would not, singly or in the aggregate, have a Material Adverse Effect. Each such
Authorization is valid and in full force and effect and each of the Company and
its subsidiaries is in compliance with all the terms and conditions thereof and
with the rules and regulations of the authorities and governing bodies having
jurisdiction with respect thereto; and no event has occurred (including, without
limitation, the receipt of any notice from any authority or governing body)
which allows or, after notice or lapse of time or both, would allow, revocation,
suspension or termination of any such Authorization or results or, after notice
or lapse of time or both, would result in any other impairment of the rights of
the holder of any such Authorization; and such Authorizations contain no
restrictions that are burdensome to the Company or any of its subsidiaries,
except where such failure to be valid and in full force and effect or to be in
compliance, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect.
(r) The accountants, Arthur Andersen LLP and Ernst &
Young LLP, that have certified the financial statements and supporting schedules
included in the Preliminary Offering Memorandum and the Offering Memorandum are
independent public accountants with respect to the
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<PAGE> 11
Company and the Guarantors, as required by the Act and the Exchange Act. The
historical financial statements, together with related schedules and notes, set
forth in the Preliminary Offering Memorandum and the Offering Memorandum comply
as to form in all material respects with the requirements applicable to
registration statements on Form S-1 under the Act.
(s) The historical financial statements, together
with related schedules and notes forming part of the Offering Memorandum (and
any amendment or supplement thereto), present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
and its subsidiaries on the basis stated in the Offering Memorandum at the
respective dates or for the respective periods to which they apply; such
statements and related schedules and notes have been prepared in accordance with
generally accepted accounting principles consistently applied throughout the
periods involved, except as disclosed therein; and the other financial and
statistical information and data set forth in the Offering Memorandum (and any
amendment or supplement thereto) are, in all material respects, accurately
presented and prepared on a basis consistent with such financial statements and
the books and records of the Company.
(t) The historical financial statements, together
with related schedules and notes forming part of the Offering Memorandum (and
any amendment or supplement thereto), present fairly the consolidated financial
position, results of operations and changes in financial position of Capstone
Pharmacy Services, Inc. and its subsidiaries on the basis stated in the Offering
Memorandum at the respective dates or for the respective periods to which they
apply; such statements and related schedules and notes have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as disclosed therein; and the other
financial and statistical information and data set forth in the Offering
Memorandum (and any amendment or supplement thereto) are, in all material
respects, accurately presented and prepared on a basis consistent with such
financial statements and the books and records of the Capstone Pharmacy
Services, Inc.
(u) The pro forma financial statements included in
the Preliminary Offering Memorandum and the Offering Memorandum have been
prepared on a basis consistent with the historical financial statements of the
Company and its subsidiaries and give effect to assumptions used in the
preparation thereof on a reasonable basis and in good faith and present fairly
the historical and proposed transactions contemplated by the Preliminary
Offering Memorandum and the Offering Memorandum; and such pro forma financial
statements for 1997 comply as to form in all material respects with the
requirements applicable to pro forma financial statements included in
registration statements on Form S-1 under the Act. The other pro forma financial
and statistical information and data included in the Offering Memorandum are, in
all material respects, accurately presented and prepared on a basis consistent
with the pro forma financial statements.
(v) The Company is not and, after giving effect to
the offering and sale of the Series A Notes and the application of the net
proceeds thereof as described in the Offering Memorandum, will not be, an
"investment company," as such term is defined in the Investment Company Act of
1940, as amended.
(w) There are no contracts, agreements or
understandings between the Company or any Guarantor and any person granting such
person the right to require the Company or such Guarantor to file a registration
statement under the Act with respect to any debt or equity securities of the
Company or such Guarantor except for agreements to which the Company has filed
currently effective shelf registration statements or to require the Company or
such Guarantor to include such debt or equity securities with the Notes and
Subsidiary Guarantees registered pursuant to any Registration Statement.
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<PAGE> 12
(x) Neither the Company nor any of its subsidiaries
nor any agent thereof acting on the behalf of them has taken, and none of them
will take, any action that might cause this Agreement or the issuance or sale of
the Series A Notes to violate Regulation G (12 C.F.R. Part 207), Regulation T
(12 C.F.R. Part 220), Regulation U (12 C.F.R. Part 221) or Regulation X (12
C.F.R. Part 224) of the Board of Governors of the Federal Reserve System.
(y) No "nationally recognized statistical rating
organization" as such term is defined for purposes of Rule 436(g)(2) under the
Act (i) has imposed (or has informed the Company or any Guarantor that it is
considering imposing) any condition (financial or otherwise) on the Company's or
any Guarantor's retaining any rating assigned to the Company or any Guarantor,
any securities of the Company or any Guarantor or (ii) has indicated to the
Company or any Guarantor that it is considering (a) the downgrading, suspension,
or withdrawal of, or any review for a possible change that does not indicate the
direction of the possible change in, any rating so assigned or (b) any change in
the outlook for any rating of the Company, any Guarantor or any securities of
the Company or any Guarantor.
(z) Since the respective dates as of which
information is given in the Offering Memorandum other than as set forth in the
Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there has not occurred any
material adverse change or any development involving a prospective material
adverse change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there has not been any material adverse change or any development
involving a prospective material adverse change in the capital stock or in the
long-term debt of the Company or any of its subsidiaries and (iii) neither the
Company nor any of its subsidiaries has incurred any material liability or
obligation, direct or contingent.
(aa) Each of the Preliminary Offering Memorandum and
the Offering Memorandum, as of its date, contains all the information specified
in, and meeting the requirements of, Rule 144A(d)(4) under the Act.
(bb) When the Series A Notes and the Subsidiary
Guarantees are issued and delivered pursuant to this Agreement, neither the
Series A Notes nor the Subsidiary Guarantees will be of the same class (within
the meaning of Rule 144A under the Act) as any security of the Company or the
Guarantors that is listed on a national securities exchange registered under
Section 6 of the Exchange Act or that is quoted in a United States automated
inter-dealer quotation system.
(cc) No form of general solicitation or general
advertising (as defined in Regulation D under the Act) was used by the Company,
the Guarantors or any of their respective representatives (other than the
Initial Purchasers, as to whom the Company and the Guarantors make no
representation) in connection with the offer and sale of the Series A Notes
contemplated hereby, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine, or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising. No
securities of the same class as the Series A Notes have been issued and sold by
the Company within the six-month period immediately prior to the date hereof.
(dd) Prior to the effectiveness of any Registration
Statement, the Indenture is not required to be qualified under the TIA.
(ee) The Company, the Guarantors and their respective
affiliates and all persons acting on their behalf (other than the Initial
Purchasers, as to whom the Company and the
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<PAGE> 13
Guarantors make no representation) have complied with and will comply with the
offering restrictions requirements of Regulation S under the Act ("REGULATION
S") in connection with the offering of the Series A Notes outside the United
States and, in connection therewith, the Offering Memorandum will contain the
disclosure required by Rule 902(h).
(ff) The sale of the Series A Notes pursuant to
Regulation S is not part of a plan or scheme to evade the registration
provisions of the Act.
(gg) No registration under the Act of the Series A
Notes or the Subsidiary Guarantees is required for the sale of the Series A
Notes and the Subsidiary Guarantees to the Initial Purchasers as contemplated
hereby or for the Exempt Resales assuming the accuracy of the Initial
Purchasers' representations and warranties and agreements set forth in Section 7
hereof.
(hh) Set forth on Schedule B hereto is a complete
list of all material indebtedness of the Company in excess of $1 million. All
indebtedness of the Company and the Guarantors that will be repaid with the
proceeds of the issuance and sale of the Series A Notes was incurred, and the
indebtedness represented by the Series A Notes is being incurred, for proper
purposes and in good faith and each of the Company and the Guarantors was, at
the time of the incurrence of such indebtedness that will be repaid with the
proceeds of the issuance and sale of the Series A Notes, and will be on the
Closing Date (after giving effect to the application of the proceeds from the
issuance of the Series A Notes) solvent, and had at the time of the incurrence
of such indebtedness that will be repaid with the proceeds of the issuance and
sale of the Series A Notes and will have on the Closing Date (after giving
effect to the application of the proceeds from the issuance of the Series A
Notes) sufficient capital for carrying on their respective business and were, at
the time of the incurrence of such indebtedness that will be repaid with the
proceeds of the issuance and sale of the Series A Notes, and will be on the
Closing Date (after giving effect to the application of the proceeds from the
issuance of the Series A Notes) able to pay their respective debts as they
mature.
(ii) The Company and each of its subsidiaries
maintains a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain asset accountability;
(iii) access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(jj) The Company is a "reporting issuer," as defined
in Rule 902 under the Act.
(kk) There is no (i) significant unfair labor
practice complaint, grievance or arbitration proceeding pending or threatened
against the Company or any of its subsidiaries before the National Labor
Relations Board or any state or local labor relations board, (ii) strike, labor
dispute, slowdown or stoppage pending or threatened against the Company or any
of its subsidiaries or (iii) union representation question existing with respect
to the employees of the Company or any of its subsidiaries, except in the case
of clauses (i), (ii) and (iii) for such actions which, singly or in the
aggregate, would not have a Material Adverse Effect.
(ll) The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and
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<PAGE> 14
customary in the businesses in which they are engaged; and neither the Company
nor any of its subsidiaries (i) has received notice from any insurer or agent of
such insurer that substantial capital improvements or other material
expenditures will have to be made in order to continue such insurance or (ii)
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers at a cost that would not have a Material Adverse
Effect.
(mm) To the extent described in the Offering
Memorandum, each pharmacy facility owned, operated or managed as a continuing
operation by the Company or its subsidiaries (the "Company Facilities") (1) are
certified for participation or enrollment in the Medicare and Medicaid programs,
except where the failure to do so would not have a Material Adverse Effect; (2)
have a current and valid provider contract with the Medicare and Medicaid
programs, except where the failure to do so would not have a Material Adverse
Effect; and (3) are in substantial compliance with the terms and conditions of
participation of such programs and have received all approvals or qualifications
necessary for reimbursement, except where the failure to do so would not have a
Material Adverse Effect. Neither the Company nor any of its subsidiaries has
received notice from the regulatory authorities which enforce the statutory or
regulatory provisions in respect of the Medicare or Medicaid programs of any
pending or threatened investigations, surveys (other than routine surveys) or
decertification proceedings, and neither the Company nor any of the subsidiaries
has any reason to believe that any such investigations, surveys or proceedings
are pending, threatened or imminent, in each case, which notices or pending or
threatened investigations, surveys or proceedings singly or in the aggregate
could have a Material Adverse Effect.
(nn) Bank Amendment. The Amendment No. 1 to the
Company's Credit Agreement (as defined in the Offering Memorandum) has been duly
authorized, executed and delivered by the Company in the form delivered to the
Initial Purchasers prior to the execution of this Agreement. The Amendment
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms.
(oo) Each certificate signed by any officer of the
Company or any Guarantor and delivered to the Initial Purchasers or counsel for
the Initial Purchasers in connection herewith shall be deemed to be a
representation and warranty by the Company or such Guarantor to the Initial
Purchasers as to the matters covered thereby.
The Company acknowledges that the Initial Purchasers and, for
purposes of the opinions to be delivered to the Initial Purchasers pursuant to
Section 9 hereof, counsel to the Company and the Guarantors and counsel to the
Initial Purchasers will rely upon the accuracy and truth of the foregoing
representations and hereby consents to such reliance.
7. INITIAL PURCHASERS' REPRESENTATIONS AND WARRANTIES. Each of
the Initial Purchasers, severally and not jointly, represents and warrants to
the Company and the Guarantors, and agrees that:
(a) Such Initial Purchaser is a QIB with such
knowledge and experience in financial and business matters as is necessary in
order to evaluate the merits and risks of an investment in the Series A Notes.
(b) Such Initial Purchaser (A) is not acquiring the
Series A Notes with a view to any distribution thereof or with any present
intention of offering or selling any of the Series A Notes in
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<PAGE> 15
a transaction that would violate the Act or the securities laws of any state of
the United States or any other applicable jurisdiction and (B) will be
reoffering and reselling the Series A Notes only to (x) QIBs in reliance on the
exemption from the registration requirements of the Act provided by Rule 144A
and (y) in offshore transactions in reliance upon Regulation S under the Act.
(c) Such Initial Purchaser agrees that no form of
general solicitation or general advertising (within the meaning of Regulation D
under the Act) has been or will be used by such Initial Purchaser or any of its
representatives in connection with the offer and sale of the Series A Notes
pursuant hereto, including, but not limited to, articles, notices or other
communications published in any newspaper, magazine or similar medium or
broadcast over television or radio, or any seminar or meeting whose attendees
have been invited by any general solicitation or general advertising.
(d) Such Initial Purchaser agrees that, in connection
with Exempt Resales, such Initial Purchaser will solicit offers to buy the
Series A Notes only from, and will offer to sell the Series A Notes only to,
Eligible Purchasers. Each Initial Purchaser further agrees that it will offer to
sell the Series A Notes only to, and will solicit offers to buy the Series A
Notes only from (A) Eligible Purchasers that the Initial Purchaser reasonably
believes are QIBs and (B) Regulation S Purchasers, in each case, that agree that
(x) the Series A Notes purchased by them may be resold, pledged or otherwise
transferred within the time period referred to under Rule 144(k) (taking into
account the provisions of Rule 144(d) under the Act, if applicable) under the
Act, as in effect on the date of the transfer of such Series A Notes, only (I)
to the Company or any of its subsidiaries, (II) to a person whom the seller
reasonably believes is a QIB purchasing for its own account or for the account
of a QIB in a transaction meeting the requirements of Rule 144A under the Act,
(III) in an offshore transaction (as defined in Rule 902 under the Act) meeting
the requirements of Rule 904 of the Act, (IV) in a transaction meeting the
requirements of Rule 144 under the Act, (V) in accordance with another exemption
from the registration requirements of the Act (and based upon an opinion of
counsel acceptable to the Company) or (VI) pursuant to an effective registration
statement and, in each case, in accordance with the applicable securities laws
of any state of the United States or any other applicable jurisdiction and (y)
they will deliver to each person to whom such Series A Notes or an interest
therein is transferred a notice substantially to the effect of the foregoing.
(e) Such Initial Purchaser and its affiliates or any
person acting on its or their behalf have not engaged or will not engage in any
directed selling efforts within the meaning of Regulation S with respect to the
Series A Notes or the Subsidiary Guarantees.
(f) The Series A Notes offered and sold by such
Initial Purchaser pursuant hereto in reliance on Regulation S have been and will
be offered and sold only in offshore transactions.
(g) The sale of the Series A Notes offered and sold
by such Initial Purchaser pursuant hereto in reliance on Regulation S is not
part of a plan or scheme to evade the registration provisions of the Act.
Such Initial Purchaser acknowledges that the Company
and the Guarantors and, for purposes of the opinions to be delivered to each
Initial Purchaser pursuant to Section 9 hereof, counsel to the Company and the
Guarantors and counsel to the Initial Purchasers will rely upon the accuracy and
truth of the foregoing representations and such Initial Purchaser hereby
consents to such reliance.
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<PAGE> 16
8. INDEMNIFICATION.
(a) The Company and each Guarantor agree, jointly and
severally, to indemnify and hold harmless the Initial Purchasers, their
directors, their officers and each person, if any, who controls any Initial
Purchaser within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages, liabilities
and judgments (including, without limitation, any reasonable legal or other
expenses incurred in connection with investigating or defending any matter,
including any action, that could give rise to any such losses, claims, damages,
liabilities or judgments) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Offering Memorandum (or any
amendment or supplement thereto), the Preliminary Offering Memorandum or any
Rule 144A Information provided by the Company or any Guarantor to any holder or
prospective purchaser of Series A Notes pursuant to Section 5(h) or caused by
any omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to any Initial Purchaser furnished in
writing to the Company by such Initial Purchaser; provided, however, that the
foregoing indemnity agreement with respect to any Preliminary Offering
Memorandum shall not inure to the benefit of any Initial Purchaser who failed to
deliver a Final Offering Memorandum, as then amended or supplemented, (so long
as the Final Offering Memorandum and any amendment or supplement thereto was
provided by the Company to the several Initial Purchasers in the requisite
quantity and on a timely basis to permit proper delivery on or prior to the
Closing Date) to the person asserting any losses, claims, damages, liabilities
or judgments caused by any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Offering Memorandum, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, if
such material misstatement or omission or alleged material misstatement or
omission was cured in the Final Offering Memorandum, as so amended or
supplemented.
(b) The Initial Purchasers agree, severally and not
jointly, to indemnify and hold harmless the Company and the Guarantors, and
their respective directors and officers and each person, if any, who controls
(within the meaning of Section 15 of the Act or Section 20 of the Exchange Act)
the Company or the Guarantors, to the same extent as the foregoing indemnity
from the Company and the Guarantors to such Initial Purchaser but only with
reference to information relating to such Initial Purchaser furnished in writing
to the Company by or on behalf of such Initial Purchaser expressly for use in
the Preliminary Offering Memorandum or the Offering Memorandum.
(c) In case any action shall be commenced involving
any person in respect of which indemnity may be sought pursuant to Section 8(a)
or 8(b) (the "INDEMNIFIED PARTY"), the indemnified party shall promptly notify
the person against whom such indemnity may be sought (the "INDEMNIFYING PARTY")
in writing and the indemnifying party shall assume the defense of such action,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all reasonable fees and expenses of such counsel, as
incurred (except that in the case of any action in respect of which indemnity
may be sought pursuant to both Sections 8(a) and 8(b), such Initial Purchaser
shall not be required to assume the defense of such action pursuant to this
Section 8(c), but may employ separate counsel and participate in the defense
thereof, but the fees and expenses of such counsel, except as provided below,
shall be at the expense of such Initial Purchaser). Any indemnified party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of the indemnified party unless (i) the employment of such counsel shall
have been specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party
shall
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<PAGE> 17
have been advised by such counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by Donaldson, Lufkin & Jenrette Securities Corporation, in the case
of the parties indemnified pursuant to Section 8(a), and by the Company, in the
case of parties indemnified pursuant to Section 8(b). The indemnifying party
shall indemnify and hold harmless the indemnified party from and against any and
all losses, claims, damages, liabilities and judgments by reason of any
settlement of any action (i) effected with its written consent or (ii) effected
without its written consent if the settlement is entered into more than twenty
business days after the indemnifying party shall have received a request from
the indemnified party for reimbursement for the fees and expenses of counsel (in
any case where such fees and expenses are at the expense of the indemnifying
party) and, prior to the date of such settlement, the indemnifying party shall
have failed to comply with such reimbursement request. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement or compromise of, or consent to the entry of judgment with respect
to, any pending or threatened action in respect of which the indemnified party
is or could have been a party and indemnity or contribution may be or could have
been sought hereunder by the indemnified party, unless such settlement,
compromise or judgment (i) includes an unconditional release of the indemnified
party from all liability on claims that are or could have been the subject
matter of such action and (ii) does not include a statement as to or an
admission of fault, culpability or a failure to act, by or on behalf of the
indemnified party.
(d) To the extent the indemnification provided for in
this Section 8 is unavailable to an indemnified party or insufficient in respect
of any losses, claims, damages, liabilities or judgments referred to therein,
then each indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantors, on the one hand, and the Initial Purchasers on the
other hand from the offering of the Series A Notes or (ii) if the allocation
provided by clause 8(d)(i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause 8(d)(i) above but also the relative fault of the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Company and the
Guarantors, on the one hand and the Initial Purchasers, on the other hand, shall
be deemed to be in the same proportion as the total net proceeds from the
offering of the Series A Notes (after underwriting discounts and commissions,
but before deducting expenses) received by the Company, and the total discounts
and commissions received by the Initial Purchasers bear to the total price to
investors of the Series A Notes, in each case as set forth in the table on the
cover page of the Offering Memorandum. The relative fault of the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand,
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Guarantors, on the one hand, or the Initial Purchasers, on the other hand, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
- 16 -
<PAGE> 18
The Company and the Guarantors, and the Initial Purchasers
agree that it would not be just and equitable if contribution pursuant to this
Section 8(d) were determined by pro rata allocation (even if the Initial
Purchasers were treated as one entity for such purpose) or by any other method
of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. The amount paid or payable
by an indemnified party as a result of the losses, claims, damages, liabilities
or judgments referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitations set forth above, any legal or other
expenses incurred by such indemnified party in connection with investigating or
defending any matter, including any action, that could have given rise to such
losses, claims, damages, liabilities or judgments. Notwithstanding the
provisions of this Section 8, no Initial Purchaser shall be required to
contribute any amount in excess of the amount by which the total discounts and
commissions received by it exceeds the amount of any damages which such Initial
Purchaser has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Initial Purchasers' obligations to contribute pursuant to
this Section 8(d) are several in proportion to the respective principal amount
of Series A Notes purchased by each of the Initial Purchasers hereunder and not
joint.
(e) The remedies provided for in this Section 8 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to any indemnified party at law or in equity.
9. CONDITIONS OF INITIAL PURCHASERS' OBLIGATIONS. The
obligations of the Initial Purchasers to purchase the Series A Notes under this
Agreement are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the
Company and the Guarantors contained in this Agreement shall be true and correct
on the Closing Date with the same force and effect as if made on and as of the
Closing Date.
(b) On or after the date hereof, (i) there shall not
have occurred any downgrading, suspension or withdrawal of, nor shall any notice
have been given of any potential or intended downgrading, suspension or
withdrawal of, or of any review (or of any potential or intended review) for a
possible change that does not indicate the direction of the possible change in,
any rating of the Company or any Guarantor or any securities of the Company or
any Guarantor (including, without limitation, the placing of any of the
foregoing ratings on credit watch with negative or developing implications or
under review with an uncertain direction) by any "nationally recognized
statistical rating organization" as such term is defined for purposes of Rule
436(g)(2) under the Act, (ii) there shall not have occurred any change, nor
shall any notice have been given of any potential or intended change, in the
outlook for any rating of the Company or any Guarantor or any securities of the
Company or any Guarantor by any such rating organization and (iii) no such
rating organization shall have given notice that it has assigned (or is
considering assigning) a lower rating to the Notes than that on which the Notes
were marketed.
(c) Since the respective dates as of which
information is given in the Offering Memorandum other than as set forth in the
Offering Memorandum (exclusive of any amendments or supplements thereto
subsequent to the date of this Agreement), (i) there shall not have occurred any
change or any development involving a prospective change in the condition,
financial or otherwise, or the earnings, business, management or operations of
the Company and its subsidiaries, taken as a whole, (ii) there shall not have
been any change or any development involving a prospective change
- 17 -
<PAGE> 19
in the capital stock or in the long-term debt of the Company or any of its
subsidiaries and (iii) neither the Company nor any of its subsidiaries shall
have incurred any liability or obligation, direct or contingent, the effect of
which, in any such case described in clause 9(c)(i), 9(c)(ii) or 9(c)(iii), in
your judgment, is material and adverse and, in your judgment, makes it
impracticable to market the Series A Notes on the terms and in the manner
contemplated in the Offering Memorandum.
(d) You shall have received on the Closing Date a
certificate dated the Closing Date, signed by the President and the Chief
Financial Officer of the Company and each of the Guarantors, confirming the
matters set forth in Sections 6(z), 6(ii), 9(a) and 9(b) and stating that each
of the Company and the Guarantors has complied with all the agreements and
satisfied all of the conditions herein contained and required to be complied
with or satisfied on or prior to the Closing Date.
(e) You shall have received on the Closing Date an
opinion (satisfactory to you and counsel for the Initial Purchasers), dated the
Closing Date, of Harwell Howard Hyne Gabbert & Manner, P.C., counsel for the
Company and the Guarantors, in the form attached hereto as Schedule C.
The opinion of Harwell Howard Hyne Gabbert & Manner, P.C.,
described in Section 9(e) above shall be rendered to you at the request of the
Company and the Guarantors and shall so state therein. In giving such opinion
with respect to the matters covered by Section 9(e)(xxii), Harwell Howard Hyne
Gabbert & Manner, P.C., may state that their opinion and belief are based upon
their participation in the preparation of the Offering Memorandum and any
amendments or supplements thereto and review and discussion of the contents
thereof, but are without independent check or verification except as specified.
Harwell Howard Hyne Gabbert & Manner, P.C. may rely on the opinion of Fried,
Frank, Harris, Shriver & Jacobson as to matters of New York law.
(f) The Initial Purchasers shall have received on the Closing
Date an opinion, dated the Closing Date, of Fried, Frank, Harris, Shriver &
Jacobson, counsel for the Initial Purchasers, in form and substance reasonably
satisfactory to the Initial Purchasers.
(g) The Initial Purchasers shall have received, at the time
this Agreement is executed and at the Closing Date, letters dated the date
hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Initial Purchasers from Arthur Andersen LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to the Initial Purchasers
with respect to the financial statements and certain financial information
contained in the Offering Memorandum.
(h) The Initial Purchasers shall have received, at the time
this Agreement is executed and at the Closing Date, letters dated the date
hereof or the Closing Date, as the case may be, in form and substance
satisfactory to the Initial Purchasers from Ernst & Young LLP, independent
public accountants, containing the information and statements of the type
ordinarily included in accountants' "comfort letters" to the Initial Purchasers
with respect to the financial statements and certain financial information
contained in the Offering Memorandum.
(i) The Series A Notes shall have been approved by the NASD
for trading and duly listed in PORTAL.
(j) The Initial Purchasers shall have received a counterpart,
conformed as executed, of the Indenture which shall have been entered into by
the Company, the Guarantors and the Trustee.
- 18 -
<PAGE> 20
(k) The Company and the Guarantors shall have executed the
Registration Rights Agreement and the Initial Purchasers shall have received an
original copy thereof, duly executed by the Company and the Guarantors, in the
form attached as an exhibit to the Indenture.
(l) Neither the Company nor the Guarantors shall have failed
at or prior to the Closing Date to perform or comply with any of the agreements
herein contained and required to be performed or complied with by the Company or
the Guarantors, as the case may be, at or prior to the Closing Date.
(m) The Company and the Guarantors have agreed, not to
directly or indirectly offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
options, right or warrant for the sale of or otherwise dispose of or transfer
any debt securities, or file a registration statement under the Act with respect
to the foregoing, without the prior written consent of Donaldson, Lufkin &
Jenrette Securities Corporation on behalf of the Initial Purchasers, for a
period of 90 days after the date of the Offering Memorandum; provided that,
notwithstanding the foregoing, the Company may borrow under the Bank Credit
Facility and may file and cause to become effective a registration statement
under the Act with respect to the Series B Notes.
10. EFFECTIVENESS OF AGREEMENT AND TERMINATION. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to
the Closing Date by the Initial Purchasers by written notice to the Company if
any of the following has occurred: (i) any outbreak or escalation of hostilities
or other national or international calamity or crisis or change in economic
conditions or in the financial markets of the United States or elsewhere that,
in the Initial Purchasers' judgment, is material and adverse and, in the Initial
Purchasers' judgment, makes it impracticable to market the Series A Notes on the
terms and in the manner contemplated in the Offering Memorandum, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company or any Guarantor on any
exchange or in the over-the-counter market, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your opinion
materially and adversely affects, or will materially and adversely affect, the
business, prospects, financial condition or results of operations of the Company
and its subsidiaries, taken as a whole, (v) the declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in your opinion has a material adverse effect
on the financial markets in the United States.
If on the Closing Date any one or more of the Initial Purchasers shall
fail or refuse to purchase the Series A Notes which it or they have agreed to
purchase hereunder on such date and the aggregate principal amount of the Series
A Notes which such defaulting Initial Purchaser or Initial Purchasers, as the
case may be, agreed but failed or refused to purchase is not more than one-tenth
of the aggregate principal amount of the Series A Notes to be purchased on such
date by all Initial Purchasers, each non-defaulting Initial Purchaser shall be
obligated severally, in the proportion which the principal amount of the Series
A Notes set forth opposite its name in Schedule B bears to the aggregate
principal amount of the Series A Notes which all the non-defaulting Initial
Purchasers, as the case may be, have agreed to purchase, or in such other
proportion as you may specify, to purchase the Series A Notes which such
defaulting Initial
- 19 -
<PAGE> 21
Purchaser or Initial Purchasers, as the case may be, agreed but failed or
refused to purchase on such date; provided that in no event shall the aggregate
principal amount of the Series A Notes which any Initial Purchaser has agreed to
purchase pursuant to Section 2 hereof be increased pursuant to this Section 10
by an amount in excess of one-ninth of such principal amount of the Series A
Notes without the written consent of such Initial Purchaser. If on the Closing
Date any Initial Purchaser or Initial Purchasers shall fail or refuse to
purchase the Series A Notes and the aggregate principal amount of the Series A
Notes with respect to which such default occurs is more than one-tenth of the
aggregate principal amount of the Series A Notes to be purchased by all Initial
Purchasers and arrangements satisfactory to the Initial Purchasers and the
Company for purchase of such the Series A Notes are not made within 48 hours
after such default, this Agreement will terminate without liability on the part
of any non-defaulting Initial Purchaser and the Company. In any such case which
does not result in termination of this Agreement, either you or the Company
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the Offering
Memorandum or any other documents or arrangements may be effected. Any action
taken under this paragraph shall not relieve any defaulting Initial Purchaser
from liability in respect of any default of any such Initial Purchaser under
this Agreement.
11. MISCELLANEOUS. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company or any
Guarantor, to 3611 Queen Plain Drive, Tampa, FL 33619 -- Attention - Chief
Financial Officer, with a copy to Harwell Howard Hyne Gabbert & Manner, P.C. -
Attention - Mark Manner and (ii) if to the Initial Purchasers, Donaldson, Lufkin
& Jenrette Securities Corporation, 277 Park Avenue, New York, New York 10172,
Attention: Syndicate Department, or in any case to such other address as the
person to be notified may have requested in writing.
The respective indemnities, contribution agreements,
representations, warranties and other statements of the Company, the Guarantors
and the Initial Purchasers set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Series A Notes, regardless of (i) any investigation, or
statement as to the results thereof, made by or on behalf of the Initial
Purchasers, the officers or directors of the Initial Purchasers, any person
controlling the Initial Purchasers, the Company, any Guarantor, the officers or
directors of the Company or any Guarantor, or any person controlling the Company
or any Guarantor, (ii) acceptance of the Series A Notes and payment for them
hereunder and (iii) termination of this Agreement.
If for any reason the Series A Notes are not delivered by or
on behalf of the Company as provided herein (other than as a result of any
termination of this Agreement pursuant to Section 10), the Company and each
Guarantor, jointly and severally, agree to reimburse the Initial Purchasers for
all out-of-pocket expenses (including the fees and disbursements of counsel)
incurred by them. Notwithstanding any termination of this Agreement, the Company
shall be liable for all expenses which it has agreed to pay pursuant to Section
5(i) hereof. The Company and each Guarantor also agree, jointly and severally,
to reimburse the Initial Purchasers and its officers, directors and each person,
if any, who controls such Initial Purchaser within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act for any and all fees and expenses
(including without limitation the fees and expenses of counsel) incurred by them
in connection with enforcing their rights under this Agreement (including
without limitation its rights under Section 8).
Except as otherwise provided, this Agreement has been and is
made solely for the benefit of and shall be binding upon the Company, the
Guarantors, the Initial Purchasers, the Initial Purchasers' directors and
officers, any controlling persons referred to herein, the directors of the
Company and the
- 20 -
<PAGE> 22
Guarantors and their respective successors and assigns, all as and to the extent
provided in this Agreement, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include a purchaser of any of the Series A Notes from the Initial Purchasers
merely because of such purchase.
This Agreement shall be governed and construed in accordance
with the laws of the State of New York.
This Agreement may be signed in various counterparts which
together shall constitute one and the same instrument.
- 21 -
<PAGE> 23
Please confirm that the foregoing correctly sets forth the
agreement among the Company, the Guarantors and the Initial Purchasers.
Very truly yours,
PharMerica, Inc.
By:
--------------------------------------------
Name: James D. Shelton
Title: Executive Vice President, Chief
Financial Officer and Secretary
Alliance Health Services, Inc.
Beverly Acquisition Acquisition Corporation
Computran Systems, Inc.
Dunnington Drug, Inc.
Healthcare Prescription Services, Inc.
Insta-Care Holdings, Inc.
Medical Health Industries, Inc.
Alliance Home Health Care, Inc.
Brownstone Pharmacy, Inc.
Omni Med B, Inc.
Dunnington Rx Services of Massachusetts, Inc.
Dunnington Rx Services of Rhode Island, Inc.
DD Wholesale, Inc.
Pharmacy Corporation of America-Massachusetts, Inc.
Insta-Care Pharmacy Services Corporation
Pharmacy Dynamics Group, Inc.
Pharmacy Corporation of America
Capstone Med., Inc.
MediDyne Corp.
PharMerica Drug Systems, Inc.
Rombro's Drug Center, Inc.
Compuscript, Inc.
Capstone Pharmacy of Delaware, Inc.
DOC Pharmacy, Inc.
Premier Pharmacy, Inc.
Hollins Manor I, LLC
Goot's Goodies, Inc.
Southwest Pharmacies, Inc.
Family Center Pharmacy, Inc.
- 22 -
<PAGE> 24
Tmesys, Inc.
Express Pharmacy Services, Inc.
Goot Westbridge Pharmacy, Inc.
Goot Nursing Home Pharmacy, Inc.
Goot's Pharmacy & Orthopedic Supply, Inc.
By:
--------------------------------------------
Name: James D. Shelton
Title: Chief Financial Officer, Treasurer
and Secretary
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
BANCAMERICA ROBERTSON STEPHENS
CHASE SECURITIES INC.
CIBC OPPENHEIMER CORP.
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
-------------------------------------
Name: John W. Patterson
Title: Senior Vice President
- 23 -
<PAGE> 25
SCHEDULE A
GUARANTORS
1. Alliance Health Services, Inc., a Delaware corporation
2. Beverly Acquisition Corporation, a Delaware corporation
3. Computran Systems, Inc., an Oregon corporation
4. Dunnington Drug, Inc., a Delaware corporation
5. Healthcare Prescription Services, Inc., an Indiana corporation
6. Insta-Care Holdings, Inc., a Florida corporation
7. Medical Health Industries, Inc., a Delaware corporation
8. Alliance Home Health Care, Inc., a Connecticut corporation
9. Brownstone Pharmacy, Inc., a Connecticut corporation
10. Omni Med B, Inc., a Connecticut corporation
11. Dunnington Rx Services of Massachusetts, Inc., a Massachusetts corporation
12. Dunnington Rx Services of Rhode Island, Inc., a Rhode Island corporation
13. DD Wholesale, Inc., a Massachusetts corporation
14. Pharmacy Corporation of America-Massachusetts, Inc., a Delaware corporation
15. Insta-Care Pharmacy Services Corporation, a Texas corporation
16. Pharmacy Dynamics Group, Inc., a Florida corporation
17. Pharmacy Corporation of America, a California corporation
18. Capstone Med., Inc., a Delaware corporation
19. MediDyne Corp., a New Jersey corporation
20. PharMerica Drug Systems, Inc., a Maryland corporation
21. Rombro's Drug Center, Inc., a Maryland corporation
22. Compuscript, Inc., a New York corporation
23. Capstone Pharmacy of Delaware, Inc., a Maryland corporation
24. DOC Pharmacy, Inc., a Delaware corporation
25. Premier Pharmacy, Inc., a Delaware corporation
26. Hollins Manor I, LLC, a Virginia corporation
27. Goot's Goodies, Inc., an Arizona corporation
28. Southwest Pharmacies, Inc., an Arizona corporation
29. Family Center Pharmacy, Inc., a Pennsylvania corporation
30. Tmesys, Inc., a Florida corporation
31. Express Pharmacy Services, Inc., a Florida corporation
32. Goot Westbridge Pharmacy, Inc., an Arizona corporation
33. Goot Nursing Home Pharmacy, Inc., an Arizona corporation
34. Goot's Pharmacy & Orthopedic Supply, Inc., an Arizona corporation
- 1 -
<PAGE> 26
SCHEDULE B
<TABLE>
<CAPTION>
Principal Amount
Initial Purchasers of Notes
------------------ ----------------
<S> <C>
Donaldson, Lufkin & Jenrette
Securities Corporation......................................... $146,250,000
Salomon Brothers Inc............................................... $ 81,250,000
BancAmerica Robertson Stephens..................................... $ 32,500,000
Chase Securities Inc............................................... $ 32,500,000
CIBC Oppenheimer.Corp.............................................. $ 32,500,000
Total.............................................................. $325,000,000
============
</TABLE>
- 2 -
<PAGE> 27
EXHIBIT A
FORM OF REGISTRATION RIGHTS AGREEMENT
- 3 -
<PAGE> 1
EXHIBIT 4.7
===============================================================================
PHARMERICA, INC.
----------------------------
$325,000,000
8 3/8% SENIOR SUBORDINATED NOTES DUE 2008
----------------------------
----------------
INDENTURE
DATED AS OF March 31, 1998
----------------
HARRIS TRUST AND SAVINGS BANK
Trustee
===============================================================================
<PAGE> 2
Indenture, dated as of March 31, 1998, among PharMerica, Inc., a
Delaware corporation (the "COMPANY"), and the Subsidiary Guarantors listed on
SCHEDULE A attached hereto (collectively, the "SUBSIDIARY GUARANTORS") that
execute a Subsidiary Guarantee substantially in the form of EXHIBIT C attached
hereto, and Harris Trust and Savings Bank, as trustee (the "TRUSTEE").
The Company, the Subsidiary Guarantors and the Trustee agree as follows
for the benefit of each other and for the equal and ratable benefit of the
holders of the Company's 8 3/8% Senior Subordinated Notes due 2008 (the "SENIOR
SUBORDINATED NOTES") and the new 8 3/8% Senior Subordinated Notes due 2008 (the
"NEW SENIOR SUBORDINATED NOTES" and, together with the Senior Subordinated
Notes, the "NOTES"):
ARTICLE 1
DEFINITIONS AND INCORPORATION
BY REFERENCE
SECTION 1.01. DEFINITIONS.
"ACQUIRED DEBT" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person merges
with or into or becomes a Subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person's merging with or into or becoming a Subsidiary of such specified Person,
and (ii) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
notwithstanding the foregoing, beneficial ownership of 5% or more of the voting
securities of a Person shall be deemed to be control of such Person.
"AGENT" means any Registrar, Paying Agent or co-registrar.
"APPLICABLE PROCEDURES" means applicable procedures of the Depositary,
Euroclear or Cedel, as the case may be.
"ASSET SALE" means (i) the sale, lease, conveyance, or other
disposition of any assets (including, without limitation, by way of a sale and
leaseback) other than in the
- 1 -
<PAGE> 3
ordinary course of business (provided that the sale, lease, conveyance or other
disposition of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole will be governed by the provisions of this
Indenture in Section 4.14 and/or the provisions in Section 5.01 and not by the
provisions in Section 4.10), and (ii) the issue or sale by the Company or any of
its Restricted Subsidiaries of Equity Interests of any of the Company's
Restricted Subsidiaries, in the case of clauses (i) and (ii), whether in a
single transaction or a series of related transactions (a) that have a fair
market value in excess of $1.0 million or (b) for net proceeds in excess of $1.0
million. Notwithstanding the foregoing, the following shall not be deemed Asset
Sales: (i) a transfer of assets by the Company to a Wholly Owned Restricted
Subsidiary or by a Restricted Subsidiary to the Company or to a Wholly Owned
Restricted Subsidiary; (ii) an issuance of Equity Interests by a Wholly Owned
Restricted Subsidiary to the Company or to another Wholly Owned Restricted
Subsidiary; and (iii) the sale of property or equipment that has become worn
out, obsolete or damaged or otherwise unusable in connection with the business
of the Company or any Restricted Subsidiary, as the case may be.
"ATTRIBUTABLE DEBT" in respect of a sale and leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"BANK CREDIT FACILITY" means that certain credit agreement, dated as of
December 3, 1997 by and among the Company, the lenders party thereto, CIBC
Oppenheimer Corp., as Syndication Agent, Bank of America National Trust and
Savings Association, as Documentation Agent and The Chase Manhattan Bank as
Administrative Agent, including any related notes, guarantees, collateral
documents, instruments and agreements executed in connection therewith, and in
each case as amended, modified, renewed, refunded, replaced or refinanced from
time to time (together with any amendment, modification, renewal, refunding,
replacement or refinancing to or of any of the foregoing (collectively, a
"Modification") or to any Modification, ad infinitum), including, without
limitation, any agreement modifying the maturity or amortization schedule of or
refinancing or refunding all or any portion of the Indebtedness thereunder or
increasing the amount that may be borrowed under such agreement or any successor
agreement, whether or not among the same parties.
"BANK INDEBTEDNESS" means (i) the Indebtedness outstanding or arising
under the Bank Credit Facility, (ii) all obligations and other amounts owing to
the holders of such Indebtedness or any agent or representative thereof
outstanding or arising under the Bank Credit Facility (including, but not
limited to, interest (including interest accruing on or after the filing of any
petition in bankruptcy, reorganization or similar proceeding
- 2 -
<PAGE> 4
relating to the Company or any Restricted Subsidiary, whether or not a claim for
such interest is allowed in such proceeding), fees, charges, indemnities,
expense reimbursement obligations and other claims under the Bank Credit
Facility), and (iii) all Hedging Obligations arising in connection therewith to
any party to the Bank Credit Facility (or any affiliate thereof).
"BANKRUPTCY LAW" means title 11, U.S. Code or any similar Federal or
state law for the relief of debtors.
"BOARD OF DIRECTORS" means, unless otherwise specified, the Board of
Directors of the Company or any authorized committee thereof.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification.
"BUSINESS DAY" means any day other than a Legal Holiday.
"CAPITAL LEASE OBLIGATION" means, with respect to any obligation of any
Person at the time any determination thereof is to be made, the amount of the
liability in respect of a capital lease that would at such time be so required
to be capitalized on a balance sheet of such Person in accordance with GAAP.
"CAPITAL STOCK" means (i) in the case of a corporation, corporate
stock, (ii) in the case of an association or business entity, any and all
shares, interests, participations, rights or other equivalents (however
designated) of corporate stock and (iii) in the case of a partnership,
partnership interests (whether general or limited).
"CEDEL" means Cedel Bank, societe anonyme.
"CHANGE OF CONTROL" means the occurrence of any of the following
events: (i) any sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Company and its
Subsidiaries taken as a whole to any "person" (as defined in Section 13(d) of
the Exchange Act) or "group" (as defined in Sections 13(d)(3) and 14(d)(2) of
the Exchange Act); (ii) the adoption of a plan for the liquidation or
dissolution of the Company; (iii) the Company consolidates with, or merges with
or into, another "person" (as defined above) or "group" (as defined above) in a
transaction or series of related transactions in which the Voting Stock of the
Company is converted into or exchanged for cash, securities or other property,
other than any transaction where (A) the outstanding Voting Stock of the Company
is converted into or exchanged for Voting Stock (other than Disqualified Stock)
of the surviving or transferee corporation and (B) either (1) the "beneficial
owners" (as defined in Rule 13d-3 under the Exchange Act) of
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<PAGE> 5
the outstanding Voting Stock of the Company immediately prior to such
transaction own beneficially, directly or indirectly through one or more
Subsidiaries, not less than a majority of the total outstanding Voting Stock of
the surviving or transferee corporation immediately after such transaction or
(2) if, immediately prior to such transaction the Company is a direct or
indirect Subsidiary of any other Person (each such other Person, the "Holding
Company"), the "beneficial owners" (as defined above) of the outstanding Voting
Stock of such Holding Company immediately prior to such transaction own
beneficially, directly or indirectly through one or more Subsidiaries, not less
than a majority of the outstanding Voting Stock of the surviving or transferee
corporation immediately after such transaction; (iv) the consummation of any
transaction or series of related transactions (including, without limitation, by
way of merger or consolidation) the result of which is that any "person" (as
defined above) or "group" (as defined above) becomes the "beneficial owner" (as
defined above) of more than 40% of the voting power of the Voting Stock of the
Company; or (v) during any consecutive two-year period, the first day on which a
majority of the members of the Board of Directors of the Company who were
members of the Board of Directors at the beginning of such period are not
Continuing Directors. For purposes of this definition, any transfer of an equity
interest of any entity that was formed for the purpose of acquiring Voting Stock
of the Company will be deemed to be a transfer of such portion.
"COMMON STOCK" means the common stock, par value $.01 per share, of the
Company.
"COMPANY" means PharMerica, Inc., a Delaware corporation
("PharMerica"), unless and until a successor replaces PharMerica in accordance
with Article 5 hereof, and thereafter includes such successor.
"CONSOLIDATED CASH FLOW" means, with respect to any Person for any
period, the Consolidated Net Income of such Person and its Restricted
Subsidiaries for such period, plus, to the extent deducted in computing
Consolidated Net Income, (i) provision for taxes based on income or profits of
such Person and its Restricted Subsidiaries for such period, (ii) Consolidated
Interest Expense of such Person for such period, (iii) depreciation and
amortization (including amortization of goodwill and other intangibles) and all
other non-cash charges (excluding any such non-cash charge to the extent that it
represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period, (iv) any extraordinary
loss and any net loss realized in connection with either an Asset Sale or the
extinguishment of Indebtedness, in each case, on a consolidated basis determined
in accordance with GAAP less any cash payments related to non-cash charges in
prior periods which were previously added back in the calculation of
Consolidated Cash Flow in prior periods and (v) restructuring charges taken in
the fourth quarter of 1997 and/or the first quarter of 1998 in connection
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<PAGE> 6
with the merger between Capstone Pharmacy Services, Inc. and Pharmacy
Corporation of America in an aggregate amount not to exceed $35 million.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of,
a Restricted Subsidiary of a Person shall be added to Consolidated Net Income to
compute Consolidated Cash Flow only to the extent (and in the same proportion)
that the Net Income of such Restricted Subsidiary was included in calculating
the Consolidated Net Income of such Person and only if a corresponding amount
would be permitted at the date of determination to be dividend to the Company by
such Subsidiary without governmental approval (that has not been obtained) and
without direct or indirect restriction pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for
any period, the interest expense of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP
(including amortization of original issue discount and deferred financing costs,
non-cash interest payments, the interest component of all payments associated
with Capital Lease Obligations, net payments, if any, pursuant to Hedging
Obligations, imputed interest with respect to Attributable Debt), all
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers acceptance financings.
"CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided, however, that (i) the Net Income (but not loss) of any
Person that is not a Restricted Subsidiary or that is accounted for by the
equity method of accounting shall be included only to the extent of the amount
of cash dividends or distributions paid to the referent Person or a Wholly Owned
Restricted Subsidiary thereof that is a Subsidiary Guarantor, (ii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded, (iii) the
cumulative effect of a change in accounting principles shall be excluded, and
(iv) the Net Income of any Restricted Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Restricted Subsidiary of Net Income is not, at the date of determination,
permitted without any prior governmental approval (which has not been obtained)
or, directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Restricted Subsidiary.
"CONSOLIDATED NET WORTH" means for any Person, as of any date of
determination, the consolidated stockholders equity (excluding Disqualified
Stock) of such Person and its Restricted Subsidiaries as determined in
accordance with GAAP.
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<PAGE> 7
"CONTINUING DIRECTORS" " means, as of any date of determination, any
member of the Board of Directors of the relevant Person who (i) was a member of
such Board of Directors on the date of this Indenture or (ii) was nominated for
election or elected to such Board of Directors with the approval of a majority
of the Continuing Directors who were members of such Board at the time of such
nomination or election.
"CORPORATE TRUST OFFICE OF THE TRUSTEE" shall be at the address of the
Trustee specified in Section 13.02 hereof or such other address as to which the
Trustee may give notice to the Company.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.
"DEFAULT" means any event that is or with the passage of time or the
giving of notice or both would be an Event of Default.
"DEFINITIVE NOTES" means Notes that are in the form of EXHIBIT A-1
attached hereto (but without including the text referred to in footnotes 1 and 3
thereto).
"DEPOSITARY" means, with respect to any Global Note, the Person
specified in Section 2.03 hereof as the Depositary with respect to such Note,
until a successor shall have been appointed and become such pursuant to the
applicable provision of this Indenture, and thereafter "Depositary" shall mean
or include such successor.
"DESIGNATED NONCASH CONSIDERATION" means the fair market value of
non-cash consideration received by the Company or a Restricted Subsidiary in
connection with an Asset Sale that is so designated as Designated Noncash
Consideration pursuant to an Officers' Certificate, setting forth the basis of
such valuation, executed by the principal executive officer and the principal
financial officer of the Company.
"DESIGNATED SENIOR DEBT" means (i) so long as any Bank Indebtedness is
outstanding, the Bank Indebtedness, and (ii) thereafter, any other Senior Debt
permitted under this Indenture the principal amount of which is $50 million or
more and that has been designated by the Company as "Designated Senior Debt."
"DISQUALIFIED STOCK" means any Capital Stock which, by its terms (or by
the terms of any security into which it is convertible or for which it is
exchangeable, except to the extent such Capital Stock is exchangeable into
indebtedness at the option of the issuer thereof and only subject to the terms
of any debt instrument to which such issuer is a party), or upon the happening
of any event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the holder thereof, in
whole or in part, or convertible or exchangeable into Indebtedness on or prior
to date that is 91 days after the date on which the Notes mature;
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<PAGE> 8
provided, however that any Capital Stock that would not qualify as Disqualified
Stock but for change of control provisions shall not constitute Disqualified
Stock if the provisions are not more favorable to the holders of such Capital
Stock than the provisions in Section 4.14 applicable to the holders of the
Notes.
"ELIGIBLE INSTITUTION" means a commercial banking institution that has
combined capital and surplus of not less than $500.0 million or its equivalent
in foreign currency, whose short-term debt is rated "A-1" (or higher) according
to Standard & Poor's Ratings Group ("S&P") or "P-1" or higher according to
Moody's Investors Service, Inc. ("Moody's") or carrying an equivalent rating by
a nationally recognized rating agency if both of the two named rating agencies
cease publishing ratings of investments.
"EQUITY INTERESTS" means Capital Stock and all warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"EUROCLEAR" means Morgan Guaranty Trust Company of New York, the
Brussels office, as operator of the Euroclear system.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE OFFER" means the exchange and issuance by the Company of a
principal amount of New Senior Subordinated Notes (which shall be registered
pursuant to the Exchange Offer Registration Statement) equal to the outstanding
principal amount of the Senior Subordinated Notes that are tendered by such
Holders in connection with such exchange and issuance.
"EXCHANGE OFFER REGISTRATION STATEMENT" has the meaning set forth in
the Registration Rights Agreement.
"EXISTING INDEBTEDNESS" means Indebtedness of the Company and its
Restricted Subsidiaries (other than Indebtedness under the Bank Credit Facility)
in existence on the date of this Indenture until such amounts are repaid.
"FIXED CHARGES" means, with respect to any Person for any period, the
sum of (i) the Consolidated Interest Expense of such Person for such period,
plus (ii) any interest expense on Indebtedness of another Person that is (A)
Guaranteed by the referent Person or one of its Restricted Subsidiaries (whether
or not such Guarantee is called upon) or (B) secured by a Lien on assets of such
Person or one of its Restricted Subsidiaries (whether or not such Lien is called
upon), plus (iii) the product of (a) all cash dividend payments (and non-cash
dividend payments in the case of a Person that is a Subsidiary) on any series of
Preferred Stock of such Person, times (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state
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<PAGE> 9
and local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
"FIXED CHARGE COVERAGE RATIO" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues or redeems
Preferred Stock subsequent to the commencement of the period for which the Fixed
Charge Coverage Ratio is being calculated but on or prior to the date on which
the event occurred for which the calculation of the Fixed Charge Coverage Ratio
is required (the "Calculation Date"), then the Fixed Charge Coverage Ratio shall
be calculated giving pro forma effect to such incurrence, assumption, Guarantee
or redemption of Indebtedness, or such issuance or redemption of Preferred
Stock, as if the same had occurred at the beginning of the applicable
four-quarter reference period. For purposes of making the computation referred
to above, (i) acquisitions that have been made by the Company or any of its
Restricted Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter reference
period or subsequent to such reference period and on or prior to the Calculation
Date shall be deemed to have occurred on the first day of the four-quarter
reference period and shall give pro forma effect to the Indebtedness and the
Consolidated Cash Flow of the Person which is the subject of any such
acquisition for such period and shall give pro forma effect to all other pro
forma adjustments which would be made in accordance with Rule 11-02 of
Regulation S-X under the Securities Act of 1933 or any successor provision
(provided that any cost savings included in such adjustments are set forth in an
Officers' Certificate delivered to the Trustee) and (ii) the Consolidated Cash
Flow attributable to operations or businesses disposed of prior to the
Calculation Date shall be excluded.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board, the Securities and Exchange Commission
or in such other statements by such other entity as may be approved by a
significant segment of the accounting profession of the United States, which are
in effect from time to time.
"GLOBAL NOTES" means the Regulation S Global Notes and the Rule 144A
Global Notes.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States is pledged.
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<PAGE> 10
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"HEDGING OBLIGATIONS" means, with respect to any Person, the
obligations of such Person under (i) interest rate swap agreements, interest
rate cap agreements and interest rate collar agreements, (ii) other agreements
or arrangements designed to protect such Person against fluctuations in interest
rates or foreign exchange rates and (iii) indemnity agreements and arrangements
entered into in connection with the agreements and arrangements described in
clauses (i) and (ii).
"HOLDER" means a Person in whose name a Note is registered.
"INCUR" means, with respect to any Indebtedness (including Acquired
Debt), to create, incur, issue, assume, guaranty or otherwise become directly or
indirectly liable for or with respect to, or become responsible for, the payment
of such Indebtedness (including Acquired Debt); provided that (i) neither the
accrual of interest nor the accretion of original issue discount shall be
considered an incurrence of Indebtedness, and (ii) the issuance of any New
Senior Subordinated Notes in exchange for a like principal amount of Senior
Subordinated Notes shall not be deemed to be an Incurrence of Indebtedness shall
not be deemed to be an Incurrence of Indebtedness. The term "incurrence" has
corresponding meaning.
"INDEBTEDNESS" means, with respect to any Person without duplication,
any indebtedness of such Person, whether or not contingent, in respect of
borrowed money or evidenced by bonds, notes, debentures or similar instruments
or letters of credit (or reimbursement agreements in respect thereof) or
representing Capital Lease Obligations or Purchase Money Obligations or the
deferred and unpaid balance of the purchase price of any property, excluding any
such balance that constitutes an accrued expense or trade payable, or
representing any Hedging Obligations if and to the extent any of the foregoing
indebtedness (other than letters of credit and Hedging Obligations) would appear
as a liability upon a balance sheet of such Person prepared in accordance with
GAAP, as well as all indebtedness of others secured by a Lien on any asset of
such Person (whether or not such indebtedness is assumed by such Person), the
maximum fixed repurchase price of Disqualified Stock issued by such Person and
the liquidation preference of Preferred Stock issued by such Person, in each
case if held by any Person other than the Company or a Wholly Owned Restricted
Subsidiary of the Company, and, to the extent not otherwise included, the
Guarantee by such Person of any such indebtedness of any other Person.
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<PAGE> 11
"INDENTURE" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"INDIRECT PARTICIPANT" means a Person who holds an interest through a
Participant.
"INITIAL PURCHASERS" means Donaldson, Lufkin & Jenrette Securities
Corporation, Salomon Brothers Inc, BancAmerica Robertson Stephens, Chase
Securities Inc. and CIBC Oppenheimer Corp.
"INSOLVENCY OR LIQUIDATION PROCEEDINGS" means (i) any insolvency or
bankruptcy case or proceeding, or any receivership, liquidation, reorganization
or other similar case or proceeding, relative to the Company or to the creditors
of the Company, as such, or to the assets of the Company, or (ii) any
liquidation, dissolution, reorganization or winding up of the Company, whether
voluntary or involuntary and involving insolvency or bankruptcy, or (iii) any
assignment for the benefit of creditors or any other marshaling of assets and
liabilities of the Company.
"ISSUE DATE" means the date the Notes are initially issued under this
Indenture.
"INVESTMENTS" means, with respect to any Person, all investments by
such Person in other Persons (including Affiliates) in the forms of loans
(including guarantees), advances or capital contributions (excluding commission,
travel and similar advances to officers and employees made in the ordinary
course of business), purchases or other acquisitions for consideration of
Indebtedness, Equity Interests or other securities, and all other items that are
or would be classified as investments on a balance sheet prepared in accordance
with GAAP. If the Company or any Restricted Subsidiary of the Company sells or
otherwise disposes of any Equity Interests of any direct or indirect Restricted
Subsidiary of the Company, or any Restricted Subsidiary of the Company issues
Equity Interests, such that, after giving effect to any such sale, disposition
or issuance, such Person is no longer a Wholly Owned Restricted Subsidiary of
the Company, the Company shall be deemed to have made an Investment on the date
of any such sale, disposition or issuance equal to the fair market value of the
Equity Interests of such Person held by the Company or such Restricted
Subsidiary immediately following any such sale, disposition or issuance.
"LIEN" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in such asset and any filing of an agreement or
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<PAGE> 12
any financing statement under the Uniform Commercial Code (or equivalent
statutes) of any jurisdiction).
"LEGAL HOLIDAY" means a Saturday, a Sunday or a day on which banking
institutions in the City of New York or at a place of payment are authorized by
law, regulation or executive order to remain closed. If a payment date is a
Legal Holiday at a place of payment, payment may be made at that place on the
next succeeding day that is not a Legal Holiday, and no additional interest
shall accrue for the intervening period.
"LIQUIDATED DAMAGES" means, at any time of determination, all
liquidated damages then owing pursuant to the terms of the Registration Rights
Agreement.
"MARKETABLE SECURITIES" means (i) Government Securities, (ii) any
certificate of deposit maturing not more than 180 days after the date of
acquisition issued by, or time deposit of, an Eligible Institution or any lender
under the Bank Credit Facility, (iii) commercial paper maturing not more than
180 days after the date of acquisition of an issuer (other than an Affiliate of
the Company) with a rating, at the time as of which any investment therein is
made, of "A-1" (or higher) according to S&P or "P-1" (or higher) according to
Moody's or carrying an equivalent rating by a nationally recognized rating
agency if both of the two named rating agencies cease publishing ratings of
investments, (iv) any bankers acceptances or money market deposit accounts
issued by an Eligible Institution and (v) any fund investing exclusively in
investments of the types described in clauses (i) through (iv) above.
"NET INCOME" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP, excluding, however, (i) any
gain (but not loss), together with any related provision for taxes on such gain
(but not loss), realized in connection with (a) any Asset Sale (including,
without limitation, dispositions pursuant to sale and leaseback transactions) or
(b) the extinguishment of any Indebtedness of such Person or any of its
Restricted Subsidiaries, and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received by the
Company or any of its Restricted Subsidiaries in respect of any Asset Sale
(including, without limitation, any cash received upon the sale or other
disposition of any non-cash consideration received in any Asset Sale), net of
the direct costs relating to such Asset Sale (including, without limitation,
legal, accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof, amounts required to be applied to the repayment of Indebtedness
(other than long-term Indebtedness of a Restricted Subsidiary of such Person and
Indebtedness under the Bank Credit Facility) secured by a Lien on the asset or
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<PAGE> 13
assets that are the subject of such Asset Sale and any reserve for adjustment in
respect of the sale price of such asset or assets established in accordance with
GAAP.
"NON-RECOURSE DEBT" means Indebtedness (i) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity and (ii) as to which the lenders have been notified in
writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"NOTE CUSTODIAN" means the Trustee, as custodian with respect to the
Notes in global form, or any successor as such custodian, as designated by the
Depositary hereunder.
"OBLIGATIONS" means any principal, interest (including any interest
accruing subsequent to the filing of a petition of bankruptcy at the rate
provided in the documentation with respect thereto, whether or not such interest
is an allowed claim under applicable law), penalties, fees, indemnifications,
reimbursements, damages and other liabilities payable under the documentation
governing any Indebtedness.
"OFFERING" means the offering of Notes pursuant to the Offering
Memorandum.
"OFFERING MEMORANDUM" means the offering memorandum, dated March 25,
1998, relating to the offering of the Senior Subordinated Notes.
"OFFICER" means, with respect to any Person, the Chairman of the Board,
the Chief Executive Officer, the President, the Chief Operating Officer, the
Chief Financial Officer, the Treasurer, the Secretary or any Vice-President of
such Person.
"OFFICERS' CERTIFICATE" means a certificate signed on behalf of the
Company by two Officers of the Company, one of whom must be the principal
executive officer, the principal financial officer or the principal accounting
officer of the Company, that meets the requirements of Section 13.05 hereof.
"OPINION OF COUNSEL" means an opinion from legal counsel who is
reasonably acceptable to the Trustee, that meets the requirements of Section
13.05 hereof. Unless otherwise specified, the counsel may be an employee of or
counsel to the Company, any Subsidiary of the Company or the Trustee.
"OUTSTANDING" means, as of the date of determination, all Notes
theretofore authenticated and delivered under this Indenture, except:
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<PAGE> 14
(a) Notes theretofore canceled by the Trustee or delivered to the
Trustee for cancellation;
(b) Notes, or portions thereof, for whose payment or redemption money
in the necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and segregated in
trust by the Company (if the Company shall act as its own Paying Agent) for the
Holders of such Notes; provided that if such Notes are to be redeemed, notice of
such redemption has been duly given pursuant to this Indenture or provision
therefor reasonably satisfactory to the Trustee has been made;
(c) Notes, except to the extent provided in Sections 8.02 and 8.03,
with respect to which the Company has effected defeasance or covenant defeasance
as provided in Article Eight; and
(d) Notes in exchange for or in lieu of which other Notes have been
authenticated and delivered pursuant to this Indenture, other than any such
Notes in respect of which there shall have been presented to the Trustee and the
Company proof reasonably satisfactory to each of them that such Notes are held
by a bona fide purchaser in whose hands the Securities are valid obligations of
the Company;
provided, however, that in determining whether the Holders of the
requisite principal amount of Outstanding Notes have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Notes owned by
the Company, any obligor upon the Notes or any Affiliate of the Company or such
obligor shall be disregarded and deemed not to be Outstanding, except that, in
determining whether the Trustee shall be protected in relying upon any such
request, demand, authorization, direction, notice, consent or waiver, only Notes
which the Trustee actually knows to be so owned shall be so disregarded. Notes
so owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the reasonable satisfaction of the Trustee the
pledgee's right so to act with respect to such Notes and that the pledgee is not
the Company or any obligor upon the Notes or any Affiliate of the Company or
such obligor.
"PARI PASSU INDEBTEDNESS" means Indebtedness of the Company or any of
its Restricted Subsidiaries that ranks pari passu in right of payment to the
Notes or any Guarantee thereof.
"PARTICIPANT" means, with respect to DTC, Euroclear or Cedel, a Person
who has an account with DTC, Euroclear or Cedel, as the case may be (and, with
respect to DTC, shall include the respective depositaries in DTC for Euroclear
and Cedel).
"PERMITTED INVESTMENTS" means (i) Investments in the Company or in a
Wholly Owned Restricted Subsidiary of the Company (including, without
limitation,
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<PAGE> 15
Guarantees of the Indebtedness and/or other Obligations of the Company and/or
any Wholly Owned Restricted Subsidiary of the Company, so long as such
Indebtedness and/or other Obligations are permitted under this Indenture), (ii)
Investments in Marketable Securities, (iii) Investments by the Company or any
Restricted Subsidiary of the Company in, or the purchase of the securities of, a
Person if, as a result of such Investment, (a) such person becomes a Wholly
Owned Restricted Subsidiary of the Company or (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys substantially
all of its assets to, or is liquidated into, the Company or a Wholly Owned
Restricted Subsidiary of the Company, (iv) Investments in accounts and notes
receivable acquired in the ordinary course of business, (v) any non-cash
consideration received in connection with an Asset Sale that complies with
Section 4.10, (vi) Investments in connection with Hedging Obligations permitted
to be incurred under Section 4.09, (vii) Investments in Permitted Joint Ventures
in an amount not to exceed $20 million in the aggregate at any one time
outstanding and (viii) other Investments in an amount not to exceed $10 million
in the aggregate at any one time outstanding.
"PERMITTED JOINT VENTURE" means a Person (i) which owns, leases,
operates or services a Related Business or manufactures or markets healthcare
products and (ii) of which the Company, directly or indirectly, beneficially
owns at least a majority of the Equity Interests.
"PERMITTED JUNIOR SECURITIES" means (i) equity securities of the
Company and (ii) debt securities of the Company that are unsecured and
subordinated at least to the same extent as the Notes to Senior Debt of the
Company and guarantees of any such debt by any Subsidiary Guarantor that are
unsecured and subordinated at least to the same extent as the Subsidiary
Guarantee of such Subsidiary Guarantor to the Senior Debt of such Subsidiary
Guarantor, as the case may be, and has a final maturity date at least as late as
the final maturity date of, and has a Weighted Average Life to Maturity equal to
or greater than the Weighted Average Life to Maturity of, the Notes.
"PERMITTED LIENS" means; (i) Liens in favor of the Company or any of
its Restricted Subsidiaries, (ii) Liens on property of a Person existing at the
time such Person is merged with or into or consolidated with the Company or any
Restricted Subsidiary of the Company; provided that such Liens were not incurred
in connection with, or in contemplation of, such merger or consolidation and do
not extend to any assets of the Company or any Restricted Subsidiary of the
Company other than the assets acquired in such merger or consolidation; (iii)
Liens on property of a Person existing at the time such Person becomes a
Restricted Subsidiary of the Company; provided that such Liens were not incurred
in connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary and do not extend to any assets of the Company or any other
Restricted Subsidiary of the Company; (iv) Liens on property existing at the
time of acquisition thereof by the Company or any Restricted Subsidiary of the
Company;
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<PAGE> 16
provided that such Liens were not incurred in connection with, or in
contemplation of, such acquisition and do not extend to any assets of the
Company or any of its Restricted Subsidiaries other than the property so
acquired; (v) Liens to secure the performance of statutory obligations, surety
or appeal bonds or performance bonds, or landlords', carriers', warehousemen's,
mechanics', suppliers', materialmen's or other like Liens, in any case incurred
in the ordinary course of business and with respect to amounts not yet
delinquent or being contested in good faith by appropriate process of law,
provided that a reserve or other appropriate provision, if any, as is required
by GAAP shall have been made therefor; (vi) Liens existing on the date of this
Indenture; (vii) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently concluded; provided
that any reserve or other appropriate provision as shall be required in
conformity with GAAP shall have been made therefor; (viii) Liens to secure
Indebtedness (including Capital Lease Obligations) permitted by clause (iii) or
clause (ix) of the second paragraph of Section 4.09 covering only the assets
acquired, constructed or improved with such Indebtedness or the assets which are
the subject of the sale and leaseback transaction, as the case may be, (ix)
Liens securing Indebtedness incurred to refinance Indebtedness that has been
secured by a Lien permitted under this Indenture; provided that (a) any such
Lien shall not extend to or cover any assets or property not securing the
Indebtedness so refinanced and (b) the refinancing Indebtedness secured by such
Lien shall have been permitted to be incurred under Section 4.09; (x) Liens in
favor of the lessee on instruments which are the subject of leases entered into
in the ordinary course of business; provided that any such Lien shall not extend
to or cover any assets or property of the Company and its Restricted
Subsidiaries that is not the subject of any such lease; (xi) Liens to secure
Attributable Debt that is permitted to be incurred pursuant to Section 4.13;
provided that any such Lien shall not extend to or cover any assets of the
Company or any Subsidiary Guarantor other than the assets which are the subject
of the sale leaseback transaction in which the Attributable Debt is incurred;
(xii) judgment and attachment Liens not giving rise to a Default; (xiii)
easements, rights-of-way, zoning or other restrictions, minor defects or
irregularities in title and other similar charges or encumbrances not
interfering in any material respect with the business of the Company or any of
its Restricted Subsidiaries incurred in the ordinary course of business; (xiv)
pledges or deposits to secure obligations under workers' compensation laws or
similar legislation or to secure public or statutory obligations; and (xv) liens
to secure Purchase Money Obligations.
"PERMITTED REFINANCING INDEBTEDNESS means any Indebtedness of the
Company or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount of such Permitted Refinancing
Indebtedness does not exceed the
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<PAGE> 17
principal amount of the Indebtedness so extended, refinanced, renewed, replaced,
defeased or refunded (plus the amount of premiums and reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date at least as late as the final maturity date of, and
has a Weighted Average Life to Maturity equal to or greater than the Weighted
Average Life to Maturity of, the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (iii) if the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded is subordinated in
right of payment to the Notes, such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and is subordinated
in right of payment to, the Notes on terms at least as favorable to the Holders
of Notes as those contained in the documentation governing the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded.
"PERSON" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PREFERRED STOCK" means, with respect to any Person, any Capital Stock
of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such Person, over the
Capital Stock of any other class in such Person.
"PRIVATE PLACEMENT LEGEND" means the legend initially set forth on the
Senior Subordinated Notes in the form set forth in Section 2.06(g) hereof.
"PUBLIC EQUITY OFFERING" means an underwritten offer and sale of Common
Stock of the Company pursuant to a registration statement that has been declared
effective by the Commission pursuant to the Securities Act (other than a
registration statement on Form S-8 or otherwise related to equity securities
issuable upon any employee benefit plan of the Company).
"PURCHASE MONEY OBLIGATION" means any Indebtedness secured by a Lien on
assets related to the business of the Company and its Restricted Subsidiaries
and any additions and accessions thereto, which are purchased by the Company and
its Restricted Subsidiaries at any time after the Notes are issued; provided
that (i) the security agreement or conditional sales or other title retention
contract pursuant to which the lien on such assets is created (collectively a
"Purchase Money Security Agreement") shall be entered into within 90 days after
the purchase or substantial completion of the construction of such assets and
shall at all times be confined solely to the assets so purchased or acquired,
any additions and accessions thereto and any proceeds therefrom, (ii) at no time
shall the aggregate principal amount of the outstanding Indebtedness
- 16 -
<PAGE> 18
secured thereby be increased, except in connection with the purchase of
additions and accessions thereto and except in respect of fees and other
obligations in respect of such Indebtedness and (iii) (A) the aggregate
outstanding principal amount of Indebtedness secured thereby (determined on a
per asset basis in the case of any additions and accessions) shall not at the
time such Purchase Money Security Agreement is entered into exceed 100% of the
purchase price to the Company and its Restricted Subsidiaries of the assets
subject thereto or (B) the Indebtedness secured thereby shall be with recourse
solely to the assets so purchased or acquired, any additions and accessions
thereto and any proceeds therefrom.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A
under the Securities Act.
"REDEMPTION DATE" with respect to any Notes, means the date on which
such Notes are redeemed by the Company pursuant to Section 3.07.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of March 31, 1998, by and among the Company and the Initial
Purchasers, as such agreement may be amended, modified or supplemented from time
to time.
"REGULATION S" means Regulation S promulgated under the Securities Act.
"REGULATION S GLOBAL NOTES" means the Regulation S Temporary Global
Notes or the Regulation S Permanent Global Notes as applicable.
"REGULATION S PERMANENT GLOBAL NOTES" means the permanent global notes
that do not contain the paragraphs referred to in footnote 2 to the form of the
Note attached hereto as EXHIBIT A-2 and that are deposited with and registered
in the name of the Depositary or its nominee, representing a series of Notes
sold in reliance on Regulation S.
"REGULATION S TEMPORARY GLOBAL NOTES" means the temporary global notes
that contain the paragraphs referred to in footnote 1 to the form of the Note
attached hereto as EXHIBIT A-2 and that are deposited with and registered in the
name of the Depositary or its nominee, representing a series of Notes sold in
reliance on Regulation S.
"RELATED BUSINESS" means any business in the same or similar business
as the Company and its Restricted Subsidiaries are engaged in on the date of
this Indenture and such business activities as are complementary to, or are
incidental, ancillary or related to, the foregoing.
- 17 -
<PAGE> 19
"REPRESENTATIVE" means the agent with respect to the Bank Credit
Facility or any Person performing a similar function with respect to other
Senior Debt.
"RESPONSIBLE OFFICER" means any officer within the Corporate Trust
Department of the Trustee (or any successor group of the Trustee) with direct
responsibility for the administration of this Indenture and also means, with
respect to a particular corporate trust matter, any other officer to whom such
matter is referred because of his knowledge of and familiarity with the
particular subject.
"RESTRICTED BENEFICIAL INTEREST" means any beneficial interest of a
Participant or Indirect Participant in the Rule 144A Global Note or the
Regulation S Global Note.
"RESTRICTED BROKER DEALER" has the meaning set forth in the
Registration Rights Agreement.
"RESTRICTED GLOBAL NOTES" means the Regulation S Global Notes and the
Rule 144A Global Notes, all of which shall bear the Private Placement Legend.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED PERIOD" means the 40-day restricted period as defined in
Regulation S.
"RESTRICTED SUBSIDIARY" of a Person means any Subsidiary of the
referent Person that is not an Unrestricted Subsidiary.
"RULE 144A" means Rule 144A promulgated under the Securities Act.
"RULE 144A GLOBAL NOTES" means the permanent global notes that contain
the paragraph referred to in footnote 1 and the additional schedule referred to
in footnote 3 to the form of the Note attached hereto as EXHIBIT A-1, and that
is deposited with and registered in the name of the Depositary or its nominee,
representing Notes initially sold in reliance on Rule 144A.
"RULE 903" means Rule 903 promulgated under the Securities Act.
"RULE 904" means Rule 904 promulgated under the Securities Act.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
- 18 -
<PAGE> 20
"SENIOR DEBT" means (a) with respect to the Company, (i) all
Indebtedness permitted to be incurred pursuant to this Indenture under or in
respect of the Bank Credit Facility and (ii) any other Indebtedness permitted to
be incurred by the Company under the terms of this Indenture and any Hedging
Obligation permitted to be incurred under the terms of this Indenture, unless
the instrument under which the foregoing is incurred expressly provides that the
Indebtedness thereunder is on a parity with or subordinated in right of payment
to the Notes and (b) with respect to any Subsidiary Guarantor, (i) all
guarantees of such Subsidiary Guarantor permitted to be incurred pursuant to
this Indenture under or in respect of the Bank Credit Facility and (ii) any
other Indebtedness permitted to be incurred by such Subsidiary Guarantor under
the terms of this Indenture and any Hedging Obligation permitted to be incurred
under the terms of this Indenture, unless the instrument under which the
foregoing is incurred expressly provides that the Indebtedness thereunder is on
parity with or subordinated in right of payment to the Subsidiary Guarantee of
such Subsidiary Guarantor. Notwithstanding anything to the contrary in the
foregoing, Senior Debt of the Company will not include (i) Indebtedness
evidenced by the Notes; (ii) Indebtedness of the Company that is expressly
subordinated in right of payment to any Indebtedness of the Company; (iii)
Indebtedness of the Company that by operation of law is subordinate to any
general unsecured obligation of the Company; (iv) Indebtedness which when
incurred and without respect to any election under Section 1111(b) of Title 11
of the United States Code is without recourse to the Company or any of its
Subsidiaries; (v) any liability for federal, state, local or other taxes; (vi)
any Indebtedness of the Company or any Subsidiary Guarantor to the Company or
any Subsidiary of the Company or any of their respective Affiliates; (vii) any
trade payables; or (viii) any Indebtedness that is incurred in violation of this
Indenture.
"SHELF REGISTRATION STATEMENT" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"SIGNIFICANT SUBSIDIARY" means any Restricted Subsidiary that would be
a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof.
"STATED MATURITY" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal is scheduled to be paid in the documentation governing
such Indebtedness, and shall not include any contingent obligations to repay,
redeem or repurchase any such interest or principal prior to the date so
scheduled for the payment thereof.
"SUBORDINATED INDEBTEDNESS" means any Indebtedness of the Company or
any of its Restricted Subsidiaries which is by its terms is expressly
subordinated in
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<PAGE> 21
right of payment to the Notes, any Subsidiary Guarantee or any other
Indebtedness that is subordinated in right of payment to the Notes or any
Subsidiary Guarantee.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of Voting Stock is at the time owned or controlled, directly or
indirectly, by such Person or one or more of the other Subsidiaries of that
Person (or a combination thereof) and (ii) any partnership (a) the sole general
partner or the managing general partner of which is such Person or a Subsidiary
of such Person or (b) the only general partners of which are such Person or one
or more Subsidiaries of such Person (or any combination thereof).
"SUBSIDIARY GUARANTOR" means any Restricted Subsidiary of the Company
that executes a Subsidiary Guarantee in accordance with the terms of this
Indenture and each of their respective successors and assigns unless and until
any successor replaces any such Subsidiary Guarantor in accordance with this
Indenture and thereafter includes each such successor.
"TRANSFER RESTRICTED SECURITIES" means Notes or beneficial interests
therein that bear or are required to bear the Private Placement Legend.
"TRUSTEE" means the party named as such above until a successor
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor serving hereunder.
"UNRESTRICTED GLOBAL NOTES" means one or more Global Notes that do not
and are not required to bear the Private Placement Legend.
"UNRESTRICTED SUBSIDIARY" means any Subsidiary that is designated by
the Board of Directors of the Company as an Unrestricted Subsidiary pursuant to
a Board Resolution, but only if such Subsidiary: (i) has no Indebtedness other
than Non-Recourse Debt; (ii) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted Subsidiary
than those that might be obtained at the time from Persons who are not
Affiliates of the Company; (iii) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (a) to subscribe for additional Equity Interests or (b) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; and (iv) has not guaranteed or
otherwise directly or indirectly provided credit support for any Indebtedness of
the Company or any of its Restricted Subsidiaries. Any such designation by the
Board of Directors shall be evidenced to the Trustee by filing with the Trustee
a certified copy of the Board Resolution giving effect to such designation
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<PAGE> 22
and an Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant in Section 4.07. If, at
any time, any Unrestricted Subsidiary would fail to meet the foregoing
requirements as an Unrestricted Subsidiary, it shall thereafter cease to be an
Unrestricted Subsidiary for purposes of this Indenture and any Indebtedness of
such Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of the
Company as of such date (and, if such Indebtedness is not permitted to be
incurred as of such date under the covenant in Section 4.09, the Company shall
be in default of such covenant from the date of such incurrence). The Board of
Directors of the Company may at any time designate any Unrestricted Subsidiary
to be a Restricted Subsidiary; provided that such designation shall be deemed to
be an incurrence of Indebtedness by a Restricted Subsidiary of the Company of
any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant in Section 4.09 and (ii) no Default or Event of Default would be in
existence following such designation.
"VOTING STOCK" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes shall have, or might have, voting power by reason of
the happening of any contingency).
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (i) the then
outstanding principal amount of such Indebtedness into (ii) the total of the
product obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment.
"WHOLLY OWNED RESTRICTED SUBSIDIARY" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person or by such Person and one or more Wholly Owned
Restricted Subsidiaries of such Person.
"WHOLLY OWNED SUBSIDIARY" of any Person means a Subsidiary of such
Person all of the outstanding Capital Stock or other ownership interests of
which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person or by
such Person and one or more Wholly Owned Subsidiaries of such Person.
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<PAGE> 23
SECTION 1.02. OTHER DEFINITIONS.
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
<S> <C>
"AFFILIATE TRANSACTION"..........................................................................4.11
"ASSET SALE OFFER"...............................................................................4.10
"CHANGE OF CONTROL OFFER"........................................................................4.14
"CHANGE OF CONTROL PAYMENT"......................................................................4.14
"CHANGE OF CONTROL PAYMENT DATE".................................................................4.14
"COVENANT DEFEASANCE"............................................................................8.03
"DTC"............................................................................................2.03
"EVENT OF DEFAULT"...............................................................................6.01
"EXCESS PROCEEDS"................................................................................4.10
"LEGAL DEFEASANCE"...............................................................................8.02
"OFFER AMOUNT"...................................................................................3.09
"OFFER PERIOD"...................................................................................3.09
"PAYING AGENT"...................................................................................2.03
"PAYMENT DEFAULT"................................................................................6.01
"PURCHASE DATE"..................................................................................3.09
"REGISTRAR"......................................................................................2.03
"REPURCHASE OFFER"...............................................................................3.09
"RESTRICTED PAYMENTS"............................................................................4.07
"SUBSIDIARY GUARANTEES".........................................................................11.01
</TABLE>
SECTION 1.03 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"INDENTURE SECURITIES" means the Notes;
"INDENTURE SECURITY HOLDER" means a Holder of a Note;
"INDENTURE TO BE QUALIFIED" means this Indenture;
"INDENTURE TRUSTEE" or "INSTITUTIONAL TRUSTEE" means the
Trustee; and
"OBLIGOR" on the Notes means the Company, each Subsidiary
Guarantor and any successor obligor upon the Notes.
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<PAGE> 24
All other terms used in this Indenture that are defined by the TIA,
defined by reference in the TIA to another statute or defined by the Commission
rules under the TIA have the meanings so assigned to them therein.
SECTION 1.04 RULES OF CONSTRUCTION.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it in this Article 1;
(2) an accounting term not otherwise defined herein has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) references to sections of or rules under the Securities Act
shall be deemed to include substitute, replacement or
successor sections or rules adopted by the Commission from
time to time.
ARTICLE 2
THE NOTES
SECTION 2.01 FORM AND DATING.
The Notes and the Trustee's certificate of authentication shall be
substantially in the form of EXHIBIT A-1 or EXHIBIT A-2 attached hereto. The
Notes may have notations, legends or endorsements required by law, stock
exchange rule or usage. Each Note shall be dated the date of its authentication.
The Notes initially shall be issued in denominations of $1,000 and integral
multiples thereof.
The terms and provisions contained in the Notes shall constitute, and
are hereby expressly made, a part of this Indenture and the Company, the
Subsidiary Guarantors and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
(a) GLOBAL NOTES. Notes offered and sold to QIBs in reliance
on Rule 144A shall be issued initially in the form of Rule 144A Global Notes,
which shall be deposited on behalf of the purchasers of the Notes represented
thereby with a custodian of the Depositary, and registered in the name of the
Depositary or a nominee of the
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<PAGE> 25
Depositary, duly executed by the Company and authenticated by the Trustee as
hereinafter provided. The aggregate principal amount of the Rule 144A Global
Notes may from time to time be increased or decreased by adjustments made on the
records of the Trustee and the Depositary or its nominee as hereinafter
provided.
Notes offered and sold in reliance on Regulation S shall be
issued initially in the form of the Regulation S Temporary Global Note, which
shall be deposited on behalf of the purchasers of the Notes represented thereby
with the Trustee, as custodian for the Depositary, and registered in the name of
the Depositary or the nominee of the Depositary for the accounts of designated
agents holding on behalf of Euroclear or Cedel, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The 40-day Restricted
Period shall be terminated upon the receipt by the Trustee of (i) a written
certificate from the Depositary, together with copies of certificates from
Euroclear and Cedel certifying that they have received certification of
non-United States beneficial ownership of 100% of the aggregate principal amount
of the Regulation S Temporary Global Notes (except to the extent of any
beneficial owners thereof who acquired an interest therein pursuant to another
exemption from registration under the Securities Act and who will take delivery
of a beneficial ownership interest in a Rule 144A Global Note, all as
contemplated by Section 2.06(a)(ii) hereof), and (ii) an Officers' Certificate
from the Company certifying as to the same matters covered in clause (i) above.
Following the termination of the 40-day Restricted Period, beneficial interests
in the Regulation S Temporary Global Note shall be exchanged for beneficial
interests in Regulation S Permanent Global Notes pursuant to the Applicable
Procedures. Simultaneously with the authentication of Regulation S Permanent
Global Notes, the Trustee shall cancel the Regulation S Temporary Global Notes.
The aggregate principal amount of the Regulation S Temporary Global Notes and
the Regulation S Permanent Global Notes may from time to time be increased or
decreased by adjustments made on the records of the Registrar and the Depositary
or its nominee, as the case may be, in connection with transfers of interest as
hereinafter provided.
Each Global Note shall represent such of the Outstanding Notes
as shall be specified therein and each shall provide that it shall represent the
aggregate amount of Outstanding Notes from time to time endorsed thereon and
that the aggregate amount of Outstanding Notes represented thereby may from time
to time be reduced or increased, as appropriate, to reflect exchanges,
redemptions and transfers of interests. Any endorsement of a Global Note to
reflect the amount of any increase or decrease in the amount of Outstanding
Notes represented thereby shall be made by the Trustee or the Note Custodian, at
the direction of the Registrar, in accordance with instructions given by the
Holder thereof as required by Section 2.06 hereof.
The provisions of the "Operating Procedures of the Euroclear
System" and "Terms and Conditions Governing Use of Euroclear" and the
"Management Regulations"
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<PAGE> 26
and "Instructions to Participants" of Cedel shall be applicable to interests in
the Regulation S Temporary Global Notes and the Regulation S Permanent Global
Notes that are held by Participants through Euroclear or Cedel. The Trustee
shall have no obligation to notify Holders of any such procedures or to monitor
or enforce compliance with the same.
Except as set forth in Section 2.06 hereof, the Global Notes
may be transferred, in whole and not in part, only to another nominee of the
Depositary or to a successor of the Depositary or its nominee.
(b) BOOK-ENTRY PROVISIONS. This Section 2.01(b) shall apply
only to Rule 144A Global Notes and Regulation S Permanent Global Notes deposited
with or on behalf of the Depositary.
The Company shall execute and the Trustee shall, in accordance
with this Section 2.01(b), authenticate and deliver the Global Notes that (i)
shall be registered in the name of the Depositary or the nominee of the
Depositary and (ii) shall be delivered by the Trustee to the Depositary or
pursuant to the Depositary's instructions or held by the Trustee as custodian
for the Depositary.
Participants shall have no rights either under this Indenture
with respect to any Global Note held on their behalf by the Depositary or by the
Note Custodian as custodian for the Depositary or under such Global Note, and
the Depositary may be treated by the Company, the Trustee and any agent of the
Company or the Trustee as the absolute owner of such Global Note for all
purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent
the Company, the Trustee or any agent of the Company or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or impair, as between the Depositary and its Participants, the
operation of customary practices of such Depositary governing the exercise of
the rights of an owner of a beneficial interest in any Global Note.
(c) DEFINITIVE NOTES. Notes issued in certificated form shall
be substantially in the form of EXHIBIT A-1 attached hereto (but without
including the text referred to in footnotes 1 and 3 thereto).
SECTION 2.02 EXECUTION AND AUTHENTICATION.
An Officer shall sign the Notes for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Note no longer holds
that office at the time a Note is authenticated, the Note shall nevertheless be
valid.
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<PAGE> 27
A Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
Note has been authenticated under this Indenture. The form of Trustee's
certificate of authentication to be borne by the Notes shall be substantially as
set forth in EXHIBIT A-1 or EXHIBIT A-2 hereto.
The Trustee shall, upon a written order of the Company signed
by an Officer directing the Trustee to authenticate the Notes, authenticate
Notes for original issue up to the aggregate principal amount stated in
paragraph 4 of the Notes. The Trustee shall, upon written order of the Company
signed by an Officer, authenticate New Senior Subordinated Notes for original
issuance in exchange for a like principal amount of Senior Subordinated Notes
exchanged in the Exchange Offer or otherwise exchanged for New Senior
Subordinated Notes pursuant to the terms of the Registration Rights Agreement.
The aggregate principal amount of Notes Outstanding at any time may not exceed
the aggregate principal amount stated in paragraph 4 of the Notes, except as
provided in Section 2.07 hereof.
The Trustee may (at the Company's expense) appoint an
authenticating agent acceptable to the Company to authenticate Notes. An
authenticating agent may authenticate Notes whenever the Trustee may do so. Each
reference in this Indenture to authentication by the Trustee includes
authentication by such agent. An authenticating agent has the same rights as an
Agent to deal with the Company or an Affiliate of the Company.
SECTION 2.03 REGISTRAR AND PAYING AGENT.
The Company shall maintain (i) an office or agency in the City of New
York where Notes may be presented for registration of transfer or for exchange
("Registrar") and (ii) an office or agency in the City of New York where Notes
may be presented for payment ("Paying Agent"). The Registrar shall keep a
register of the Notes and of their transfer and exchange. The Company may
appoint one or more additional paying agents. The term "Paying Agent" includes
any additional paying agent. The Company may change any Paying Agent or
Registrar without notice to any Holder. The Company shall notify the Trustee in
writing of the name and address of any Agent not a party to this Indenture. If
the Company fails to appoint or maintain another entity as Registrar or Paying
Agent, the Trustee shall act as such. The Company or any of its Subsidiaries may
act as Paying Agent or Registrar.
The Company initially appoints The Depository Trust Company
("DTC") to act as Depositary with respect to the Global Notes.
The Company initially appoints the Trustee to act as the
Registrar and Paying Agent and to act as Note Custodian with respect to the
Global Notes. The
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Company initially appoints the Trustee to act as the Registrar and Paying Agent
with respect to the Definitive Notes.
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all money held by the Paying Agent for the payment of
principal, premium or Liquidated Damages, if any, or interest on the Notes, and
shall notify the Trustee of any default by the Company in making any such
payment. While any such default continues, the Trustee may require a Paying
Agent to pay all money held by it to the Trustee. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee. Upon payment
over to the Trustee, the Paying Agent (if other than the Company or a
Subsidiary) shall have no further liability for the money. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent. Upon
the occurrence of events specified in Section 6.01(g) and (h) hereof, the
Trustee shall serve as Paying Agent for the Notes.
SECTION 2.05. HOLDER LISTS.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
all Holders and shall otherwise comply with TIA Section 312(a). If the Trustee
is not the Registrar, the Company and/or the Subsidiary Guarantors shall furnish
to the Trustee at least seven (7) Business Days before each interest payment
date and at such other times as the Trustee may request in writing, a list in
such form and as of such date as the Trustee may reasonably require of the names
and addresses of the Holders of Notes and the Company and the Subsidiary
Guarantors shall otherwise comply with TIA Section 312(a).
SECTION 2.06. TRANSFER AND EXCHANGE.
(a) TRANSFER AND EXCHANGE OF BENEFICIAL INTERESTS IN GLOBAL NOTES.
The transfer and exchange of beneficial interests in Global Notes shall be
effected through the Depositary, in accordance with this Indenture and the
procedures of the Depositary therefor, which shall include restrictions on
transfer comparable to those set forth herein to the extent required by the
Securities Act. Beneficial interests in a Global Note may be transferred to
Persons who take delivery thereof in the form of a beneficial interest in the
same Global Note in accordance with the transfer restrictions set forth in
subsection (g) of this Section 2.06 or in an Unrestricted Global Note in
accordance with subsection (g)(iv). Transfers of beneficial interests in the
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Global Notes to Persons required to take delivery thereof in the form of an
interest in another Global Note shall be permitted as follows:
(i) RULE 144A GLOBAL NOTE TO REGULATION S GLOBAL NOTE.
If, at any time, an owner of a beneficial interest in
a Rule 144A Global Note deposited with the Depositary
(or the Trustee as custodian for the Depositary)
wishes to transfer its beneficial interest in such
Rule 144A Global Note to a Person who is required or
permitted to take delivery thereof in the form of an
interest in a Regulation S Global Note, such owner
shall, subject to the Applicable Procedures, exchange
or cause the exchange of such interest for an
equivalent beneficial interest in a Regulation S
Global Note as provided in this Section 2.06(a)(i).
Upon receipt by the Trustee, as Registrar, of (1) an
order by the Depositary or its authorized
representative with respect to instructions given in
accordance with the Applicable Procedures from a
Participant directing the Depositary to credit or
cause to be credited a beneficial interest in the
Regulation S Global Note in an amount equal to the
beneficial interest in the Rule 144A Global Note to
be exchanged and (2) a certificate in the form of
EXHIBIT B-1 hereto given by the owner of such
beneficial interest stating that the transfer of such
interest has been made in compliance with the
transfer restrictions applicable to the Global Notes
and pursuant to and in accordance with Rule 903 or
Rule 904 of Regulation S, then the Trustee, as
Registrar, shall reduce or cause to be reduced the
aggregate principal amount at maturity of the
applicable Rule 144A Global Note and increase or
cause to be increased the aggregate principal amount
at maturity of the applicable Regulation S Global
Note by the principal amount at maturity of the
beneficial interest in the Rule 144A Global Note to
be exchanged or transferred, and the Depositary shall
credit or cause to be credited to the account of the
relevant Participant with respect to such exchange or
transfer a beneficial interest in the Regulation S
Global Note equal to the reduction in the aggregate
principal amount at maturity of the Rule 144A Global
Note and shall debit or cause to be debited from the
account of the relevant Participant with respect to
such exchange or transfer the beneficial interest in
the Rule 144A Global Note that is being exchanged or
transferred.
(ii) REGULATION S GLOBAL NOTE TO RULE 144A GLOBAL NOTE.
If, at any time, after the expiration of the 40-day
Restricted Period, an owner of a beneficial interest
in a Regulation S Global
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<PAGE> 30
Note deposited with the Depositary (or with the
Trustee as custodian for the Depositary) wishes to
transfer its beneficial interest in such Regulation S
Global Note to a Person who is required or permitted
to take delivery thereof in the form of an interest
in a Rule 144A Global Note, such owner shall, subject
to the Applicable Procedures, exchange or cause the
exchange of such interest for an equivalent
beneficial interest in a Rule 144A Global Note as
provided in this Section 2.06(a)(ii). Upon receipt by
the Trustee, as Registrar, of (1) an order by the
Depositary or its authorized representative with
respect to instructions given in accordance with
Applicable Procedures from a Participant directing
the Depositary to credit or cause to be credited a
beneficial interest in the Rule 144A Global Note in
an amount equal to the beneficial interest in the
Regulation S Global Note to be exchanged and (2) a
certificate in the form of EXHIBIT B-2 hereto given
by the owner of such beneficial interest stating (A)
if the transfer is pursuant to Rule 144A, that the
Person transferring such interest in a Regulation S
Global Note reasonably believes that the Person
acquiring such interest in a Rule 144A Global Note is
a QIB and is obtaining such beneficial interest in a
transaction meeting the requirements of Rule 144A and
any applicable blue sky or securities laws of any
state of the United States, (B) that the transfer
complies with the requirements of Rule 144 under the
Securities Act or (C) if the transfer is pursuant to
any other exemption from the registration
requirements of the Securities Act, that the transfer
of such interest has been made in compliance with the
transfer restrictions applicable to the Global Notes
and pursuant to and in accordance with the
requirements of the exemption claimed, such statement
to be supported by an Opinion of Counsel from the
transferee or the transferor in form reasonably
acceptable to the Company and to the Registrar and in
each case, in accordance with any applicable
securities laws of any state of the United States or
any other applicable jurisdiction, then the Trustee,
as Registrar, shall reduce or cause to be reduced the
aggregate principal amount at maturity of such
Regulation S Global Note and increase or cause to be
increased the aggregate principal amount at maturity
of the applicable Rule 144A Global Note by the
principal amount at maturity of the beneficial
interest in the Regulation S Global Note to be
exchanged or transferred, and the Depositary shall
credit or cause to be credited to the account of the
relevant Participant with respect to such exchange or
transfer a beneficial interest in the applicable Rule
144A Global Note equal to the
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<PAGE> 31
reduction in the aggregate principal amount at
maturity of such Regulation S Global Note and debit
or cause to be debited from the account of the
relevant Participant with respect to such exchange or
transfer the beneficial interest in the Regulation S
Global Note that is being exchanged or transferred.
(b) TRANSFER AND EXCHANGE OF DEFINITIVE NOTES. When Definitive
Notes are presented by a Holder to the Registrar with a request to register the
transfer of the Definitive Notes or to exchange such Definitive Notes for an
equal principal amount of Definitive Notes of other authorized denominations,
the Registrar shall register the transfer or make the exchange as requested only
if:
(i) the Definitive Notes are presented or surrendered for
registration of transfer or exchange, endorsed and
containing a signature guarantee or accompanied by a
written instrument of transfer in form satisfactory
to the Registrar duly executed by such Holder or by
his attorney (duly authorized in writing) and
containing a signature guarantee; and
(ii) in the case of Definitive Notes that are Transfer
Restricted Securities, the Registrar has received the
following documentation, as applicable (all of which
may be submitted by facsimile):
(A) if such Transfer Restricted Security is
being delivered to the Registrar by a Holder
for registration in the name of such Holder,
without transfer, or such Transfer
Restricted Security is being transferred to
the Company or any of its Subsidiaries, a
certification to that effect from such
Holder (in substantially the form of EXHIBIT
B-3 hereto); or
(B) if such Transfer Restricted Security is
being transferred to a QIB in accordance
with Rule 144A under the Securities Act or
pursuant to an exemption from registration
in accordance with Rule 144 under the
Securities Act or pursuant to an effective
registration statement under the Securities
Act, a certification to that effect from
such Holder (in substantially the form of
EXHIBIT B-3 hereto); or
(C) if such Transfer Restricted Security is
being transferred to a Non-U.S. Person in an
offshore transaction in accordance with Rule
904 under the Securities Act, a
certification to that
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<PAGE> 32
effect from such Holder (in substantially
the form of EXHIBIT B-3 hereto); or
(D) if such Transfer Restricted Security is
being transferred in reliance on any other
exemption from the registration requirements
of the Securities Act, a certification to
that effect from such Holder (in
substantially the form of EXHIBIT B-3
hereto) and an Opinion of Counsel from such
Holder or the transferee reasonably
acceptable to the Company and to the
Registrar to the effect that such transfer
is in compliance with the Securities Act.
(c) TRANSFER OF A BENEFICIAL INTEREST IN A RULE 144A GLOBAL NOTE
OR REGULATION S PERMANENT GLOBAL NOTE FOR A DEFINITIVE NOTE.
(i) Any Person having a beneficial interest in a Rule
144A Global Note or Regulation S Permanent Global
Note may upon request, subject to the Applicable
Procedures, exchange such beneficial interest for a
Definitive Note. Upon receipt by the Trustee, as
Registrar, of an order by the Depositary or its
authorized representative with respect to
instructions given in accordance with Applicable
Procedures from a Participant as to a beneficial
interest in a Rule 144A Global Note or Regulation S
Permanent Global Note, and, in the case of a Transfer
Restricted Security, the following additional
information and documents (all of which may be
submitted by facsimile):
(A) if such beneficial interest is being
transferred to the Person designated by the
Depositary as being the beneficial owner, a
certification to that effect from such
Person (in substantially the form of EXHIBIT
B-4 hereto);
(B) if such beneficial interest is being
transferred to a QIB in accordance with Rule
144A under the Securities Act or pursuant to
an exemption from registration in accordance
with Rule 144 under the Securities Act or
pursuant to an effective registration
statement under the Securities Act, a
certification to that effect from the
transferor (in substantially the form of
EXHIBIT B-4 hereto);
(C) if such beneficial interest is being
transferred to a Non-U.S. Person in an
offshore transaction in accordance with Rule
904
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<PAGE> 33
under the Securities Act, a certification to
that effect from the transferor (in
substantially the form of EXHIBIT B-4
hereto); or
(D) if such beneficial interest is being
transferred in reliance on any other
exemption from the registration requirements
of the Securities Act, a certification to
that effect from the transferor (in
substantially the form of EXHIBIT B-4
hereto) and an Opinion of Counsel from the
transferee or the transferor reasonably
acceptable to the Company and to the
Registrar to the effect that such transfer
is in compliance with the Securities Act,
in which case the Trustee, as Registrar, shall, upon
at least 20 days' prior written notice, cause the
aggregate principal amount of Rule 144A Global Note
or Regulation S Permanent Global Note being exchanged
or transferred to be reduced accordingly, the
Depositary shall debit or cause to be debited from
the account of the relevant Participant with respect
to such exchange or transfer the beneficial interest
in such 144A Global Note or Regulation S Permanent
Global Note and, following such reduction, the
Company shall execute and, the Trustee shall
authenticate and deliver to the transferee, a
Definitive Note in the appropriate principal amount.
(ii) Definitive Notes issued in exchange for a beneficial
interest in a Rule 144A Global Note or Regulation S
Permanent Global Note, as applicable, pursuant to
this Section 2.06(c) shall be registered in such
names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct
or indirect Participants or otherwise, shall instruct
the Trustee, as Registrar. The Trustee shall deliver
such Definitive Notes to the Persons in whose names
such Notes are so registered. Following any such
issuance of Definitive Notes, the Trustee, as
Registrar, shall instruct the Depositary to reduce or
cause to be reduced the aggregate principal amount at
maturity of the applicable Global Note to reflect the
transfer.
(d) RESTRICTIONS ON TRANSFER AND EXCHANGE OF GLOBAL NOTES.
Notwithstanding any other provision of this Indenture (other than the provisions
set forth in subsection (f) of this Section 2.06), a Global Note may not be
transferred as a whole except by the Depositary to a nominee of the Depositary
or by a nominee of the Depositary to the Depositary or another nominee of the
Depositary or by the Depositary
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<PAGE> 34
or any such nominee to a successor Depositary or a nominee of such successor
Depositary.
(e) TRANSFER AND EXCHANGE OF A DEFINITIVE NOTE FOR A BENEFICIAL
INTEREST IN A GLOBAL NOTE. When a Definitive Note is presented by a Holder to
the Registrar with a request to register the transfer of the Definitive Note to
a Person who is required or permitted to take delivery thereof in the form of an
interest in a Global Note, or to exchange such Definitive Note for an equal
interest in a Global Note, the Registrar shall register the transfer or make the
exchange as requested only if (i) the Definitive Note is presented or
surrendered for registration of transfer or exchange, endorsed and containing a
signature guarantee or accompanied by a written instrument of transfer in form
satisfactory to the Registrar duly executed by such Holder or by his attorney
(duly authorized in writing) and containing a signature guarantee and (ii) in
the case of Definitive Notes that are Transfer Restricted Securities (other than
Transfer Restricted Securities that are being exchanged or transferred in
accordance with the transfer restrictions set forth in subsection (g)(iv) of
this Section 2.06), the Registrar has received the following documentation, as
applicable (all of which may be submitted by facsimile):
(A) if such Transfer Restricted Security is
being delivered to the Registrar by a Holder
for registration in the name of such Holder,
without transfer, or such Transfer
Restricted Security is being transferred to
the Company or any of its Subsidiaries, a
certification to that effect from such
Holder (in substantially the form of EXHIBIT
B-3 hereto); or
(B) if such Transfer Restricted Security is
being transferred to a QIB in accordance
with Rule 144A under the Securities Act or
pursuant to an exemption from registration
in accordance with Rule 144 under the
Securities Act or pursuant to an effective
registration statement under the Securities
Act, a certification to that effect from
such Holder (in substantially the form of
EXHIBIT B-3 hereto); or
(C) if such Transfer Restricted Security is
being transferred to a Non-U.S. Person in an
offshore transaction in accordance with Rule
904 under the Securities Act, a
certification to that effect from such
Holder (in substantially the form of EXHIBIT
B-3 hereto); or
(D) if such Transfer Restricted Security is
being transferred in reliance on any other
exemption from the registration
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<PAGE> 35
requirements of the Securities Act, a
certification to that effect from such
Holder (in substantially the form of EXHIBIT
B-3 hereto) and an Opinion of Counsel from
such Holder or the transferee reasonably
acceptable to the Company and to the
Registrar to the effect that such transfer
is in compliance with the Securities Act.
The Trustee or the Note Custodian shall (or, if at any time
the Trustee ceases to be the Registrar, shall upon receipt from the Registrar of
written notification that the foregoing documentation has been received by the
Registrar) cancel the Definitive Note and increase or cause to be increased the
aggregate principal amount of the appropriate Global Note.
(f) AUTHENTICATION OF DEFINITIVE NOTES IN ABSENCE OF DEPOSITARY.
If at any time:
(i) the Depositary for the Notes (x) notifies the Company
that the Depositary is unwilling or unable to
continue as Depositary for the Global Notes and a
successor Depositary for the Global Notes is not
appointed by the Company within 90 days after
delivery of such notice or (y) has ceased to be a
clearing agency registered under the Exchange Act;
(ii) the Company, at its option, notifies the Trustee in
writing that it elects to cause the issuance of
Definitive Notes under this Indenture; or
(iii) there shall have occurred and be continuing a Default
or Event of Default with respect to the Notes,
then the Company shall execute, and the Trustee shall, upon receipt of an
authentication order in accordance with Section 2.02 hereof, authenticate and
deliver, Definitive Notes in an aggregate principal amount equal to the
principal amount of the Global Notes in exchange for such Global Notes.
(g) LEGENDS.
(i) Except as permitted by the following paragraphs (ii),
(iii) and (iv), each Note certificate evidencing
Global Notes and Definitive Notes (and all Notes
issued in exchange therefor or substitution thereof)
shall bear the legend in substantially the following
form:
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<PAGE> 36
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY
WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE
SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON AN EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT
IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT
OR (C) IS OTHERWISE PERMITTED TO PURCHASE THE NOTES
PURSUANT TO THE REQUIREMENTS OF CLAUSE (2) BELOW, (2)
AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH
SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (A) TO THE COMPANY OR ANY OF ITS
SUBSIDIARIES, (B) TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QIB PURCHASING FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QIB IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144A, (C) IN AN
OFFSHORE TRANSACTION MEETING THE REQUIREMENTS OF RULE
903 AND 904 OF THE SECURITIES ACT, (D) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144
UNDER THE SECURITIES ACT, (E) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT (AND IN THE CASE OF CLAUSE (E)
BASED UPON AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY) OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH THE
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES OR ANY OTHER APPLICABLE JURISDICTION AND (3)
AGREES THAT IT
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<PAGE> 37
WILL DELIVER TO EACH PERSON TO WHOM THE SECURITY
EVIDENCED HEREBY IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. AS USED
HEREIN, THE TERMS "OFFSHORE TRANSACTION" AND "UNITED
STATES" HAVE THE MEANINGS GIVEN TO THEM BY RULE 902
OF REGULATION S UNDER THE SECURITIES ACT. THE
INDENTURE CONTAINS A PROVISION REQUIRING THE TRUSTEE
TO REFUSE TO REGISTER ANY TRANSFER OF THIS NOTE IN
VIOLATION OF THE FOREGOING."
(ii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security
represented by a Global Note) pursuant to Rule 144
under the Securities Act or pursuant to an effective
registration statement under the Securities Act:
(A) in the case of any Transfer Restricted
Security that is a Definitive Note, the
Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security
for a Definitive Note that does not bear the
legend set forth in (i) above and rescind
any restriction on the transfer of such
Transfer Restricted Security upon receipt of
a certification from the transferring holder
substantially in the form of EXHIBIT B-4
hereto, indicating paragraph number three or
four; and
(B) in the case of any Transfer Restricted
Security represented by a Global Note, such
Transfer Restricted Security shall not be
required to bear the legend set forth in (i)
above, but shall continue to be subject to
the provisions of Section 2.06(a) and (b)
hereof; provided, however, that with respect
to any request for an exchange of a Transfer
Restricted Security that is represented by a
Global Note for a Definitive Note that does
not bear the legend set forth in (i) above,
which request is made in reliance upon Rule
144, the Holder thereof shall certify in
writing to the Registrar that such request
is being made pursuant to Rule 144 (such
certification to be substantially in the
form of EXHIBIT B-4 hereto, indicating
paragraph number three or four).
(iii) Upon any sale or transfer of a Transfer Restricted
Security (including any Transfer Restricted Security
represented by a Global Note) in reliance on any
exemption from the registration requirements of the
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<PAGE> 38
Securities Act (other than exemptions pursuant to
Rule 144A or Rule 144 under the Securities Act) in
which the Holder or the transferee provides an
Opinion of Counsel to the Company and the Registrar
in form and substance reasonably acceptable to the
Company and the Registrar (which Opinion of Counsel
shall also state that the transfer restrictions
contained in the legend are no longer applicable):
(A) in the case of any Transfer Restricted
Security that is a Definitive Note, the
Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security
for a Definitive Note that does not bear the
legend set forth in (i) above and rescind
any restriction on the transfer of such
Transfer Restricted Security; and
(B) in the case of any Transfer Restricted
Security represented by a Global Note, such
Transfer Restricted Security shall not be
required to bear the legend set forth in (i)
above, but shall continue to be subject to
the provisions of Section 2.06(a) and (b)
hereof.
(iv) Notwithstanding the foregoing, upon the consummation
of the Exchange Offer in accordance with the
Registration Rights Agreement, the Company shall
issue and, upon receipt of an authentication order in
accordance with Section 2.02 hereof, the Trustee
shall authenticate (i) one or more Unrestricted
Global Notes in aggregate principal amount equal to
the principal amount of the Restricted Beneficial
Interests tendered for acceptance by Persons that
certify in the applicable letter of transmittal that
they (x) are acquiring the Notes in the ordinary
course of business, (y) are not participating in the
distribution of the Notes and (z) are not affiliates
(as defined in Rule 144) of the Company, and accepted
for exchange in the Exchange Offer, and (ii)
Definitive Notes that do not bear the Private
Placement Legend in an aggregate principal amount
equal to the principal amount of the Definitive Notes
accepted for exchange in the Exchange Offer, subject
to delivery by such Person of the certification
described in clause (i). Concurrently with the
issuance of such Notes, the Trustee, as Registrar,
shall cause the aggregate principal amount of the
applicable Restricted Global Notes to be reduced
accordingly and the Company shall execute and the
Trustee shall authenticate and deliver to the Persons
designated by the Holders of Definitive Notes so
accepted Definitive Notes in the appropriate
principal amount.
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<PAGE> 39
(h) CANCELLATION AND/OR ADJUSTMENT OF GLOBAL NOTES. At
such time as all beneficial interests in any Global Note have been exchanged for
Definitive Notes, redeemed, repurchased or canceled, such Global Note shall be
returned to or retained and canceled by the Trustee, as Registrar, in accordance
with Section 2.11 hereof. At any time prior to such cancellation, if any
beneficial interest in a Global Note is exchanged for Definitive Notes,
redeemed, repurchased or canceled, the principal amount of Notes represented by
such Global Note shall be reduced accordingly and an endorsement shall be made
on such Global Note by the Trustee or the Note Custodian, at the direction of
the Registrar, to reflect such reduction.
(i) GENERAL PROVISIONS RELATING TO TRANSFERS AND EXCHANGES.
(i) To permit registrations of transfers and
exchanges, the Company shall execute and the
Trustee shall authenticate Global Notes and
Definitive Notes at the Registrar's request.
(ii) No service charge shall be made to a Holder
for any registration of transfer or
exchange, but the Company may require
payment of a sum sufficient to cover any
stamp or transfer tax or similar
governmental charge payable in connection
therewith (other than any such stamp or
transfer taxes or similar governmental
charge payable upon exchange or transfer
pursuant to Sections 2.10, 3.06, 4.10, 4.14
and 9.05 hereto).
(iii) All Global Notes and Definitive Notes issued
upon any registration of transfer or
exchange of Global Notes or Definitive Notes
shall be the valid obligations of the
Company, evidencing the same debt, and
entitled to the same benefits under this
Indenture, as the Global Notes or Definitive
Notes surrendered upon such registration of
transfer or exchange.
(iv) The Registrar shall not be required:(A) to
issue, to register the transfer of or to
exchange Notes during a period beginning at
the opening of fifteen (15) Business Days
before the day of any selection of Notes for
redemption under Section 3.02 hereof and
ending at the close of business on the day
of selection, (B) to register the transfer
of or to exchange any Note so selected for
redemption in whole or in part, except the
unredeemed portion of any Note being
redeemed in part, or
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<PAGE> 40
(C) to register the transfer of or to
exchange a Note between a record date and
the next succeeding interest payment date.
(v) Prior to due presentment for the
registration of a transfer of any Note, the
Trustee, any Agent and the Company may deem
and treat the Person in whose name any Note
is registered as the absolute owner of such
Note for the purpose of receiving payment of
principal of and interest on such Notes and
for all other purposes, and neither the
Trustee, any Agent nor the Company shall be
affected by notice to the contrary.
(vi) The Trustee shall authenticate Global Notes
and Definitive Notes in accordance with the
provisions of Section 2.02 hereof.
Notwithstanding anything herein to the contrary, as to any
certifications and certificates delivered to the Registrar pursuant to this
Section 2.06, the Registrar's duties shall be limited to confirming that any
such certifications and certificates delivered to it are in the form of Exhibit
B attached hereto. The Registrar shall not be responsible for confirming the
truth or accuracy of representations made in any such certifications or
certificates.
SECTION 2.07 REPLACEMENT NOTES.
If any mutilated Note is surrendered to the Trustee, or the Company and
the Trustee receive evidence to their satisfaction of the destruction, loss or
theft of any Note, the Company shall issue and the Trustee, upon the written
order of the Company signed by an Officer of the Company, shall authenticate a
replacement Note. If required by the Trustee or the Company, an indemnity bond
must be supplied by the Holder that is sufficient in the judgment of the Trustee
and the Company to protect the Company, the Trustee, any Agent and any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company and the Trustee may charge for their expenses in replacing
a Note.
Every replacement Note is an additional obligation of the Company and
shall be entitled to all of the benefits of this Indenture equally and
proportionately with all other Notes duly issued hereunder.
SECTION 2.08 OUTSTANDING NOTES.
The Notes Outstanding at any time are all the Notes authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation, and those described in this Section 2.08 as not Outstanding.
Except as set forth in Section 2.09 hereof, a Note
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does not cease to be Outstanding because the Company or any Subsidiary Guarantor
or an Affiliate of the Company or any Subsidiary Guarantor holds the Note.
If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be
Outstanding unless the Trustee receives proof satisfactory to it that the
replaced Note is held by a bona fide purchaser.
If the principal amount of any Note is considered paid under Section
4.01 hereof, it ceases to be Outstanding and interest on it ceases to accrue.
If the Paying Agent (other than the Company, a Subsidiary or an
Affiliate of any thereof) holds, on a redemption date or maturity date, money
sufficient to pay Notes payable on that date, then on and after that date such
Notes shall be deemed to be no longer Outstanding and shall cease to accrue
interest.
SECTION 2.09 TREASURY NOTES.
In determining whether the Holders of the required principal amount of
Notes have concurred in any direction, waiver or consent, Notes owned by the
Company or any Subsidiary Guarantor, or by any Affiliate of the Company or any
Subsidiary Guarantor, shall be considered as though not Outstanding, except that
for the purposes of determining whether the Trustee shall be protected in
relying on any such direction, waiver or consent, only Notes a Responsible
Officer of the Trustee knows are so owned shall be so disregarded.
Notwithstanding the foregoing, Notes that are to be acquired by the Company or
any Subsidiary Guarantor or an Affiliate of the Company or any Subsidiary
Guarantor pursuant to an exchange offer, tender offer or other agreement shall
not be deemed to be owned by such entity until legal title to such Notes passes
to such entity.
SECTION 2.10 TEMPORARY NOTES.
Until Definitive Notes are ready for delivery, the Company may prepare
and the Trustee shall authenticate temporary Notes upon a written order of the
Company signed by an Officer of the Company. Temporary Notes shall be
substantially in the form of Definitive Notes but may have variations that the
Company considers appropriate for temporary Notes. Without unreasonable delay,
the Company shall prepare and the Trustee shall upon receipt of a written order
of the Company signed by an Officer authenticate Definitive Notes in exchange
for temporary Notes.
Holders of temporary Notes shall be entitled to all of the benefits of
this Indenture.
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SECTION 2.11 CANCELLATION.
The Company at any time may deliver to the Trustee for cancellation any
Notes previously authenticated and delivered hereunder or which the Company may
have acquired in any manner whatsoever, and all Notes so delivered shall be
promptly canceled by the Trustee. All Notes surrendered for registration of
transfer, exchange or payment, if surrendered to any Person other than the
Trustee, shall be delivered to the Trustee. The Trustee and no one else shall
cancel all Notes surrendered for registration of transfer, exchange, payment,
replacement or cancellation. Subject to Section 2.07 hereof, the Company may not
issue new Notes to replace Notes that it has redeemed or paid or that have been
delivered to the Trustee for cancellation. All canceled Notes held by the
Trustee shall be destroyed and certification of their destruction delivered to
the Company, unless by a written order, signed by an Officer of the Company, the
Company shall direct that canceled Notes be returned to it.
SECTION 2.12 DEFAULTED INTEREST.
If the Company or any Subsidiary Guarantor defaults in a payment of
interest on the Notes, it shall pay the defaulted interest in any lawful manner
plus, to the extent lawful, interest payable on the defaulted interest, to the
Persons who are Holders on a subsequent special record date, which date shall be
at the earliest practicable date but in all events at least five (5) Business
Days prior to the payment date, in each case at the rate provided in the Notes
and in Section 4.01 hereof. The Company shall fix or cause to be fixed each such
special record date and payment date, and shall promptly thereafter, notify the
Trustee in writing of the amount of defaulted interest proposed to be paid on
each Note and the date of the proposed payment. At least fifteen (15) days
before the special record date, the Company (or, upon the request of the
Company, the Trustee, in the name and at the expense of the Company) shall mail
or cause to be mailed to Holders a notice that states the special record date,
the related payment date and the amount of such interest to be paid.
SECTION 2.13 RECORD DATE.
The record date for purposes of determining the identity of Holders of
the Notes entitled to vote or consent to any action by vote or consent
authorized or permitted under this Indenture shall be determined as provided for
in TIA Section 316 (c).
SECTION 2.14 COMPUTATION OF INTEREST.
Interest on the Notes shall be computed on the basis of a 360-day year
comprised of twelve 30-day months.
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SECTION 2.15 CUSIP NUMBER.
The Company in issuing the Notes may use a "CUSIP" number, and if it
does so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Notes and that reliance may be placed
only on the other identification numbers printed on the Notes. The Company shall
promptly notify the Trustee of any change in the CUSIP number.
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01 NOTICES TO TRUSTEE.
If the Company elects to redeem Notes pursuant to the optional
redemption provisions of Section 3.07 hereof, it shall furnish to the Trustee,
at least 45 days but not more than 60 days before a redemption date (unless a
shorter period is acceptable to the Trustee) an Officers' Certificate setting
forth (i) the Section of this Indenture pursuant to which the redemption shall
occur, (ii) the redemption date, (iii) the principal amount of Notes to be
redeemed and (iv) the redemption price.
If the Company is required to make an offer to purchase Notes pursuant
to Section 4.10 or 4.14 hereof, it shall furnish to the Trustee, at least 15
days before the scheduled purchase date, an Officers' Certificate setting forth
(i) the section of this Indenture pursuant to which the offer to purchase shall
occur, (ii) the terms of the offer, (iii) the principal amount of Notes to be
purchased, (iv) the purchase price, (v) the purchase date and (vi) and further
setting forth a statement to the effect that (a) the Company or one its
Subsidiaries has affected an Asset Sale and there are Excess Proceeds
aggregating more than $10.0 million or (b) a Change of Control has occurred, as
applicable.
SECTION 3.02 SELECTION OF NOTES TO BE REDEEMED.
If less than all of the Notes are to be redeemed at any time, selection
of Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed or, if the Notes are not so listed, on a pro rata basis, by lot
or by such other method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Pursuant to Section
3.03, notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each Holder of Notes to be
redeemed at its registered address. If any Note is to be redeemed in part only,
the notice of redemption that relates to such Note shall state the portion of
the
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principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original Note. On and after the redemption date,
interest will cease to accrue on Notes or portions thereof called for
redemption.
SECTION 3.03 NOTICE OF REDEMPTION.
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail or cause to be mailed by first class mail, a notice of
redemption to each Holder whose Notes are to be redeemed.
The notice shall identify the Notes to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price for the Notes and accrued
interest, and Liquidated Damages, if any;
(3) if any Note is being redeemed in part, the portion of
the principal amount of such Notes to be redeemed and
that, after the redemption date, upon surrender of
such Note, a new Note or Notes in principal amount
equal to the unredeemed portion shall be issued upon
surrender of the original Note;
(4) the name and address of the Paying Agent;
(5) that Notes called for redemption must be surrendered
to the Paying Agent to collect the redemption price;
(6) that, unless the Company defaults in making such
redemption payment, interest and Liquidated Damages,
if any, on Notes called for redemption ceases to
accrue on and after the redemption date;
(7) the paragraph of the Notes and/or Section of this
Indenture pursuant to which the Notes called for
redemption are being redeemed; and
(8) that no representation is made as to the correctness
or accuracy of the CUSIP number, if any, listed in
such notice or printed on the Notes.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense; provided,
however, that the Company shall have delivered to the Trustee, at least 45 days
prior to the redemption date (or such shorter period as shall be acceptable to
the Trustee), an Officers' Certificate requesting that the Trustee give such
notice and setting forth the information to be stated in the
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<PAGE> 45
notice as provided in the preceding paragraph. The notice mailed in the manner
herein provided shall be conclusively presumed to have been duly given whether
or not the Holder receives such notice. In any case, failure to give such notice
by mail or any defect in the notice to the Holder of any Note shall not affect
the validity of the proceeding for the redemption of any other Note.
SECTION 3.04 EFFECT OF NOTICE OF REDEMPTION.
Once notice of redemption is mailed in accordance with Section 3.03
hereof, Notes called for redemption become irrevocably due and payable on the
redemption date at the redemption price plus accrued and unpaid interest and
Liquidated Damages, if any, to such date. A notice of redemption may not be
conditional.
SECTION 3.05 DEPOSIT OF REDEMPTION OR PURCHASE PRICE.
On or before 10:00 a.m. (New York City time) on each redemption date or
the date on which Notes must be accepted for purchase pursuant to Section 4.10
or 4.14, the Company shall deposit with the Trustee or with the Paying Agent
money sufficient to pay the redemption price of and accrued and unpaid interest
and Liquidated Damages, if any, on all Notes to be redeemed or purchased on that
date. The Trustee or the Paying Agent shall promptly return to the Company upon
its written request any money deposited with the Trustee or the Paying Agent by
the Company in excess of the amounts necessary to pay the redemption price of
(including any applicable premium), accrued interest and Liquidated Damages, if
any, on all Notes to be redeemed or purchased.
If Notes called for redemption or tendered in an Asset Sale Offer or
Change of Control Offer are paid or if the Company has deposited with the
Trustee or Paying Agent money sufficient to pay the redemption or purchase price
of, and unpaid and accrued interest and Liquidated Damages, if any, on, all
Notes to be redeemed or purchased, on and after the redemption or purchase date
interest and Liquidated Damages, if any, shall cease to accrue on the Notes or
the portions of Notes called for redemption or tendered and not withdrawn in an
Asset Sale Offer or Change of Control Offer (regardless of whether certificates
for such securities are actually surrendered). If a Note is redeemed or
purchased on or after an interest record date but on or prior to the related
interest payment date, then any accrued and unpaid interest and Liquidated
Damages, if any, shall be paid to the Person in whose name such Note was
registered at the close of business on such record date. If any Note called for
redemption shall not be so paid upon surrender for redemption because of the
failure of the Company to comply with the preceding paragraph, interest shall be
paid on the unpaid principal and Liquidated Damages, if any, from the redemption
or purchase date until such principal and Liquidated Damages, if any, are paid,
and to the extent lawful on any interest not paid on such unpaid principal, in
each case, at the rate provided in the Notes and in Section 4.01 hereof.
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SECTION 3.06. NOTES REDEEMED IN PART.
Upon surrender of a Note that is redeemed in part, the Company shall
issue and, upon the Company's written request, the Trustee shall authenticate
for the Holder at the expense of the Company a new Note equal in principal
amount to the unredeemed portion of the Note surrendered.
SECTION 3.07. OPTIONAL REDEMPTION.
(a) Except as provided in the following paragraph, the Notes will not
be redeemable at the Company's option prior to April 1, 2003. Thereafter, the
Notes will be subject to redemption at the option of the Company, in whole or in
part, upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to the
applicable redemption date, if redeemed during the twelve-month period beginning
on April 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003...................................................... 104.19%
2004...................................................... 102.79%
2005...................................................... 101.40%
2006 and thereafter....................................... 100.00%
</TABLE>
(b) Notwithstanding the foregoing, at any time prior to April 1, 2003
the Company may on any one or more occasions redeem up to 33 1/3% of the
aggregate principal amount of Notes originally issued in the Offering at a
redemption price of 108.375% of the principal amount thereof, plus accrued and
unpaid interest and Liquidated Damages, if any, thereon to the redemption date,
with the net proceeds of one or more Public Equity Offerings; provided that at
least $200 million aggregate principal amount of Notes remains Outstanding
immediately after the occurrence of each such redemption; and provided, further,
that each such redemption shall occur within 60 days after the closing of the
Public Equity Offering to which it relates.
SECTION 3.08. MANDATORY REDEMPTION.
Except as set forth under Sections 3.09, 4.10 and 4.14 hereof, the
Company shall not be required to make mandatory redemption or sinking fund
payments with respect to the Notes.
SECTION 3.09. REPURCHASE OFFERS.
In the event that the Company shall be required to commence an offer to
all Holders to repurchase Notes (a "Repurchase Offer") pursuant to an Asset Sale
Offer
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under Section 4.10 hereof or pursuant to a Change of Control Offer under Section
4.14 hereof, the Company shall follow the procedures specified below.
A Repurchase Offer shall commence no earlier than 30 days and no later
than 60 days after a Change of Control or an Asset Sale Offer shall be required
to be made pursuant to Section 4.10, as the case may be, and remain open for a
period of twenty (20) Business Days following its commencement and no longer,
except to the extent that a longer period is required by applicable law (the
"Offer Period"). On a date specified in the notice of such Repurchase Offer,
which shall be no later than five (5) Business Days after the termination of the
Offer Period (the "Purchase Date"), the Company shall purchase the principal
amount of Notes required to be purchased pursuant to Section 4.10 hereof, in the
case of an Asset Sale Offer, or 4.14 hereof, in the case of a Change of Control
Offer (the "Offer Amount") or, if less than the Offer Amount has been tendered,
all Notes tendered in response to the Repurchase Offer. Payment for any Notes so
purchased shall be made in the same manner as interest payments are made.
If the Purchase Date is on or after an interest record date and on or
before the related interest payment date, any accrued and unpaid interest and
Liquidated Damages, if any, shall be paid to the Person in whose name a Note is
registered at the close of business on such record date, and no additional
interest or Liquidated Damages, if any, shall be payable to Holders who tender
Notes pursuant to the Repurchase Offer.
Upon the commencement of a Repurchase Offer, the Company shall send, by
first class mail, a notice to the Trustee and each of the Holders. The notice
shall contain all instructions and materials necessary to enable such Holders to
tender Notes pursuant to such Repurchase Offer. The Repurchase Offer shall be
made to all Holders. The notice, which shall govern the terms of the Repurchase
Offer, shall describe the transaction or transactions that constitute the Change
of Control or Asset Sale Offer, as the case may be, and shall state:
(a) that the Repurchase Offer is being made pursuant to this Section
3.09 and Section 4.10 or 4.14 hereof, as the case may be, and the
length of time the Repurchase Offer shall remain open;
(b) the Offer Amount, the purchase price and the Purchase Date;
(c) that any Note not tendered and accepted for payment shall continue
to accrue interest;
(d) that, unless the Company defaults in making such payment, any Note
accepted for payment pursuant to the Repurchase Offer shall cease to
accrue interest and Liquidated Damages, if any, after the Purchase
Date;
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(e) that Holders electing to have a Note purchased pursuant to a
Repurchase Offer shall be required to surrender the Note, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the
Note duly completed, or to transfer their interest in such Note by
book-entry transfer, to the Company, the Depositary, or the Paying
Agent at the address specified in the notice not later than the close
of business on the last day of the Offer Period;
(f) that Holders shall be entitled to withdraw their election if the
Company, the Depositary or the Paying Agent, as the case may be,
receives, not later than the expiration of the Offer Period, a
telegram, telex, facsimile transmission or letter setting forth the
name of the Holder, the principal amount of the Note the Holder
delivered for purchase and a statement that such Holder is withdrawing
his election to have such Note purchased;
(g) that, if the aggregate principal amount of Notes surrendered by
Holders exceeds the Offer Amount, the Company shall select the Notes to
be purchased on a pro rata basis (with such adjustments as may be
deemed appropriate by the Company so that only Notes in denominations
of $1,000, or integral multiples thereof, shall be purchased); and
(h) that Holders whose Notes were purchased only in part shall be
issued new Notes equal in principal amount to the unpurchased portion
of the Notes surrendered (or transferred by book-entry transfer).
On or before 10:00 a.m. (New York City time) on each Purchase Date, the
Company shall irrevocably deposit with the Trustee or Paying Agent in
immediately available funds the aggregate purchase price with respect to a
principal amount of Notes equal to the Offer Amount, together with accrued and
unpaid interest and Liquidated Damages, if any, thereon, to be held for payment
in accordance with the terms of this Section 3.09. On the Purchase Date, the
Company shall, to the extent lawful, (i) accept for payment, on a pro rata basis
to the extent necessary, the Offer Amount of Notes or portions thereof tendered
pursuant to the Repurchase Offer, or if less than the Offer Amount has been
tendered, all Notes tendered, (ii) deliver or cause the Paying Agent or
depository, as the case may be, to deliver to the Trustee Notes so accepted and
(iii) deliver to the Trustee an Officers' Certificate stating that such Notes or
portions thereof were accepted for payment by the Company in accordance with the
terms of this Section 3.09. The Company, the Depositary or the Paying Agent, as
the case may be, shall promptly (but in any case not later than three (3)
Business Days after the Purchase Date) mail or deliver to each tendering Holder
an amount equal to the purchase price of the Notes tendered by such Holder and
accepted by the Company for purchase, plus any accrued and unpaid interest and
Liquidated Damages, if any, thereon, and the Company shall promptly issue a new
Note, and the Trustee shall authenticate and mail or deliver
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such new Note, to such Holder, equal in principal amount to any unpurchased
portion of such Holder's Notes surrendered. Any Note not so accepted shall be
promptly mailed or delivered by the Company to the Holder thereof. The Company
shall publicly announce in a newspaper of general circulation or in a press
release provided to a nationally recognized financial wire service the results
of the Repurchase Offer on the Purchase Date.
Other than as specifically provided in this Section 3.09, any purchase
pursuant to this Section 3.09 shall be made pursuant to the provisions of
Sections 3.01, 3.02, 3.05 and 3.06 hereof.
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES.
The Company shall pay or cause to be paid the principal of, premium, if
any, and interest on the Notes on the dates and in the manner provided in the
Notes. The Company shall pay all Liquidated Damages, if any, in the same manner
on the dates and in the amounts set forth in the Registration Rights Agreement.
Principal, premium and Liquidated Damages, if any, and interest, shall be
considered paid for all purposes hereunder on the date the Paying Agent (if
other than the Company or a Subsidiary thereof) holds, as of 10:00 a.m. (New
York City time) money deposited by the Company in immediately available funds
and designated for and sufficient to pay all such principal, premium and
Liquidated Damages, if any, and interest, then due.
The Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue principal at the rate equal to
1% per annum in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on overdue installments of interest and
Liquidated Damages (without regard to any applicable grace period) at the same
rate to the extent lawful.
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in the Borough of Manhattan, the City of New
York an office or agency (which may be an office of the Trustee or an affiliate
of the Trustee or Registrar) where Notes may be surrendered for registration of
transfer or for exchange and where notices and demands to or upon the Company in
respect of the Notes and this Indenture may be served. The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to
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furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the Borough of
Manhattan, the City of New York for such purposes. The Company shall give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency.
The Company hereby designates the Corporate Trust Office of the Trustee
as one such office or agency of the Company in accordance with Section 2.03
hereof.
SECTION 4.03. COMMISSION REPORTS.
So long as required to do so under the Exchange Act, the Company shall
file with the Commission and distribute to the Holders copies of the quarterly
and annual financial information required to be filed with the Commission
pursuant to the Exchange Act. All such financial information shall include
consolidated financial statements (including footnotes) prepared in accordance
with GAAP. Such annual financial information shall also include an opinion
thereon expressed by an independent accounting firm of established national
reputation. All such consolidated financial statements shall be accompanied by a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the financial condition and results of operations of
the Company and its Restricted Subsidiaries. In addition, whether or not
required by the rules and regulations of the Commission, so long as any Notes
are Outstanding, the Company will furnish to the Holders (i) all quarterly and
annual financial information that would be required to be contained in a filing
with the Commission on Forms 10-Q and 10-K if the Company were required to file
such Forms, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" that complies with the rules and
regulations of the Commission and that describes the financial condition and
results of operations of the Company and its Restricted Subsidiaries and, with
respect to the annual information only, a report thereon by the Company's
certified independent accountants and (ii) all current reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. In addition, whether or not required by the rules
and regulations of the Commission, from and after the consummation of the
Exchange Offer or the effectiveness of the Shelf Registration Statement, the
Company will file a copy of all such information and reports to the Commission
for public availability (unless the Commission will not accept such a filing)
and make such information available to securities analysts and prospective
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investors upon request. In addition, the Company and the Subsidiary Guarantors
shall furnish to Holders, securities analysts and prospective investors, upon
their request, the information required by Rule 144A(d)(4) under the Securities
Act. The Company and each Subsidiary Guarantor shall at all times comply with
TIA Section 314(a).
The financial information to be distributed to Holders of Notes shall
be filed with the Trustee and mailed to the Holders at their addresses appearing
in the register of Notes maintained by the Registrar, within 120 days after the
end of the Company's fiscal years and within 60 days after the end of each of
the first three quarters of each such fiscal year.
The Company shall provide the Trustee with a sufficient number of
copies of all reports and other documents and information and, if requested by
the Company, the Trustee will deliver, at the expense of the Company, such
reports to the Holders under this Section 4.03.
SECTION 4.04. COMPLIANCE CERTIFICATE.
The Company shall deliver to the Trustee, within 90 days after the end
of each fiscal year of the Company and also within 60 days of the end of each
fiscal quarter of the Company, an Officers' Certificate stating (i)(A) that, in
the course of the performance by the signatories thereto of their duties as
Officers of the Company, they would normally have knowledge of any Default or
Event of Default, (B) whether or not such signatories know of any Default or
Event of Default that occurred during such period and (C) if any Default or
Event of Default has occurred during such period, the nature of such Default or
Event of Default, its status and what action the Company is taking or proposes
to take in respect thereto and (ii) that to the best of his or her knowledge no
event has occurred and remains in existence by reason of which payments on
account of the principal of or interest, if any, on the Notes are prohibited or
if such event has occurred, a description of the event and what action the
Company is taking or proposes to take with respect thereto.
So long as it is not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, in connection with the
year-end financial statements delivered pursuant to Section 4.03 hereof, the
Company shall use its best efforts to deliver a written statement of the
Company's independent public accountants (who shall be a firm of established
national reputation) that in making the examination necessary for certification
of such financial statements, nothing has come to their attention that would
lead them to believe that the Company has violated any provisions of Article
Four or Section 5.01 hereof or, if any such violation has occurred, specifying
the nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation. In the event that such
written statement of the Company's independent public accountants cannot be
obtained, the Company shall deliver an Officers' Certificate
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certifying that it has used its best efforts to obtain such statements and was
unable to do so.
The Company shall, so long as any of the Notes are Outstanding, deliver
to the Trustee, within five days after upon any Officer's becoming aware of any
Default or Event of Default, an Officers' Certificate specifying such Default or
Event of Default and what action the Company is taking or proposes to take with
respect thereto.
SECTION 4.05. TAXES.
The Company shall pay, and shall cause each of its Subsidiaries to pay,
prior to delinquency all material taxes, assessments and governmental levies,
except such as are contested in good faith and by appropriate proceedings and
with respect to which appropriate reserves have been taken in accordance with
GAAP.
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.
The Company and each Subsidiary Guarantor covenants (to the extent that
it may lawfully do so) that it shall not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay,
extension or usury law wherever enacted, now or at any time hereafter in force,
that may affect the covenants or the performance of this Indenture; and the
Company and each Subsidiary Guarantor (to the extent that it may lawfully do so)
hereby expressly waives all benefit or advantage of any such law, and covenants
that it shall not, by resort to any such law, hinder, delay or impede the
execution of any power herein granted to the Trustee, but shall suffer and
permit the execution of every such power as though no such law has been enacted.
SECTION 4.07. RESTRICTED PAYMENTS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly: (i) declare or pay any dividend or make
any distribution (including in connection with any merger or consolidation) on
account of any Equity Interests of the Company or any of its Restricted
Subsidiaries (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or dividends or distributions
payable to the Company or any Wholly Owned Restricted Subsidiary of the
Company); (ii) purchase, redeem or otherwise acquire or retire for value any
Equity Interests of the Company, any of its Restricted Subsidiaries or any other
Affiliate of the Company (other than any such Equity Interests owned by the
Company or any Wholly Owned Restricted Subsidiary of the Company; (iii) make any
principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated in right of payment to
the Notes or a Subsidiary Guarantee, except at the original final maturity
thereof or in accordance with the scheduled mandatory redemption or scheduled
repayment provisions set forth in the original documentation governing such
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Indebtedness (but not pursuant to any mandatory offer to repurchase upon the
occurrence of any event); or (iv) make any Restricted Investment (all such
payments and other actions set forth in clauses (i) through (iv) above being
collectively referred to as "Restricted Payments"), unless, at the time of such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof, and
(b) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries after
the date of this Indenture (excluding Restricted Payments permitted by clauses
(ii), (iii) and (v) of the next succeeding paragraph), is less than the sum of
(1) 50% of the Consolidated Net Income of the Company for the period (taken as
one accounting period) from the beginning of the first fiscal quarter commencing
after the date of this Indenture to the end of the Company's most recently ended
fiscal quarter for which internal financial statements are available at the time
of such Restricted Payment (or, if such Consolidated Net Income for such period
is a deficit, minus 100% of such deficit), plus (2) 100% of the aggregate net
cash proceeds received by the Company from contributions of capital or the issue
or sale since the date of this Indenture of Equity Interests of the Company or
of debt securities of the Company issued after the date of this Indenture that
have been converted into such Equity Interests (other than Equity Interests (or
convertible debt securities) sold to a Subsidiary of the Company and other than
Disqualified Stock or debt securities that have been converted into Disqualified
Stock), plus (3) to the extent that any Restricted Investment that was made
after the date of this Indenture is sold for cash or otherwise liquidated or
repaid for cash, the lesser of (A) the cash return of capital with respect to
such Restricted Investment (less the cost of disposition, if any) and (B) the
initial amount of such Restricted Investment; provided that no cash proceeds
received by the Company from the issue or sale of any Equity Interests issued by
the Company will be counted in determining the amount available for Restricted
Payments under this clause (b) to the extent such proceeds were used to redeem,
repurchase, retire or acquire any Equity Interests of the Company pursuant to
clause (ii) of the next succeeding paragraph, to defease, redeem or repurchase
any subordinated Indebtedness pursuant to clause (iii) of the next succeeding
paragraph or to repurchase, redeem or acquire any Equity Interests of the
Company pursuant to clause (iv) of the next succeeding paragraph, and
(c) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of Section 4.09.
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The foregoing provisions do not prohibit any or all of the following
(each and all of which: (1) constitutes an independent exception to the
foregoing provisions and (2) may occur in addition to any action permitted to
occur under any other exception): (i) the payment of any dividend within 60 days
after the date of declaration thereof, if at such date of declaration such
payment would have complied with the provisions of this Indenture; (ii) the
redemption, repurchase, retirement or other acquisition of any Equity Interests
of the Company in exchange for, or out of the net cash proceeds of, the
substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than Disqualified Stock); provided
that the amount of any such net cash proceeds that are utilized for any such
redemption, repurchase, retirement or other acquisition shall be excluded from
clause (b)(2) of the preceding paragraph; and (iii) the defeasance, redemption
or repurchase of subordinated Indebtedness with the net proceeds from an
incurrence of Permitted Refinancing Indebtedness or the substantially concurrent
sale (other than to a Subsidiary of the Company) of Equity Interests of the
Company (other than Disqualified Stock); provided that the amount of any such
net proceeds that are utilized for any such redemption, repurchase, retirement
or other acquisition shall be excluded from clause (b)(2) of the preceding
paragraph; (iv) a Restricted Payment to fund the repurchase, redemption or other
acquisition or retirement for value of any Equity Interests of the Company held
by any member of the Company's or any of its Restricted Subsidiaries' management
pursuant to any management equity subscription agreement or stock option
agreement; provided that (A) the aggregate price paid for all such repurchased,
redeemed, acquired or retired Equity Interests shall not exceed $5 million in
any twelve-month period plus the aggregate cash proceeds received by the Company
during such twelve-month period from any reissuance of Equity Interests by the
Company to members of management of the Company and its Restricted Subsidiaries
and (B) no Default or Event of Default shall have occurred and be continuing
immediately after such transaction; (v) the payment of dividends by a Restricted
Subsidiary on any class of common stock of such Restricted Subsidiary if such
dividend is paid pro rata to all holders of such class of common stock; (vi) the
repurchase of any joint venture interests in a Permitted Joint Venture; and
(vii) the repurchase or other acquisition of the common stock of a Restricted
Subsidiary in an aggregate amount not to exceed $10 million during the term of
this Indenture.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such designation, all Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid in cash) in the Subsidiary
so designated will be deemed to be Restricted Payments at the time of such
designation and will reduce the amount available for Restricted Payments under
the first paragraph of this covenant. All such Investments will be deemed to
constitute Restricted Investments in an amount equal to the greater of (i) the
net book value of such Investments at the time of such designation and (ii) the
fair
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market value of such Investments at the time of such designation. Such
designation will only be permitted if such Restricted Investments would be
permitted at such time and if such Restricted Subsidiary otherwise meets the
definition of an Unrestricted Subsidiary.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this covenant were computed, which calculations shall
be based upon the Company's latest available financial statements.
SECTION 4.08. DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED
SUBSIDIARIES.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause to become
effective any encumbrance or consensual restriction on the ability of any
Restricted Subsidiary to: (i)(a) pay dividends or make any other distributions
to the Company or any of its Restricted Subsidiaries (1) on its Capital Stock or
(2) with respect to any other interest or participation in, or measured by, its
profits or (b) pay any Indebtedness owed to the Company or any of its Restricted
Subsidiaries; (ii) make loans or advances to the Company or any of its
Restricted Subsidiaries; (iii) transfer any of its properties or assets to the
Company or any of its Restricted Subsidiaries; or (iv) guarantee any
Indebtedness of the Company or any Restricted Subsidiary, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness, as in effect on the date of this Indenture; (b) the Bank Credit
Facility as in effect on the date of this Indenture and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof; provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive in the aggregate with
respect to such dividend and other payment restrictions than those contained in
the Bank Credit Facility (or, if more restrictive, than those contained in this
Indenture) as in effect on the date of this Indenture; (c) this Indenture and
the Notes; (d) applicable law; (e) any instrument governing Indebtedness or
Capital Stock of a Person acquired by the Company or any of its Restricted
Subsidiaries, as in effect at the time of acquisition (except to the extent such
Indebtedness was incurred in connection with, or in contemplation of, such
acquisition), which encumbrance or restriction is not applicable to any Person,
or the properties or assets of any Person, other than the Person, or the
property or assets of the Person, so acquired; provided that in the case of
Indebtedness, such Indebtedness would be permitted by the terms of this
Indenture to be incurred if deemed to be incurred on the date of acquisition;
(f) customary non-assignment provisions in leases and other agreements entered
into in the ordinary course of business and consistent with past practices; (g)
Purchase Money Obligations for property acquired in the ordinary course of
business that impose restrictions of the nature
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described in clause (iii) above on the property so acquired; (h) Permitted
Refinancing Indebtedness; provided that the restrictions contained in the
agreements governing such Permitted Refinancing Indebtedness are no more
restrictive in the aggregate than those contained in the agreements governing
the Indebtedness being refinanced; or (i) an agreement that has been entered
into for the sale or disposition of all or substantially all of the Equity
Interests or property or assets of a Restricted Subsidiary; provided that such
restrictions are limited to (A) the Restricted Subsidiary that is the subject of
such agreement and (B) six months following the execution of such agreement.
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, Incur any Indebtedness (including
Acquired Debt) and the Company will not issue any Disqualified Stock and will
not permit any of its Restricted Subsidiaries to issue any shares of Preferred
Stock; provided, however, that the Company and any Subsidiary Guarantor may
Incur Indebtedness or issue shares of Disqualified Stock, if the Fixed Charge
Coverage Ratio for the Company's most recently ended four full fiscal quarters
for which internal financial statements are available immediately preceding the
date on which such additional Indebtedness is Incurred or such Disqualified
Stock is issued would have been at least 2.5 to 1, in each case, determined on a
pro forma basis (including a pro forma application of the net proceeds
therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
The foregoing provisions will not apply to any of the following
("Permitted Indebtedness"):
(i) the incurrence by the Company or any Subsidiary Guarantor of
Indebtedness and letters of credit pursuant to any Bank Credit Facility (with
letters of credit being deemed to have a principal amount equal to the maximum
potential liability of the Company or the relevant Subsidiary Guarantor
thereunder) in an aggregate principal amount outstanding at any one time not to
exceed $550 million less the aggregate amount of all repayments of the principal
of any Indebtedness under the Bank Credit Facility that permanently reduces the
amount of Indebtedness (and, in the case of revolving Indebtedness, the
commitments thereunder) under the Bank Credit Facility;
(ii) the incurrence by the Company and any Subsidiary Guarantor of
Indebtedness represented by the Notes and any Subsidiary Guarantee;
(iii) Existing Indebtedness;
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(iv) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund, Indebtedness that was permitted by this Indenture;
(v) the incurrence by Company or any of its Restricted Subsidiaries of
intercompany Indebtedness between or among the Company and any of its Restricted
Subsidiaries; provided, however, that (a) if the Company is the obligor on such
Indebtedness, such Indebtedness is expressly subordinate to the payment in full
of all obligations with respect to the Notes and (b) any subsequent issuance or
transfer of Equity Interests and any subsequent sale or other transfer of such
Indebtedness, in each case, that results in any such Indebtedness being held by
a Person other than the Company or any of its Restricted Subsidiaries shall be
deemed to constitute an incurrence of such Indebtedness by the Company or such
Restricted Subsidiary, as the case may be, not permitted pursuant to this clause
(v);
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of fixing
or hedging (a) interest rate risk with respect to any floating rate Indebtedness
of such Person so long as such floating rate Indebtedness is permitted by the
terms of this Indenture to be outstanding or (b) exchange rate risk with respect
to agreements or indebtedness of such Person payable or denominated in a
currency other than U.S. dollars;
(vii) Obligations in respect of performance and surety bonds provided
by the Company or any Subsidiary Guarantor in the ordinary course of business;
(viii) Indebtedness evidenced by letters of credit issued in the
ordinary course of business of the Company to secure workers compensation and
other insurance coverages;
(ix) the incurrence by the Company or any Restricted Subsidiary of
Indebtedness represented by Capital Lease Obligations, mortgage financings or
Purchase Money Obligations, in each case, incurred for the purpose of financing
all or any part of the purchase price or cost of construction or improvement of
property used in the business of the Company or such Restricted Subsidiary, in
an aggregate principal amount at any time outstanding not to exceed $10 million;
(x) the guarantee by the Company of Indebtedness of any Restricted
Subsidiary permitted under this Indenture and the guarantee by a Subsidiary
Guarantor of Indebtedness of the Company permitted in accordance with this
Indenture; and
(xi) the incurrence by the Company and any Subsidiary Guarantor of
Indebtedness in an aggregate principal amount at any time outstanding not to
exceed $50 million.
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SECTION 4.10. ASSETS SALES.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in an Asset Sale unless (i) the Company (or the
Restricted Subsidiary, as the case may be) receives consideration at the time of
such Asset Sale at least equal to the fair market value (evidenced by a Board
Resolution set forth in an Officers' Certificate delivered to the Trustee) of
the assets or Equity Interests issued or sold or otherwise disposed of and (ii)
at least 75% of the consideration therefor received by the Company or such
Restricted Subsidiary is in the form of cash; provided that the amount of (x)
any Senior Debt of the Company or any Restricted Subsidiary that is assumed by
the transferee of any such asset pursuant to a customary novation agreement that
releases the Company or such Subsidiary from such liability and (y) any notes or
other obligations received by the Company or any such Restricted Subsidiary from
such transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received), will be deemed to be
cash for purposes of this provision; provided that any Designated Noncash
Consideration received by the Company or any Restricted Subsidiary in an Asset
Sale having an aggregate fair market value, taken together with all other
Designated Noncash Consideration received pursuant to this provision that is at
that time outstanding, not in excess of $20 million (with the fair market value
of each item of Designated Noncash Consideration being measured at the time
received and without giving effect to subsequent changes in value), shall be
deemed to be cash for the purposes of this covenant.
Within 365 days after the receipt of any Net Proceeds from an Asset
Sale, the Company or such Restricted Subsidiary may apply such Net Proceeds (i)
to purchase one or more Related Businesses and/or a controlling interest in the
Capital Stock of a Person owning one or more Related Businesses (and no other
material assets), or to invest in a Permitted Joint Venture (provided such
Investment is otherwise permitted under this Indenture); (ii) to make a capital
expenditure or to acquire other long-term tangible assets, in each case, that
are used or useful in any Related Business; or (iii) to permanently reduce
Senior Debt (and in the case of revolving Indebtedness, to permanently reduce
the commitments with respect thereto). Any Net Proceeds from Asset Sales that
are not applied or invested as provided in the first sentence of this paragraph
will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10 million, the
Company will be required to make an offer to all Holders and holders of any
other Indebtedness of the Company ranking senior to or pari passu with the Notes
with similar provisions requiring the Company to make an offer to purchase or to
redeem such Indebtedness with the proceeds from any Asset Sales pro rata in
proportion to the respective principal amounts of Notes and such other
Indebtedness then outstanding (collectively, an "Asset Sale Offer") to purchase
the maximum principal amount of the
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Notes and such other Indebtedness that may be purchased out of the Excess
Proceeds, at an offer price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest thereon and Liquidated Damages, if any,
to the date of purchase (the "Asset Sale Payment"). Within ten days following
the occurrence of any requirement to make an Asset Sale Offer, the Company will
mail or cause to be mailed a notice to each Holder offering to repurchase Notes
pursuant to the procedures required by Section 3.09 hereof and described in such
notice. To the extent that the aggregate principal amount of Notes and such
other Indebtedness tendered pursuant to an Asset Sale Offer is less than the
Excess Proceeds, the Company may use any remaining Excess Proceeds for general
corporate purposes not prohibited at the time under this Indenture. If the
aggregate principal amount of Notes and such other Indebtedness surrendered by
holders thereof exceeds the amount of Excess Proceeds, the Notes and such other
Indebtedness will be purchased on a pro rata basis. Upon completion of an Asset
Sale Offer, the amount of Excess Proceeds shall be reset at zero.
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, sell, lease, transfer or otherwise dispose of any of its
properties or assets to, or purchase any property or assets from, or enter into
any contract, agreement, understanding, loan, advance or guarantee with, or for
the benefit of, any Affiliate (each of the foregoing, an "Affiliate
Transaction"), unless (i) such Affiliate Transaction is on terms that are no
less favorable to the Company or such Restricted Subsidiary than those that
would have been obtained in a comparable transaction by the Company or such
Restricted Subsidiary with an unrelated Person and (ii) if such Affiliate
Transaction involves aggregate payments in excess of $1 million, the Company
delivers to the Trustee a resolution of the Board of Directors of the Company
set forth in an Officers' Certificate certifying that such Affiliate Transaction
complies with clause (i) above and either (x) such Affiliate Transaction is
approved by a majority of the disinterested members of the Board of Directors of
the Company or (y) the Company delivers to the Trustee a written opinion of an
investment banking firm of national standing or other recognized independent
expert with experience appraising the terms and conditions of the type of
transaction contemplated thereby stating that the Affiliate Transaction is fair
to the Company from a financial point of view; provided, however, that (a) any
employment agreement entered into by the Company or any of its Restricted
Subsidiaries in the ordinary course of business of the Company or such
Restricted Subsidiary in accordance with the past practice, (b) transactions
between or among the Company and/or its Wholly Owned Restricted Subsidiaries and
(c) any agreements regarding indemnification of directors or payment of employee
benefits, including bonuses, retirement plans and stock options, and director
fees in the ordinary course of business in accordance with the past practice of
the Company or such Restricted Subsidiary, shall not be deemed Affiliate
Transactions.
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SECTION 4.12. LIENS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create, incur or assume any Lien (other
than Permitted Liens) on any property or asset now owned or hereafter acquired,
or on any income or profits therefrom or assign or convey any right to receive
income therefrom, to secure any Indebtedness that is pari passu with or
subordinate in right of payment to the Notes or any Subsidiary Guarantee, as
applicable, unless the Notes and the Subsidiary Guarantees, as applicable, are
either (i) secured by a Lien on such property, assets, income or profits, if
such other Indebtedness is subordinated in right of payment to the Notes and/or
the Subsidiary Guarantees, that is senior in priority to the Lien securing such
other Indebtedness or (ii) equally and ratably secured by a Lien on such
property, assets, income or profits with the Lien securing such other
Indebtedness, if such other Indebtedness is pari passu in right of payment to
the Notes and/or the Subsidiary Guarantees; provided that any Liens on any such
property, asset, income or profits granted pursuant to this provision shall be
released if no other Indebtedness that is pari passu with or subordinated in
right of payment to the Notes is secured by any Lien on such property, assets,
income or profits.
SECTION 4.13. SALE AND LEASEBACK TRANSACTIONS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, enter into any sale and leaseback transaction; provided that
the Company and any Subsidiary Guarantor may enter into a sale and leaseback
transaction if (i) the Company or such Subsidiary Guarantor could have incurred
Indebtedness in an amount equal to the Attributable Debt relating to such sale
and leaseback transaction pursuant to the covenant in Section 4.09, (ii) the
Lien to secure such Indebtedness does not extend to or cover any assets of the
Company or such Subsidiary Guarantor other than the assets which are the subject
of the sale and leaseback transaction, (iii) the gross cash proceeds of such
sale and leaseback transaction are at least equal to the fair market value (as
determined in good faith by the Board of Directors of the Company and set forth
in an Officers' Certificate delivered to the Trustee) of the property that is
the subject of such sale and leaseback transaction and (iv) the transfer of
assets in such sale and leaseback transaction is permitted by, and the proceeds
of such transaction are applied in compliance with, Section 4.10.
SECTION 4.14. OFFER TO PURCHASE UPON CHANGE OF CONTROL.
Upon the occurrence of a Change of Control, each Holder will have the
right to require the Company to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at a price in cash equal to 101%
of the aggregate principal amount thereof
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plus accrued and unpaid interest and Liquidated Damages, if any, thereon to the
date of purchase (the "Change of Control Payment"). Within ten days following
any Change of Control, the Company will mail or cause to be mailed a notice to
each Holder describing the transaction or transactions that constitute the
Change of Control and offering to repurchase Notes pursuant to the procedures
required by Section 3.09 hereof and described in such notice. The Company will
comply with the requirements of Rule 14e-1 under the Exchange Act and any other
securities laws and regulations thereunder to the extent such laws and
regulations are applicable in connection with the repurchase of the Notes as a
result of a Change of Control. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of this Indenture,
the Company will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations described herein by virtue
thereof.
Prior to complying with the provisions of this Section 4.14, but in any
event within 90 days following a Change of Control, the Company will either
repay all outstanding Senior Debt or obtain the requisite consents, if any,
under all outstanding Senior Debt to permit the repurchase of the Notes required
by this Section 4.14.
On or prior to the payment date set forth in the Change of Control
Offer (the "Change of Control Payment Date"), the Company shall, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Trustee or with
the Paying Agent (or, if the Company or any of its Subsidiaries is the Paying
Agent, separate and hold in trust) an amount in same-day funds equal to the
Change of Control Payment in respect of all Notes or portions thereof so
tendered and (3) deliver or cause to be delivered to the Trustee for
cancellation the Notes so accepted together with an Officers' Certificate
stating that such Notes or portions thereof have been tendered to and purchased
by the Company. The Paying Agent shall promptly mail to each Holder of Notes so
tendered the Change of Control Payment for such Notes, and the Trustee shall
promptly authenticate and mail (or cause to be transferred by book entry) to
each Holder a new Note equal in principal amount to any unpurchased portion of
the Notes surrendered, if any; provided that each such new Note will be in a
principal amount of $1,000 or an integral multiple thereof. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
SECTION 4.15. CORPORATE EXISTENCE.
Subject to Article 5 hereof, the Company shall do or cause to be done
all things necessary to preserve and keep in full force and effect (a) its
corporate existence, and the corporate, partnership or other existence of each
of its Restricted Subsidiaries, in accordance with the respective organizational
documents (as the same may be amended from time to time) of the Company or any
such Restricted Subsidiary and (b) the rights
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(charter and statutory), licenses and franchises of the Company and its
Restricted Subsidiaries; provided that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any of its Restricted Subsidiaries, if the Board of Directors
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Restricted Subsidiaries, taken as
a whole, and that the loss thereof is not adverse in any material respect to the
Holders.
SECTION 4.16. LINE OF BUSINESS.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in any line of business other than (i) the same or a
similar line of business as the Company and its Restricted Subsidiaries are
engaged in on the date of this Indenture and (ii) such business activities as
are complementary to/or are incidental, ancillary or related to, the foregoing.
SECTION 4.17. PAYMENT FOR CONSENTS.
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any Holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions hereof or
the Notes unless such consideration is offered to be paid or is paid to all
Holders of the Notes that consent, waive or agree to amend in the time frame set
forth in the solicitation documents relating to such consent, waiver or
agreement.
SECTION 4.18. NO SENIOR SUBORDINATED DEBT.
The Company will not incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is both (a) subordinate or
junior in right of payment to any Senior Debt and (b) senior in any respect in
right of payment to the Notes; and no Subsidiary Guarantor will incur, create,
issue, assume, guarantee or otherwise become liable for any Indebtedness that is
both (a) subordinate or junior in right of payment to its Senior Debt and (b)
senior in any respect in right of payment to its Subsidiary Guarantee.
SECTION 4.19. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS.
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee or pledge any assets to secure the payment of any other
Indebtedness of the Company unless either such Restricted Subsidiary (x) is a
Subsidiary Guarantor or (y)
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simultaneously executes and delivers a supplemental indenture to this Indenture
providing for the Guarantee of the payment of the Notes by such Restricted
Subsidiary.
Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged (i) upon any sale,
exchange or transfer, to any Person not an Affiliate of the Company, of any of
the Company's stock in, or all or substantially all the assets of, such
Restricted Subsidiary, which sale, exchange or transfer is made in compliance
with the applicable provisions of this Indenture or (ii) if such Restricted
Subsidiary does not guarantee any other Indebtedness of the Company or have
guarantees outstanding with respect to any undrawn commitments of the Company.
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION OR SALE OF ASSETS.
The Company may not consolidate or merge with or into (whether or not
the Company is the surviving entity), or sell, assign, transfer, lease, convey
or otherwise dispose of all or substantially all of its properties or assets in
one or more related transactions to, another Person unless (a) the Company is
the surviving corporation or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (the "Successor") is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (b) the
Successor assumes all the obligations of the Company under the Notes and this
Indenture pursuant to a supplemental indenture in a form reasonably satisfactory
to the Trustee; (c) immediately after giving effect to such transaction on a pro
forma basis, no Default or Event of Default exists; (d) immediately after giving
effect to such transaction on a pro forma basis, the Consolidated Net Worth of
the Company is equal to or greater than the Consolidated Net Worth of the
Company immediately prior to such transaction; (e) the Company or the Successor
will, at the time of such transaction after giving pro forma effect thereto as
if such transaction had occurred at the beginning of the applicable four-quarter
period, be permitted to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) pursuant to the Fixed Charge Coverage Ratio test
set forth in the first paragraph of Section 4.09 hereof and (f) the Company has
delivered to the Trustee an Officers' Certificate and an Opinion of Counsel each
stating that all conditions precedent herein provided for relating to such
transaction have been complied with. The foregoing will not prohibit any
consolidation or merger of, or transfer of all or part of the property and
assets of, any Restricted Subsidiary with or to the Company or any Subsidiary
Guarantor.
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Except as set forth in Article 4, nothing contained in this Indenture
or in any of the Notes shall prevent any consolidation or merger of a Subsidiary
Guarantor with or into a Person or Persons other than the Company or any other
Subsidiary Guarantor (in each case, whether or not affiliated with the
Subsidiary Guarantor), or successive consolidations or mergers in which a
Subsidiary Guarantor or its successor or successors shall be a party or parties,
or shall prevent any sale or conveyance of the property of a Subsidiary
Guarantor as an entirety or substantially as an entirety to a Person other than
the Company or any other Subsidiary Guarantor (in each case, whether or not
affiliated with the Subsidiary Guarantor) authorized to acquire and operate the
same; provided, however, that each Subsidiary Guarantor hereby covenants and
agrees that: (i) upon any such consolidation, merger, sale or conveyance, the
Subsidiary Guarantee endorsed on the Notes, and the due and punctual performance
and observance of all of the covenants and conditions of this Indenture to be
performed by such Subsidiary Guarantor, shall be expressly assumed (in the event
that the Subsidiary Guarantor is not the surviving Person in the merger), by
supplemental indenture substantially in the form of EXHIBIT D hereto, executed
and delivered to the Trustee, by the Person formed by such consolidation, or
into which the Subsidiary Guarantor shall have been merged, or by the Person
which shall have acquired such property; (ii) immediately after giving effect to
such transaction, no Default or Event of Default exists; and (iii) the Company
would be permitted, immediately after giving effect to such transaction, to
incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of Section 4.09. The
foregoing will not prohibit (i) any consolidation or merger of a Subsidiary
Guarantor with or into the Company or any other Subsidiary Guarantor or (ii) any
sale or conveyance of the property of a Subsidiary Guarantor as an entirety or
substantially as an entirety to the Company or any other Subsidiary Guarantor.
In the case of any such consolidation, merger, sale or conveyance and
upon the assumption by the successor Person, by supplemental indenture, executed
and delivered to the Trustee and substantially in the form of EXHIBIT D hereto,
of the Subsidiary Guarantee endorsed upon the Notes and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by the Subsidiary Guarantor, such successor Person shall succeed to
and be substituted for the Subsidiary Guarantor with the same effect as if it
had been named herein as a Subsidiary Guarantor. Such successor Person thereupon
may cause to be signed any or all of the Subsidiary Guarantees to be endorsed
upon all of the Notes issuable hereunder which theretofore shall not have been
signed by the Company and delivered to the Trustee. All of the Subsidiary
Guarantees so issued shall in all respects have the same legal rank and benefit
under this Indenture as the Subsidiary Guarantees theretofore and thereafter
issued in accordance with the terms of this Indenture as though all of such
guarantees had been issued at the date of the execution hereof.
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SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation or merger, or any sale, assignment, transfer,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company in accordance with Section 5.01 hereof, the successor corporation
formed by such consolidation or into or with which the Company is merged or to
which such sale, assignment, transfer, lease, conveyance or other disposition is
made shall succeed to, and be substituted for (so that from and after the date
of such consolidation, merger, sale, lease, conveyance or other disposition, the
provisions of this Indenture referring to the "Company" shall refer instead to
the successor corporation and not to the Company), and shall exercise every
right and power of, the Company under this Indenture with the same effect as if
such successor Person had been named as the Company herein; provided, that, (i)
solely for the purposes of computing Consolidated Net Income for purposes of
clause (b) of the first paragraph of Section 4.07 hereof, the Consolidated Net
Income of any Person other than the Company and its Subsidiaries shall be
included only for periods subsequent to the effective time of such merger,
consolidation or transfer of assets; and (ii) in the case of any sale,
assignment, transfer, lease, conveyance, or other disposition of less than all
of the assets of the predecessor Company, the predecessor Company shall not be
released or discharged from the obligation to pay the principal of or interest
and Liquidated Damages, if any, on the Notes.
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT.
Each of the following constitutes an "Event of Default":
(a) default for 30 days in the payment when due, upon redemption,
acceleration or otherwise, of interest on, or Liquidated
Damages with respect to, the Notes (whether or not prohibited
by the provisions of Article 10 or Article 12);
(b) default in payment when due of the principal of or premium, if
any, on the Notes at maturity, upon redemption or otherwise
including pursuant to a Change of Control Offer or an Asset
Sale Offer (whether or not prohibited by the provisions of
Article 10 or Article 12);
(c) failure by the Company or any Subsidiary Guarantor to comply
with the provisions of Sections 4.10, 4.14 or 5.01 hereof
(whether or not prohibited by the provisions of Article 10 or
Article 12);
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(d) failure by the Company or any Subsidiary Guarantor for 60 days
after receipt of written notice from the Trustee or from
Holders of at least 25% of the principal amount of the Notes
then Outstanding to comply with its other agreements in this
Indenture or the Notes;
(e) default under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company
or any of its Restricted Subsidiaries (or the payment of which
is Guaranteed by the Company or any of its Restricted
Subsidiaries) whether such Indebtedness or Guarantee now
exists, or is created after the date of this Indenture, which
default (A) (1) is caused by a failure to pay when due at
final stated maturity principal thereof (a "Payment Default")
or (2) results in acceleration of such Indebtedness prior to
its express maturity and (B) in each case, the principal
amount of any such Indebtedness due to be paid, together with
the principal amount of any other such Indebtedness under
which there has been a Payment Default or the maturity of
which has been accelerated as a result of any matter
contemplated in clause (e)(A)(1) or (e)(A)(2), aggregates
$15.0 million or more;
(f) failure by the Company or any of its Restricted Subsidiaries
to pay final judgments (to the extent not covered by the
insurance and as to which the insurer has not acknowledged
coverage in writing) aggregating in excess of $15.0 million,
which judgments are not paid, discharged, fully bonded or
stayed for a period of 60 days after their entry;
(g) a court of competent jurisdiction enters (i) a decree or order
for relief in respect of the Company or any Restricted
Subsidiary of the Company that is a Significant Subsidiary or
a group of Restricted Subsidiaries of the Company that,
together, would constitute a Significant Subsidiary, in an
involuntary case or proceeding under any applicable Bankruptcy
Law or (ii) a decree or order adjudging the Company or any
Restricted Subsidiary of the Company that is a Significant
Subsidiary or a group of Restricted Subsidiaries of the
Company that, together, would constitute a Significant
Subsidiary, bankrupt or insolvent, or seeking reorganization,
arrangement, adjustment or composition of or in respect of the
Company or any Restricted Subsidiary of the Company that is a
Significant Subsidiary or a group of Restricted Subsidiaries
of the Company that, together, would constitute a Significant
Subsidiary, under any applicable federal or state law, or
appointing a custodian, receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the
Company or any Restricted Subsidiary of the Company that is a
Significant Subsidiary or a group of
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Restricted Subsidiaries of the Company that, together, would
constitute a Significant Subsidiary, or of any substantial
part of their respective properties, or ordering the winding
up or liquidation of their respective affairs, and any such
decree or order for relief continues to be in effect, or any
such other decree or order is unstayed and in effect, for a
period of 60 consecutive days;
(h) the Company or any Restricted Subsidiary of the Company that
is a Significant Subsidiary or a group of Restricted
Subsidiaries of the Company that, together, would constitute a
Significant Subsidiary, commences a voluntary case or
proceeding under any applicable Bankruptcy Law or any other
case or proceeding to be adjudicated bankrupt or insolvent,
(ii) the Company or any Restricted Subsidiary of the Company
that is a Significant Subsidiary or a group of Restricted
Subsidiaries of the Company that, together, would constitute a
Significant Subsidiary, consents to the entry of a decree or
order for relief in respect of the Company or any Restricted
Subsidiary of the Company that is a Significant Subsidiary or
a group of Restricted Subsidiaries of the Company that,
together, would constitute a Significant Subsidiary, in an
involuntary case or proceeding under any applicable Bankruptcy
Law or to the commencement of any bankruptcy or insolvency
case or proceeding against it, (iii) the Company or any
Restricted Subsidiary of the Company that is a Significant
Subsidiary or a group of Restricted Subsidiaries of the
Company that, together, would constitute a Significant
Subsidiary, files a petition or answer or consent seeking
reorganization or relief under any applicable federal or state
law, (iv) the Company or any Restricted Subsidiary of the
Company that is a Significant Subsidiary or a group of
Restricted Subsidiaries of the Company that, together, would
constitute a Significant Subsidiary, (I) consents to the
filing of such petition or the appointment of, or taking
possession by, a custodian, receiver, liquidator, assignee,
trustee, sequestrator or similar official of the Company or
any Restricted Subsidiary of the Company that is a Significant
Subsidiary or a group of Restricted Subsidiaries of the
Company that, together, would constitute a Significant
Subsidiary, or of any substantial part of their respective
properties, (II) makes an assignment for the benefit of
creditors generally or (III) admits in writing its inability
to pay its debts generally as they become due or (v) the
Company or any Restricted Subsidiary of the Company that is a
Significant Subsidiary or a group of Restricted Subsidiaries
of the Company that, together, would constitute a Significant
Subsidiary, takes any corporate action in furtherance of any
such actions in this paragraph (h);
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(i) the termination of the Subsidiary Guarantee(s) of either a
Subsidiary Guarantor that is a Significant Subsidiary or group
of Subsidiary Guarantors that together would constitute a
Significant Subsidiary for any reason not permitted by this
Indenture, or denial of any Person acting on behalf of any
such Subsidiary Guarantor or group of Subsidiary Guarantors of
its Obligations under any such Subsidiary Guarantee(s).
To the extent that the last day of the period referred to in clauses
(a), (d) or (f) of the immediately preceding paragraph is not a Business Day,
then the first Business Day following such day shall be deemed to be the last
day of the period referred to in such clauses. Any "day" will be deemed to end
as of 11:59 p.m., New York City time.
SECTION 6.02. ACCELERATION.
If any Event of Default occurs and is continuing, the Trustee by notice
to the Company, or the Holders of at least 25% in aggregate principal amount of
the then Outstanding Notes by notice to the Company and the Trustee, may declare
all the Notes to be due and payable immediately. Notwithstanding the foregoing,
in the case of an Event of Default specified in clauses (g) or (h) of Section
6.01, all Outstanding Notes will become due and payable without further action
or notice. In the event of any Event of Default specified in clause (e) of
Section 6.01, such Event of Default and all consequences thereof (including,
without limitation, any acceleration or resulting payment default) shall be
annulled, waived and rescinded, automatically and without any action by the
Trustee or the Holders of the Notes, if within 20 days after such Event of
Default arose (x) the Indebtedness or Guarantee that is the basis for such Event
of Default has been discharged in a manner that does not violate the terms of
this Indenture or (y) the holders thereof have rescinded or waived the
acceleration, notice or action (as the case may be) giving rise to such Event of
Default. The Trustee will have no obligation to accelerate the Notes if, in the
best judgment of the Trustee, acceleration is not in the best interests of the
Holders.
SECTION 6.03. WAIVER OF PAST DEFAULTS.
The Holders of a majority in aggregate principal amount of the Notes
then Outstanding by notice to the Trustee may on behalf of the Holders of all of
the Notes waive any existing Default or Event of Default and its consequences
hereunder except a continuing Default or Event of Default in the payment of the
principal of or interest on any Note held by a non-consenting Holder (including
in connection with an offer to purchase); provided that the Holders of a
majority in aggregate principal amount of the then Outstanding Notes may rescind
an acceleration and its consequences, including any related payment default that
resulted from such acceleration. Upon any such waiver, such Default shall cease
to exist, and any Event of Default arising therefrom shall be deemed
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to have been cured for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other Default or impair any right consequent
thereon.
SECTION 6.04. CONTROL BY MAJORITY.
Holders of a majority in principal amount of the then Outstanding Notes
may direct the time, method and place of conducting any proceeding for
exercising any remedy available to the Trustee or exercising any trust or power
conferred on it. However, the Trustee may refuse to follow any direction that
conflicts with law or this Indenture, that the Trustee determines may be unduly
prejudicial to the rights of other Holders, it being understood, however, that
subject to Section 7.01, the Trustee shall have no duty or obligation to
ascertain whether or not such actions or forebearances are unduly prejudicial to
such Holders, or that may involve the Trustee in personal liability. The Trustee
may take any other action which it deems proper which is not inconsistent with
any such direction.
SECTION 6.05. LIMITATION ON SUITS.
A Holder of a Note may pursue a remedy with respect to this Indenture,
the Subsidiary Guarantees or the Notes only if:
(a) the Holder of a Note gives to the Trustee written notice of a
continuing Event of Default or the Trustee receives such
notice from the Company;
(b) the Holders of at least 25% in principal amount of the then
Outstanding Notes make a written request to the Trustee to
pursue the remedy;
(c) such Holder of a Note or Holders of Notes offer and, if
requested, provide to the Trustee indemnity satisfactory to
the Trustee against any loss, liability or expense;
(d) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested,
the provision of indemnity; and
(e) during such 60-day period the Holders of a majority in
principal amount of the then Outstanding Notes do not give the
Trustee a direction inconsistent with the request.
A Holder of a Note may not use this Indenture to prejudice the rights
of another Holder of a Note or to obtain a preference or priority over another
Holder of a Note.
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SECTION 6.06. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT.
Notwithstanding any other provision of this Indenture, the right of any
Holder of a Note to receive payment of principal, premium, if any, interest, and
Liquidated Damages, if any, on the Note, on or after the respective due dates
expressed in the Note (including in connection with an offer to purchase), or to
bring suit for the enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of such Holder.
SECTION 6.07. COLLECTION SUIT BY TRUSTEE.
If an Event of Default specified in Section 6.01(a) or (b) hereof
occurs and is continuing, the Trustee is authorized to recover judgment in its
own name and as trustee of an express trust against the Company for the whole
amount of principal of, premium and Liquidated Damages, if any, and interest
remaining unpaid on the Notes and interest on overdue principal and, to the
extent lawful, interest and such further amount as shall be sufficient to cover
the costs and expenses of collection, including the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.08. TRUSTEE MAY FILE PROOFS OF CLAIM.
The Trustee is authorized to file such proofs of claim and other papers
or documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Holders of the Notes allowed in any judicial proceedings relative to the Company
(or any other obligor upon the Notes), its creditors or its property and shall
be entitled and empowered to collect, receive and distribute any money or other
securities or property payable or deliverable upon the conversion or exchange of
the Notes or on any such claims, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee, and in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due to it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
Section 7.07 hereof. To the extent that the payment of any such compensation,
expenses, disbursements and advances of the Trustee, its agents and counsel, and
any other amounts due the Trustee under Section 7.07 hereof out of the estate in
any such proceeding, shall be denied for any reason, payment of the same shall
be secured by a Lien on, and shall be paid out of, any and all distributions,
dividends, money, securities and other properties that the Holders may be
entitled to receive in such proceeding whether in liquidation or under any plan
of reorganization or arrangement or otherwise. Nothing herein contained shall be
deemed to
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authorize the Trustee to authorize or consent to or accept or adopt on behalf of
any Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Notes or the rights of any Holder, or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 6.09. PRIORITIES.
If the Trustee collects any money pursuant to this Article 6, it shall
pay out the money in the following order:
FIRST: to the Trustee, for amounts due under Section 7.07
hereof;
SECOND: to Holders of Notes for amounts due and unpaid on the
Notes for principal, premium, if any, interest, and Liquidated Damages, if any,
ratably, without preference or priority of any kind, according to the amounts
due and payable on the Notes for principal, premium, if any, interest, and
Liquidated Damages, if any, respectively; and
THIRD: to the Company or to such party as a court of competent
jurisdiction shall direct.
The Trustee may fix a record date and payment date for any
payment to Holders of Notes pursuant to this Section 6.09.
SECTION 6.10. UNDERTAKING FOR COSTS.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.10 does not apply to a suit by the Trustee, a suit by a Holder of
a Note pursuant to Section 6.06 hereof, or a suit by Holders of more than 10% in
principal amount of the then Outstanding Notes.
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same
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degree of care and skill in its exercise, as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the duties of the Trustee shall be determined solely
by the express provisions of this Indenture or the
TIA and the Trustee need perform only those duties
that are specifically set forth in this Indenture or
the TIA and no others, and no implied covenants or
obligations shall be read into this Indenture against
the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may conclusively rely, as to the truth of the
statements and the correctness of the opinions
expressed therein, upon Officers' Certificates or
Opinions of Counsel furnished to the Trustee and
conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates
and opinions to determine whether or not they conform
to the requirements of this Indenture.
(c) The Trustee may not be relieved from liabilities for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph
(b) of this Section 7.01;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer,
unless it is proved that the Trustee was negligent in
ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any
action it takes or omits to take in good faith in
accordance with a direction received by it pursuant
to Section 6.04 hereof.
(d) Whether or not therein expressly so provided, every provision of
this Indenture that in any way relates to the Trustee is subject to paragraphs
(a), (b) and (c) of this Section 7.01.
(e) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or incur any liability. The Trustee shall be under no
obligation to exercise any of its rights and powers under this Indenture at the
request of any Holders, including, without limitation, the provisions of Section
6.04 hereof, unless such Holders shall have offered to the Trustee security and
indemnity reasonably satisfactory to it against any loss, liability or expense
that might be incurred by it in complying with such request.
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(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held in
trust by the Trustee need not be segregated from other funds except to the
extent required by law.
SECTION 7.02. RIGHTS OF TRUSTEE.
(a) The Trustee may rely upon any document believed by it to be genuine
and to have been signed or presented by the proper Person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel or both. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
such Officers' Certificate or Opinion of Counsel. The Trustee may consult with
counsel and the written advice of such counsel or any Opinion of Counsel shall
be full and complete authorization and protection from liability in respect of
any action taken, suffered or omitted by it hereunder in good faith and in
reliance thereon.
(c) The Trustee may act through its attorneys and agents and shall not
be responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith that it believes to be authorized or within the rights or
powers conferred upon it by this Indenture; provided that the Trustee's conduct
does not constitute willful misconduct or negligence.
(e) Unless otherwise specifically provided in this Indenture, any
demand, request, direction or notice from the Company shall be sufficient if
signed by an Officer of the Company. A permissive right granted to the Trustee
hereunder shall not be deemed an obligation to act.
(f) Except for (i) a default under Sections 6.01(a) or (b) hereof, or
(ii) any other event of which the Trustee has "actual knowledge" and which
event, with the giving of notice or the passage of time or both, would
constitute an Event of Default under this Indenture, the Trustee shall not be
deemed to have notice of any default or Event of Default unless specifically
notified in writing of such event by the Company or the Holders of not less than
25% in aggregate principal amount of the Notes then outstanding; as used herein,
the term "actual knowledge" means the actual fact or statement of knowing by a
Responsible Officer of the Trustee, without any duty to make any investigation
with regard thereto.
(g) The Trustee shall not be required to give any bond or surety in
respect of the performance of its powers and duties hereunder
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SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with the Company or any
Affiliate of the Company with the same rights it would have if it were not
Trustee. However, in the event that the Trustee acquires any conflicting
interest (as defined in the TIA) it must eliminate such conflict within 90 days,
apply to the SEC for permission to continue as trustee or resign.
Any Agent may do the same with like rights and duties.
SECTION 7.04. TRUSTEE'S DISCLAIMER.
The Trustee shall not be responsible for and makes no representation as
to the validity or adequacy of this Indenture, the Notes or any Subsidiary
Guarantee, shall not be accountable for the Company's use of the proceeds from
the Notes or any money paid to the Company or upon the Company's direction under
any provision of this Indenture, shall not be responsible for the use or
application of any money received by any Paying Agent other than the Trustee,
and shall not be responsible for any statement or recital herein or any
statement in the Notes or any other document in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
SECTION 7.05. NOTICE OF DEFAULTS.
If a Default or Event of Default occurs and is continuing and if it is
known to a Responsible Officer of the Trustee, the Trustee shall mail to all
Holders a notice of the Default or Event of Default within 90 days after it
occurs. Except in the case of a Default in payment of principal of, premium, if
any, or interest on any Note, the Trustee may withhold the notice if and so long
as a committee of its Responsible Officers in good faith determines that
withholding the notice is in the interests of the Holders. The Trustee shall not
be deemed to have actual knowledge of a Default or an Event of Default
hereunder, except in the case of a Default or an Event of Default under Section
6.01(a) (other than with respect to the payment of Liquidated Damages) or
6.01(b) at such time as the Trustee is also the Paying Agent, until a
Responsible Officer of the Trustee receives written notice thereof from the
Company or the Holders of not less than 25% in aggregate principal amount of the
Notes then outstanding that such a Default or an Event of Default has occurred.
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.
Within 60 days after each May 1 beginning with the May 1 first
following the date of this Indenture, and for so long as Notes remain
Outstanding, the Trustee shall mail to the Holders a brief report dated as of
such reporting date that complies with TIA Section 313(a) (but if no event
described in TIA Section 313(a) has occurred within the twelve months preceding
the reporting date, no report need be transmitted). The Trustee also
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shall comply with TIA Section 313(b). The Trustee shall also transmit by mail
all reports as required by TIA Section 313(c).
A copy of each report at the time of its mailing to the Holders shall
be mailed to the Company and filed with the SEC and each stock exchange on which
the Notes are listed in accordance with TIA Section 313(d). The Company shall
promptly notify the Trustee when the Notes are listed on any stock exchange.
SECTION 7.07. COMPENSATION AND INDEMNITY.
The Company shall pay to the Trustee from time to time reasonable
compensation for its acceptance of this Indenture and services hereunder as the
Trustee and the Company may agree in writing. The Trustee's compensation shall
not be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee promptly upon request for all reasonable
disbursements, advances and expenses incurred or made by it in addition to the
compensation for its services. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against, and hold it harmless
from, any and all losses, liabilities or expenses incurred by it arising out of
or in connection with the acceptance or administration of its duties under this
Indenture, including the costs and expenses of enforcing this Indenture against
the Company (including this Section 7.07) and defending itself against any claim
(whether asserted by the Company or any Holder or any other Person) or liability
in connection with the exercise or performance of any of its powers or duties
hereunder, except to the extent any such loss, liability or expense may be
attributable to its negligence or willful misconduct. The Trustee shall notify
the Company promptly of any claim for which it may seek indemnity. Failure by
the Trustee to so notify the Company shall not relieve the Company of its
obligations hereunder. The Company shall defend the claim and the Trustee shall
cooperate in the defense. The Trustee may have separate counsel and the Company
shall pay the reasonable fees and expenses of such counsel not to exceed one law
firm. The Company need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the Notes on all money or property held or
collected by the Trustee in its capacity as Trustee, except money or property
held in trust to pay principal and interest on particular Notes. Such lien will
survive the satisfaction and discharge of this Indenture, and the resignation or
removal of the Trustee.
If the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(g) or (h) occurs, the expenses and the
compensation for the
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services (including the fees and expenses of its agents and counsel) are
intended to constitute expenses of administration under any applicable
Bankruptcy Law.
SECTION 7.08. REPLACEMENT OF TRUSTEE.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section 7.08.
The Trustee may resign in writing at any time and be discharged from
the trust hereby created by so notifying the Company. The Holders of a majority
in principal amount of the then Outstanding Notes may remove the Trustee by so
notifying the Trustee and the Company in writing. The Company may remove the
Trustee if:
(a) the Trustee fails to comply with Section 7.10 hereof;
(b) the Trustee is adjudged a bankrupt or an insolvent or an order
for relief is entered with respect to the Trustee under any
Bankruptcy Law;
(c) a Custodian or public officer takes charge of the Trustee or
its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the then Outstanding Notes may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company, or
the Holders of at least 10% in principal amount of the then Outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10 hereof, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to all Holders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, provided that all sums
owing to
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the Trustee hereunder have been paid and subject to the Lien provided for in
Section 6.08. Notwithstanding replacement of the Trustee pursuant to this
Section 7.08, the Company's obligations under Section 7.07 hereof shall continue
for the benefit of the retiring Trustee.
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to, another corporation,
the successor corporation without any further act shall be the successor
Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Notes shall have been authenticated but not delivered, any
such successor to the Trustee may adopt the certificate of authentication of any
predecessor Trustee, and deliver such Notes so authenticated; and in case at
that time any of the Notes shall not have been authenticated, any successor to
the Trustee may authenticate such Notes either in the name of the predecessor
Trustee or in the name of the successor to the Trustee; and in all such cases
such certificates shall have the full force which it is anywhere in the Notes or
in this Indenture provided that the certificate of the Trustee shall have.
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION.
There shall at all times be a Trustee hereunder that is a corporation
organized and doing business under the laws of the United States of America or
of any state thereof that is authorized under such laws to exercise corporate
trustee power, that is subject to supervision or examination by federal or state
authorities and that has a combined capital and surplus of at least $50 million
as set forth in its most recent published annual report of condition.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a)(1), (2) and (5). The Trustee is subject to
TIA Section 310(b).
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
The Trustee is subject to TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
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ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE.
The Company may, at the option of its Board of Directors evidenced by a
Board Resolution, at any time, elect to have either Section 8.02 or 8.03 hereof
be applied to all Outstanding Notes upon compliance with the conditions set
forth below in this Article 8.
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, the Company and the Subsidiary Guarantors
shall, subject to the satisfaction of the conditions set forth in Section 8.04
hereof, be deemed to have been discharged from their respective obligations with
respect to all Outstanding Notes on the date the conditions set forth below are
satisfied (hereinafter, "Legal Defeasance"). For this purpose, Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
Indebtedness represented by the Outstanding Notes, which shall thereafter be
deemed to be "Outstanding" only for the purposes of Section 8.05 hereof and the
other Sections of this Indenture referred to in (a) and (b) below, and to have
satisfied all its other obligations under such Notes and this Indenture (and the
Trustee, on demand of and at the expense of the Company, shall execute proper
instruments acknowledging the same), except for the following provisions which
shall survive until otherwise terminated or discharged hereunder: (a) the rights
of Holders of Outstanding Notes to receive payments in respect of the principal
of, premium, if any, and interest and Liquidated Damages on the Notes when such
payments are due, or the redemption date, as the case may be, (b) the Company's
obligations with respect to the Outstanding Notes under Article 2 and Section
4.02 hereof, (c) the rights, powers, trust, duties and immunities of the Trustee
hereunder, and the Company's obligations in connection therewith and (d) this
Article 8. Subject to compliance with this Article 8, the Company may exercise
its option under this Section 8.02 notwithstanding the prior exercise of its
option under Section 8.03 hereof.
SECTION 8.03. COVENANT DEFEASANCE.
Upon the Company's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, the Company shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.03, 4.04, 4.05, 4.07,
4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19 and
Article 5 hereof with respect to the Outstanding Notes on and after the date the
conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"),
and the
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Notes shall thereafter be deemed not "Outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "Outstanding" for all other purposes hereunder (it being
understood that such Notes shall not be deemed Outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to the
Outstanding Notes, the Company and the Subsidiary Guarantors may omit to comply
with and shall have no liability in respect of any term, condition or limitation
set forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a Default or an Event of Default
under Section 6.01 hereof, but, except as specified above, the remainder of this
Indenture and such Notes shall be unaffected thereby. In addition, upon the
Company's exercise under Section 8.01 hereof of the option applicable to this
Section 8.03 hereof, subject to the satisfaction of the conditions set forth in
Section 8.04 hereof, Sections 6.01(f), 6.01(g), 6.01(h) and 6.01(i) hereof shall
not constitute Events of Default.
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the Outstanding Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) the Company must irrevocably deposit with the Trustee, in
trust, for the benefit of the Holders of the Notes, cash in United States
dollars, non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized firm of
independent public accountants selected by the Trustee, to pay the principal of,
premium and Liquidated Damages, if any, and interest on the Outstanding Notes on
the stated maturity or on the applicable redemption date, as the case may be;
(b) the Company must specify whether the Notes are being
defeased to maturity or to a particular redemption date;
(c) in the case of an election under Section 8.02 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel (which counsel
shall be independent of the Company) in the United States reasonably acceptable
to the Trustee confirming that (1) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (2) since the date
of this Indenture, there has been a change in the applicable federal income tax
law, in either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, subject to customary assumptions
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and exclusions, the Holders of the Outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Legal
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(d) in the case of an election under Section 8.03 hereof, the
Company shall have delivered to the Trustee an Opinion of Counsel (which counsel
shall be independent of the Company) in the United States reasonably acceptable
to the Trustee confirming that, subject to customary assumptions and exclusions,
the Holders of the Outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred;
(e) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or Event of Default
resulting from the borrowing of funds to be applied to such deposit or the
incurrence of Indebtedness all or a portion of the proceeds of which will be
used to defease the Notes pursuant to this Article 8 concurrently with such
incurrence) or insofar as Sections 6.01(g) or 6.01(h) hereof is concerned, at
any time in the period ending on the 91st day after the date of deposit;
(f) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a default under, any material
agreement or instrument (other than this Indenture) to which the Company or any
of its Restricted Subsidiaries is a party or by which the Company or any of its
Restricted Subsidiaries is bound (including, without limitation, any agreement
or instrument pursuant to which any Senior Debt was incurred);
(g) on or prior to the 91st day following the deposit, the
Company shall have delivered to the Trustee an Opinion of Counsel (which counsel
shall be independent of the Company) to the effect that, subject to customary
assumptions and exclusions, after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(h) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company with
the intent of preferring the Holders over any other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and
(i) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that, subject to
customary
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assumptions and exclusions, all conditions precedent provided for or relating to
the Legal Defeasance or the Covenant Defeasance have been complied with.
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST;
OTHER MISCELLANEOUS PROVISIONS.
Subject to Section 8.06 hereof, all money and non-callable Government
Securities (including the proceeds thereof) deposited with the Trustee (or other
qualifying trustee, collectively for purposes of this Section 8.05, the
"Trustee") pursuant to Section 8.04 hereof in respect of the Outstanding Notes
shall be held in trust and applied by the Trustee, in accordance with the
provisions of such Notes and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as Paying Agent) as the
Trustee may determine, to the Holders of such Notes of all sums due and to
become due thereon in respect of principal, premium, if any, and interest, but
such money need not be segregated from other funds except to the extent required
by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or non-callable Government
Securities deposited pursuant to Section 8.04 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the Outstanding Notes.
SECTION 8.06. REPAYMENT TO COMPANY.
(a) Anything in this Article 8 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request
of the Company any money or non-callable Government Securities held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
(b) The Trustee shall promptly pay to the Company, after written
request therefor, any money held at such time in excess of the amounts required
to pay any of the Company's Obligations then owing with respect to the Notes.
(c) Subject to any applicable abandoned property law, the Trustee and
the Paying Agent shall pay to the Company upon written request any money held by
them for the payment of principal, or premium, if any, or interest that remains
unclaimed for two years after such principal or premium, if any, or interest
became due and payable and any such money held by the Company in trust shall be
discharged from such trust, and,
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thereafter, Holders entitled to the money must look to the Company for payment
of such money as unsecured creditors and all liability of the Trustee and the
Paying Agent with respect to such money shall cease; provided, however, that the
Trustee or such Paying Agent, before being required to make any such repayment,
shall, at the expense of the Company, cause to be published once, in The New
York Times and The Wall Street Journal (national edition), notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
SECTION 8.07. REINSTATEMENT.
If the Trustee or Paying Agent is unable to apply any United States
dollars or non-callable Government Securities in accordance with Section 8.02 or
8.03 hereof, as the case may be, by reason of any order or judgment of any court
or governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company's obligations under this Indenture and the Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.02 or 8.03
hereof, as the case may be; provided that, if the Company makes any payment of
principal of, premium, if any, or interest on any Note following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Notes to receive such payment from the money held by the
Trustee or Paying Agent.
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES.
Notwithstanding Section 9.02 of this Indenture, the Company, the
Subsidiary Guarantors and the Trustee may amend or supplement this Indenture,
the Subsidiary Guarantees or the Notes without notice to or the consent of any
Holder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to provide for uncertificated Notes in addition to or in place
of certificated Notes;
(c) to provide for the assumption of the Company's or a Subsidiary
Guarantors' obligations to the Holders of the Notes in the case of a merger or
consolidation pursuant to this Indenture;
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(d) to make any change that would provide any additional rights or
benefits to the Holders of the Notes or that does not adversely affect the legal
rights hereunder of any such Holder; or
(e) to comply with requirements of the SEC in order to effect or
maintain the qualification of this Indenture under the TIA or to follow any
Subsidiary Guarantor to guarantee the Notes.
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental Indenture, and
upon receipt by the Trustee of the documents described in Section 9.06 hereof,
the Trustee shall join with the Company and the Subsidiary Guarantors in the
execution of any amended or supplemental Indenture authorized or permitted by
the terms of this Indenture and to make any further appropriate agreements and
stipulations that may be therein contained, but the Trustee shall not be
obligated to enter into such amended or supplemental Indenture that affects its
own rights, duties or immunities under this Indenture or otherwise.
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES.
Except as provided below in this Section 9.02, the Company, the
Subsidiary Guarantors and the Trustee may amend or supplement this Indenture,
the Subsidiary Guarantees and the Notes with the consent of the Holders of a
majority in principal amount of the Notes then Outstanding (including consents
obtained in connection with a tender offer or exchange offer for the Notes),
and, subject to Sections 6.03 and 6.06 hereof, any existing Default or Event of
Default (other than a Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Notes, except a payment
default resulting from an acceleration that has been rescinded) or compliance
with any provision of this Indenture, the Subsidiary Guarantees or the Notes may
be waived with the consent of the Holders of a majority in principal amount of
the then Outstanding Notes (including consents obtained in connection with a
tender offer or exchange offer for the Notes).
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental Indenture, and
upon the filing with the Trustee of evidence reasonably satisfactory to the
Trustee of the consent of the Holders as aforesaid, and upon receipt by the
Trustee of the documents described in Section 9.06 hereof, the Trustee shall
join with the Company and the Subsidiary Guarantors in the execution of such
amended or supplemental Indenture unless such amended or supplemental Indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such amended or supplemental Indenture.
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It shall not be necessary for the consent of the Holders under this
Section 9.02 to approve the particular form of any proposed amendment or waiver,
but it shall be sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such amended or supplemental
Indenture, Subsidiary Guarantee or waiver. Subject to Sections 6.03 and 6.06
hereof, the Holders of a majority in aggregate principal amount of the Notes
then Outstanding may waive any existing Default or compliance in a particular
instance by the Company or any Subsidiary Guarantor with any provision of this
Indenture, the Subsidiary Guarantees or the Notes. However, without the consent
of each Holder affected, an amendment or waiver may not (with respect to any
Notes held by a non-consenting Holder):
(a) reduce the principal amount of Notes whose Holders must
consent to an amendment, supplement or waiver;
(b) reduce the principal of or change the fixed maturity of
any Note or alter the provisions with respect to the redemption of the
Notes or any Change of Control Offer or any of the definitions related
thereto;
(c) reduce the rate of or change the time for payment of
interest or Liquidated Damages, if any, on any Note;
(d) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest or Liquidated Damages, if
any, on the Notes (except a rescission of acceleration of the Notes by
the Holders of a majority in aggregate principal amount of the Notes
and a waiver of the payment default that resulted from such
acceleration);
(e) make any Note payable in money other than that stated in
the Notes;
(f) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders to
receive payments of principal of or premium, if any, or interest or
Liquidated Damages on the Notes;
(g) waive a redemption or repurchase payment with respect to
any Note or alter the redemption provisions thereof;
(h) make any change in Section 6.03 or 6.06 hereof or in this
Section 9.02 or in Section 9.01 hereof; or
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(i) except as provided under Sections 8.02, 8.03 or 11.01,
release of any of the Subsidiary Guarantors from their obligations
under the Subsidiary Guarantees or make any change in the Subsidiary
Guarantees that would adversely affect the Holders.
Notwithstanding the foregoing, the provisions with respect to Asset
Sales or any of the definitions related thereto may be amended or supplemented
with the consent of the Holders of at least two-thirds in principal amount of
the Notes then Outstanding (including consents obtained in connection with a
tender offer or exchange offer for the Notes). In addition, any amendment to the
provisions of Articles 10 and 12 of this Indenture (which relate to
subordination) will require the consent of the Holders of at least 75% in
aggregate amount of Notes then Outstanding if such amendment would adversely
affect the rights of Holders of Notes.
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT.
Every amendment or supplement to this Indenture or the Notes shall be
set forth in an amended or supplemental Indenture that complies with the TIA as
then in effect.
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS.
Until an amendment, supplement or waiver becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of any portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note. However,
any such Holder or subsequent Holder may revoke the consent as to its Note if
the Trustee receives written notice of revocation before the date the waiver,
supplement or amendment becomes effective. An amendment, supplement or waiver
becomes effective in accordance with its terms and thereafter binds every
Holder.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to give their consent to any
amendment, supplement or waiver or take any other action described above or
required or permitted to be taken pursuant to this Indenture. If a record date
is fixed, then notwithstanding the immediately preceding paragraph, those
Persons who were Holders at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to give such consent to such
amendment, supplement or waiver or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 90
days after such record date unless theretofore such amendment, supplement or
waiver becomes effective in accordance with its terms.
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SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES.
The Trustee may place an appropriate notation about an amendment,
supplement or waiver on any Note thereafter authenticated. Alternatively, if the
Company or the Trustee so determines, the Company in exchange for all Notes may
issue and the Trustee shall authenticate new Notes that reflect the amendment,
supplement or waiver.
Failure to make the appropriate notation or issue a new Note shall not
affect the validity and effect of such amendment, supplement or waiver.
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC.
The Trustee shall sign any amended or supplemental Indenture authorized
pursuant to this Article 9 if the amendment or supplement does not adversely
affect the rights, duties, liabilities or immunities of the Trustee. The Company
may not sign an amendment or supplemental Indenture until the Board of Directors
approves it. In executing any amended or supplemental indenture, the Trustee
shall be entitled to receive, and (subject to Section 7.02) shall be fully
protected in relying upon, in addition to the documents required by Section
13.04 hereof, an Officers' Certificate and an Opinion of Counsel stating that
the execution of such amended or supplemental Indenture is authorized or
permitted by this Indenture.
ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE.
The Company agrees, and each Holder of Notes by accepting a Note
agrees, that the Indebtedness evidenced by the Note is subordinated in right of
payment, to the extent and in the manner provided in this Article 10, to the
prior payment in full of all Senior Debt of the Company, whether outstanding on
the date hereof or hereafter incurred, that the subordination is for the benefit
of, and shall be enforceable directly by, the holders of the Senior Debt of the
Company and that each holder of Senior Debt of the Company, whether now
outstanding or hereafter created, incurred, assumed or guaranteed, shall be
deemed to have acquired Senior Debt in reliance upon the covenants and
provisions contained in this Indenture and the Notes.
SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any payment or distribution of assets to creditors of the Company
in a liquidation or dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property, an assignment for the benefit of creditors or any
marshaling of the Company's assets and liabilities, the
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holders of Senior Debt of the Company will be entitled to receive payment in
full in cash of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Debt, whether or not such interest is an allowed claim
under applicable law) before the Holders will be entitled to receive any payment
or distribution with respect to the Notes, and until all Obligations with
respect to Senior Debt of the Company are paid in full in cash, any payment or
distribution to which the Holders would be entitled shall be made to the holders
of Senior Debt of the Company (except that Holders may receive Permitted Junior
Securities and any other Permitted Junior Securities issued in exchange for any
Permitted Junior Securities and payments made from the trust described under
Article 8 hereof).
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT.
The Company may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities, Permitted Junior Securities issued in
exchange for such Permitted Junior Securities or from the trust described under
Article 8 hereof) if (i) any amount of principal, premium, if any, or interest
or other payments due under any Designated Senior Debt is not paid when due and
remains outstanding or (ii) any other default occurs and is continuing with
respect to Designated Senior Debt that permits holders of the Designated Senior
Debt as to which such default relates to accelerate its maturity and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from a
Representative of the holders of such Designated Senior Debt. Payments on the
Notes may and shall be resumed (a) in the case of a payment default, upon the
date on which such payment default is cured or waived or such Designated Senior
Debt is discharged or paid in full and (b) in case of a nonpayment default, the
earlier of (x) the date on which such nonpayment default is cured or waived or
such Designated Senior Debt is discharged or paid in full or (y) 179 days after
the date on which the applicable Payment Blockage Notice is received, unless the
maturity of any Designated Senior Debt of the Company has been accelerated. No
new period of payment blockage may be commenced unless and until (i) 360
consecutive days have elapsed since the effectiveness of the immediately prior
Payment Blockage Notice and (ii) all scheduled payments of principal, premium,
if any, and interest on the Notes that have come due have been paid in full. No
nonpayment default that existed or was continuing on the date of delivery of any
Payment Blockage Notice to the Trustee shall be, or can be, made the basis for a
subsequent Payment Blockage Notice whether or not within a period of 360
consecutive days, unless such default has been cured or waived for a period of
not less than 90 consecutive days.
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SECTION 10.04. ACCELERATION OF NOTES.
If payment of the Notes is accelerated because of an Event of Default,
the Company shall promptly notify holders of Senior Debt of the Company of the
acceleration.
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder of a Note receives any
payment of any Obligations with respect to the Notes at a time when such payment
is prohibited by Section 10.03 hereof, such payment shall be held by the Trustee
or such Holder, in trust for the benefit of, and shall be paid forthwith over
and delivered, upon written request, to, the holders of Senior Debt of the
Company as their interests may appear or their Representative under this
Indenture or other agreement (if any) pursuant to which such Senior Debt may
have been issued, as their respective interests may appear, for application to
the payment of all Obligations with respect to Senior Debt of the Company
remaining unpaid to the extent necessary to pay such Obligations in full in
accordance with their terms, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Debt of the Company.
With respect to the holders of Senior Debt of the Company, the Trustee
undertakes to perform only such obligations on the part of the Trustee as are
specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Debt shall be read into this
Indenture against the Trustee. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Debt of the Company.
SECTION 10.06. NOTICE BY THE COMPANY.
The Company shall promptly notify the Trustee and the Paying Agent of
any facts known to the Company that would cause a payment of any Obligations
with respect to the Notes to violate this Article, which notice shall
specifically refer to this Article 10, but failure to give such notice shall not
affect the subordination of the Notes to the Senior Debt of the Company as
provided in this Article.
SECTION 10.07. SUBROGATION.
After all Senior Debt of the Company is paid in full and until the
Notes are paid in full, Holders of the Notes shall be subrogated (equally and
ratably with all other Pari Passu Indebtedness) to the rights of holders of
Senior Debt of the Company to receive distributions applicable to Senior Debt of
the Company to the extent that payments and distributions otherwise payable to
the Holders of the Notes have been applied to the payment of Senior Debt of the
Company. A payment or distribution made under this Article to holders of Senior
Debt of the Company that otherwise would have been made
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to Holders of the Notes is not, as between the Company and Holders of the Notes,
a payment by the Company on the Notes.
SECTION 10.08. RELATIVE RIGHTS.
This Article defines the relative rights of Holders of the Notes and
holders of Senior Debt of the Company. Nothing in this Indenture shall:
(1) impair, as between the Company and Holders of the Notes,
the obligations of the Company, which are absolute and unconditional,
to pay principal of and interest on the Notes in accordance with their
terms;
(2) affect the relative rights of Holders of the Notes and
creditors of the Company other than their rights in relation to holders
of Senior Debt of the Company; or
(3) prevent the Trustee or any Holder of the Notes from
exercising its available remedies upon a Default or Event of Default,
subject to the rights of holders and owners of Senior Debt of the
Company to receive distributions and payments otherwise payable to
Holders of the Notes.
If the Company fails because of this Article to pay principal of or
interest on a Note on the due date, the failure is still a Default or Event of
Default.
SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY THE COMPANY.
No right of any holder of Senior Debt of the Company to enforce the
subordination of the Indebtedness evidenced by the Notes shall be impaired by
any act or failure to act by the Company or any Holder or by the failure of the
Company or any Holder to comply with this Indenture.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt of the Company, or any of them, may, at any time and
from time to time, without the consent of or notice to the Holders of the Notes,
without incurring any liabilities to any Holder of any Notes and without
impairing or releasing the subordination and other benefits provided in this
Indenture or the obligations of the Holders of the Notes to the holders of the
Senior Debt of the Company, even if any right of reimbursement or subrogation or
other right or remedy of any Holder of Notes is affected, impaired or
extinguished thereby, do any one or more of the following:
(1) change the manner, place or terms of payment or change or
extend the time of payment of, or renew, exchange, amend, increase or
alter, the terms of any
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Senior Debt, any security therefor or guaranty thereof or any liability
of any obligor thereon (including any Subsidiary Guarantor) to such
holder, or any liability incurred directly or indirectly in respect
thereof or otherwise amend, renew, exchange, extend, modify, increase
or supplement in any manner any Senior Debt or any instrument
evidencing or guaranteeing or securing the same or any agreement under
which Senior Debt is outstanding;
(2) sell, exchange, release, surrender, realize upon, enforce
or otherwise deal with in any manner and in any order any property
pledged, mortgaged or otherwise securing Senior Debt or any liability
of any obligor thereon to such holder, or any liability incurred
directly or indirectly in respect thereof;
(3) settle or compromise any Senior Debt or any other
liability of any obligor of the Senior Debt to such holder or any
security therefor or any liability incurred directly or indirectly in
respect thereof and apply any sums by whomsoever paid and however
realized to any liability (including, without limitation, Senior Debt)
in any manner or order; and
(4) fail to take or to record or to otherwise perfect, for any
reason or for no reason, any lien or security interest securing Senior
Debt by whomsoever granted, exercise or delay in or refrain from
exercising any, right or remedy against any obligor or any Subsidiary
Guarantor or any other Person, elect any remedy and otherwise deal
freely with any obligor and any security for the Senior Debt or any
liability of any obligor to such holder or any liability incurred
directly or indirectly in respect thereof.
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt of the Company, the distribution may be made and the notice given to
their Representative.
Upon any payment or distribution of assets of the Company referred to
in this Article 10, the Trustee and the Holders of the Notes shall be entitled
to rely upon any order or decree made by any court of competent jurisdiction so
long as such order or decree recognizes the provisions of this Article 10 or
upon any certificate of such Representative or of the liquidating trustee or
agent or other Person making any distribution to the Trustee or to the Holders
of the Notes for the purpose of ascertaining the Persons entitled to participate
in such distribution, the holders of the Senior Debt and other Indebtedness of
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
10.
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SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 10 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes, unless the Trustee shall have received at its
Corporate Trust Office at least three Business Days prior to the date of such
payment written notice of facts that would cause the payment of any Obligations
with respect to the Notes to violate this Article, which notice shall
specifically refer to this Article 10 (provided that, notwithstanding the
foregoing, the making of any such payments shall otherwise be subject to the
provisions of Sections 10.02, 10.03 and 10.05 hereof). Only the Company or a
Representative may give the notice. Nothing in this Article 10 shall impair the
claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof.
The Trustee in its individual or any other capacity may hold Senior
Debt with the same rights it would have if it were not Trustee. Any Agent may do
the same with like rights.
SECTION 10.12. AMENDMENTS.
Any amendment to the provisions of this Article 10 shall require the
consent of the Holders of at least 75% in aggregate amount of Notes then
Outstanding if such amendment would adversely affect the legal rights of
Holders.
ARTICLE 11
GUARANTEE OF NOTES
SECTION 11.01. SUBSIDIARY GUARANTEE.
Subject to Section 11.04 hereof, each of the Subsidiary Guarantors
hereby, on a full, unconditional, joint and several, unsecured basis guarantees
(the "Subsidiary Guarantees") to each Holder of a Note authenticated and
delivered by the Trustee and to the Trustee and its successors and assigns,
irrespective of the validity and enforceability of this Indenture, the Notes and
the Obligations of the Company hereunder and thereunder, that: (a) the principal
of, premium, if any, interest and Liquidated Damages, if any, on the Notes will
be promptly paid in full when due, subject to any applicable grace period,
whether at maturity, by acceleration, redemption or otherwise, and interest on
the overdue principal, premium, if any, (to the extent permitted by law)
interest on any interest, if any, and Liquidated Damages, if any, on the Notes,
and all other payment Obligations of the Company to the Holders or the Trustee
hereunder or thereunder will be promptly paid in full and performed, all in
accordance with the terms hereof and thereof;
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and (b) in case of any extension of time of payment or renewal of any Notes or
any of such other Obligations, the same will be promptly paid in full when due
or performed in accordance with the terms of the extension or renewal, subject
to any applicable grace period, whether at stated maturity, by acceleration,
redemption or otherwise. Failing payment when so due of any amount so guaranteed
for whatever reason, the Subsidiary Guarantors will be jointly and severally
obligated to pay the same immediately. An Event of Default under this Indenture
or the Notes shall constitute an event of default under the Subsidiary
Guarantees, and shall entitle the Holders to accelerate the Obligations of the
Subsidiary Guarantors hereunder in the same manner and to the same extent as the
Obligations of the Company. The Subsidiary Guarantors hereby agree that their
Obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Notes or this Indenture, the absence of any
action to enforce the same, any waiver or consent by any Holder with respect to
any provisions hereof or thereof, the recovery of any judgment against the
Company, any action to enforce the same or any other circumstance which might
otherwise constitute a legal or equitable discharge or defense of a Subsidiary
Guarantor. Each Subsidiary Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that this
Subsidiary Guarantee will not be discharged except by complete performance of
the Obligations contained in the Notes and this Indenture. If any Holder or the
Trustee is required by any court or otherwise to return to the Company, the
Subsidiary Guarantors, or any Custodian, trustee, liquidator or other similar
official acting in relation to either the Company or the Subsidiary Guarantors,
any amount paid by either to the Trustee or such Holder, this Subsidiary
Guarantee, to the extent theretofore discharged, shall be reinstated in full
force and effect. Each Subsidiary Guarantor agrees that it shall not be entitled
to, and hereby waives, any right of subrogation in relation to the Holders in
respect of any Obligations guaranteed hereby. Each Subsidiary Guarantor further
agrees that, as between the Subsidiary Guarantors, on the one hand, and the
Holders and the Trustee, on the other hand, (x) the maturity of the Obligations
guaranteed hereby may be accelerated as provided in Article 6 for the purposes
of the Subsidiary Guarantees, notwithstanding any stay, injunction or other
prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such Obligations as provided in Article 6 hereof, such Obligations (whether or
not due and payable) shall forthwith become due and payable by the Subsidiary
Guarantors for the purpose of the Subsidiary Guarantees. The Subsidiary
Guarantors shall have the right to seek contribution from any non-paying
Subsidiary Guarantor so long as the exercise of such right does not impair the
rights of the Holders under the Subsidiary Guarantees.
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SECTION 11.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE.
To evidence its Subsidiary Guarantee set forth in Section 11.01, each
Subsidiary Guarantor hereby agrees that a notation of such Subsidiary Guarantee
substantially in the form of EXHIBIT C shall be endorsed by an Officer of such
Subsidiary Guarantor on each Note authenticated and delivered by the Trustee and
that this Indenture shall be executed on behalf of such Subsidiary Guarantor, by
manual or facsimile signature, by an Officer of such Subsidiary Guarantor.
Each Subsidiary Guarantor hereby agrees that its Subsidiary Guarantee
set forth in Section 11.01 shall remain in full force and effect notwithstanding
any failure to endorse on each Note a notation of such Subsidiary Guarantee.
If an Officer whose signature is on this Indenture or on the Subsidiary
Guarantee no longer holds that office at the time the Trustee authenticates the
Note on which a Subsidiary Guarantee is endorsed, the Subsidiary Guarantee shall
be valid nevertheless.
The delivery of any Note by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Subsidiary Guarantee set
forth in this Indenture on behalf of the Subsidiary Guarantors.
SECTION 11.03. RELEASES FOLLOWING SALE OF ASSETS, MERGER, SALE OF CAPITAL STOCK,
ETC.
Concurrently with any sale of assets (including, if applicable, all of
the Capital Stock of any Subsidiary Guarantor by merger or otherwise), any Liens
in favor of the Trustee in the assets sold thereby shall be released; provided
that, in the event of an Asset Sale, the Net Proceeds from such sale or other
disposition are applied in accordance with the provisions of Section 4.10
hereof. If the assets sold in such sale or other disposition include all or
substantially all of the assets of any Subsidiary Guarantor or all of the
Capital Stock of any Subsidiary Guarantor, then such Subsidiary Guarantor (in
the event of a sale or other disposition of all of the Capital Stock of such
Subsidiary Guarantor) or the Person acquiring the property (in the event of a
sale or other disposition of all or substantially all of the assets of a
Subsidiary Guarantor) shall be released from and relieved of its Obligations
under its Subsidiary Guarantee, as the case may be; provided that (i) in the
event of an Asset Sale, the Net Proceeds from such sale or other disposition are
applied in accordance with the provisions of Section 4.10 hereof and (ii) the
Company is in compliance with all other provisions of this Indenture applicable
to such disposition. Upon delivery by the Company to the Trustee of an Officers'
Certificate to the effect of the foregoing, together with the documents required
by Section 13.04 hereof, the Trustee shall execute any documents reasonably
required in order to evidence the release of any Subsidiary Guarantor from its
Obligation under its Subsidiary Guarantee. Any Subsidiary
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Guarantor not released from its Obligations under its Subsidiary Guarantee shall
remain liable for the full amount of principal of, premium, if any, and interest
on the Notes and for the other Obligations of such Subsidiary Guarantor under
this Indenture as provided in this Article 11.
SECTION 11.04. LIMITATION ON SUBSIDIARY GUARANTOR LIABILITY.
For purposes hereof, the obligations of each Subsidiary Guarantor under
its Subsidiary Guarantee shall be limited to the lesser of (i) the aggregate
amount of the Obligations of the Company under the Notes and this Indenture and
(ii) the amount, if any, which would not have (A) rendered such Subsidiary
Guarantor "insolvent" (as such term is defined in the United States Bankruptcy
Code and in the Debtor and Creditor Law of the State of New York) or (B) left
such Subsidiary Guarantor with unreasonably small capital at the time its
Subsidiary Guarantee of the Notes was entered into; provided that it will be a
presumption in any lawsuit or other proceeding in which a Subsidiary Guarantor
is a party that the amount guaranteed pursuant to the Subsidiary Guarantee is
the amount set forth in clause (i) above unless any creditor, or representative
of creditors of such Subsidiary Guarantor, or debtor in possession or trustee in
bankruptcy of the Subsidiary Guarantor, otherwise proves in such a lawsuit that
the aggregate liability of the Subsidiary Guarantor is the amount set forth in
clause (ii) above. In making any determination as to solvency or sufficiency of
capital of a Subsidiary Guarantor in accordance with the previous sentence, the
right of such Subsidiary Guarantor to contribution from other Subsidiary
Guarantors, and any other rights such Subsidiary Guarantor may have, contractual
or otherwise, shall be taken into account.
SECTION 11.05. "TRUSTEE" TO INCLUDE PAYING AGENT.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article 11 shall in each case (unless the context shall
otherwise require) be construed as extending to and including such Paying Agent
within its meaning as fully and for all intents and purposes as if such Paying
Agent were named in this Article 11 in place of the Trustee.
ARTICLE 12
SUBORDINATION OF SUBSIDIARY GUARANTEE
SECTION 12.01. AGREEMENT TO SUBORDINATE.
Each Subsidiary Guarantor agrees, and each Holder by accepting a Note
agrees, that all Obligations under the Subsidiary Guarantee of such Subsidiary
Guarantor shall be subordinated in right of payment, to the extent and in the
manner provided in this Article
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12, to the prior payment in full of all Senior Debt of such Subsidiary
Guarantor, whether outstanding on the date hereof or hereafter incurred, that
the subordination is for the benefit of, and shall be enforceable directly by,
the holders of the Senior Debt of such Subsidiary Guarantor and that each holder
of Senior Debt of such Subsidiary Guarantor, whether now outstanding or
hereafter created, incurred assumed or guaranteed shall be deemed to have
acquired Senior Debt in reliance upon the covenants and provisions contained in
this Indenture and such Subsidiary Guarantee.
SECTION 12.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY.
Upon any payment or distribution to creditors of such Subsidiary
Guarantor in a liquidation or dissolution of such Subsidiary Guarantor or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to such Subsidiary Guarantor or its property, an assignment for the
benefit of creditors or any marshaling of such Subsidiary Guarantor's assets and
liabilities, the holders of Senior Debt of such Subsidiary Guarantor will be
entitled to receive payment in full in cash of all Obligations due in respect of
such Senior Debt (including interest after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether or not
such interests an allowed claim under applicable law) before the Holders will be
entitled to receive any payment with respect to such Subsidiary Guarantee, and
until all Obligations with respect to Senior Debt of such Subsidiary Guarantor
are paid in full in cash, any distribution to which the Holders would be
entitled shall be made to the holders of Senior Debt of such Subsidiary
Guarantor (except that Holders may receive Permitted Junior Securities and
Permitted Junior Securities issued in exchange for any Permitted Junior
Securities and payments made from the trust described under Article 8 hereof).
SECTION 12.03. DEFAULT ON DESIGNATED SENIOR DEBT.
No Subsidiary Guarantor shall make any payment upon or in respect of
the Subsidiary Guarantees of such Subsidiary Guarantor (except in Permitted
Junior Securities and Permitted Junior Securities issued in exchange for any
Permitted Junior Securities or from the trust described under Article 8 hereof)
if (i) any amount of principal, premium, if any, or interest or other payments
due under any Designated Senior Debt of such Subsidiary Guarantor is not paid
when due and remains outstanding or (ii) any other default occurs and is
continuing with respect to such Designated Senior Debt that permits holders of
such Designated Senior Debt as to which such default relates to accelerate its
maturity and the Trustee receives a Payment Blockage Notice from the
Representative of the holders of such Designated Senior Debt. Payments on such
Subsidiary Guarantee may and shall be resumed (a) in the case of a payment
default, upon the date on which such default is cured or waived or such
Designated Senior Debt is discharged or paid in full and (b) in case of a
nonpayment default, the earlier of (x) the date on which such nonpayment default
is cured or waived or such Designated Senior
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Debt is discharged or paid in full or (y) 179 days after the date on which the
applicable Payment Blockage Notice is received, in each case, unless the
maturity of such Designated Senior Debt has been accelerated. No new period of
payment blockage may be commenced unless and until (i) 360 consecutive day have
elapsed since the effectiveness of the immediately prior Payment Blockage Notice
and (ii) all scheduled payments of principal, premium, if any, and interest on
the Notes that have come due have been paid in full. No nonpayment default that
existed or was continuing on the date of delivery of any Payment Blockage Notice
to the Trustee shall be, or can be, made the basis for a subsequent Payment
Blockage Notice whether or not within a period of 360 consecutive days, unless
such default has been cured or waived for a period of not less than 90 days.
SECTION 12.04. ACCELERATION OF SUBSIDIARY GUARANTEES.
If payment of the Subsidiary Guarantee of any Subsidiary Guarantor is
accelerated because of an Event of Default, the Subsidiary Guarantor shall
promptly notify the Representatives of Senior Debt of such Subsidiary Guarantor
of the acceleration.
SECTION 12.05. WHEN DISTRIBUTION MUST BE PAID OVER.
In the event that the Trustee or any Holder of such Subsidiary
Guarantee receives any payment of any Obligations with respect to such
Subsidiary Guarantee at a time when such payment is prohibited by Section 12.03
hereof, such payment shall be held by the Trustee or such Holder, in trust for
the benefit of, and shall be paid forthwith over and delivered, upon written
request, to, the holders of Senior Debt of such Subsidiary Guarantor as their
interests may appear or their Representative under the indenture or other
agreement (if any) pursuant to which such Senior Debt may have been issued, as
their respective interests may appear, for application to the payment of all
Obligations with respect to Senior Debt of such Subsidiary Guarantor remaining
unpaid to the extent necessary to pay such Obligations in full in accordance
with their terms, after giving effect to any concurrent payment or distribution
to or for the holders of Senior Debt of such Subsidiary Guarantor.
With respect to the holders of Senior Debt of such Subsidiary
Guarantor, the Trustee undertakes to perform only such obligations on the part
of the Trustee as are specifically set forth in this Article 12, and no implied
covenants or obligations with respect to the holders of Senior Debt of such
Subsidiary Guarantor shall be read into this Indenture against the Trustee. The
Trustee shall not be deemed to owe any fiduciary duty to the holders of Senior
Debt of such Subsidiary Guarantor.
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SECTION 12.06. NOTICE BY SUBSIDIARY GUARANTOR.
Each Subsidiary Guarantor shall promptly notify the Trustee and the
Paying Agent of any facts known to such Subsidiary Guarantor that would cause a
payment of any Obligations with respect to the Subsidiary Guarantee of such
Subsidiary Guarantor to violate this Article, which notice shall specifically
refer to this Article 12, but failure to give such notice shall not affect the
subordination of such Subsidiary Guarantee to the Senior Debt of such Subsidiary
Guarantor as provided in this Article.
SECTION 12.07. SUBROGATION.
After all Senior Debt of such Subsidiary Guarantor is paid in full and
until the Notes are paid in full Holders of the Subsidiary Guarantee shall be
subrogated (equally and ratably with all Pari Passu Indebtedness) to the rights
of holders of Senior Debt of such Subsidiary Guarantor to receive payments and
distributions applicable to Senior Debt of such Subsidiary Guarantor to the
extent that payments and distributions otherwise payable to the Holders of such
Subsidiary Guarantee have been applied to the payment of Senior Debt of such
Subsidiary Guarantor. A payment or distribution made under this Article to
holders of Senior Debt of the Subsidiary Guarantors that otherwise would have
been made to Holders of such Subsidiary Guarantee is not, as between such
Subsidiary Guarantor and Holders of such Subsidiary Guarantee, a payment by such
Subsidiary Guarantor on such Subsidiary Guarantee.
SECTION 12.08. RELATIVE RIGHTS.
This Article defines the relative rights of Holders of the Subsidiary
Guarantee of such Subsidiary Guarantor and holders of Senior Debt of such
Subsidiary Guarantor. Nothing in this Indenture shall:
(1) impair, as between such Subsidiary Guarantor and Holders
of such Subsidiary Guarantee, the obligations of such Subsidiary
Guarantor, which are absolute and unconditional, to pay principal of
and interest on the Notes in accordance with the terms of such
Subsidiary Guarantee;
(2) affect the relative rights of Holders of such Subsidiary
Guarantee and creditors of such Subsidiary Guarantor other than their
rights in relation to holders of Senior Debt of such Subsidiary
Guarantor; or
(3) prevent the Trustee or any Holder of such Subsidiary
Guarantee from exercising its available remedies upon a Default or
Event of Default, subject to the rights of holders and owners of Senior
Debt of such Subsidiary Guarantor to receive distributions and payments
otherwise payable to Holders of such Subsidiary Guarantee.
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If the Subsidiary Guarantors fail because of this Article to pay
principal of or interest on a Note on the due date in accordance with the terms
of the Subsidiary Guarantees, the failure is still a Default or Event of
Default.
SECTION 12.09. SUBORDINATION MAY NOT BE IMPAIRED BY SUBSIDIARY GUARANTOR.
No right of any holder of Senior Debt of the Subsidiary Guarantors to
enforce the subordination of the Indebtedness evidenced by the Subsidiary
Guarantees shall be impaired by any act or failure to act by the Subsidiary
Guarantors or any Holder or by the failure of the Subsidiary Guarantors or any
Holder to comply with this Indenture.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt of the Subsidiary Guarantors, or any of them, may, at
any time and from time to time, without the consent of or notice to the Holders
of the Subsidiary Guarantees, without incurring any liabilities to any Holder of
any Subsidiary Guarantees and without impairing or releasing the subordination
and other benefits provided in this Indenture or the obligations of the Holders
of the Subsidiary Guarantees to the holders of the Senior Debt of the Subsidiary
Guarantors, even if any right of reimbursement or subrogation or other right or
remedy of any Holder of Subsidiary Guarantees is affected, impaired or
extinguished thereby, do any one or more of the following:
(1) change the manner, place or terms of payment or change or
extend the time of payment of, or renew, exchange, amend, increase or
alter, the terms of any Senior Debt, any security therefor or guaranty
thereof or any liability of any obligor thereon (including any
Subsidiary Guarantor) to such holder, or any liability incurred
directly or indirectly in respect thereof or otherwise amend, renew,
exchange, extend, modify, increase or supplement in any manner any
Senior Debt or any instrument evidencing or guaranteeing or securing
the same or any agreement under which Senior Debt is outstanding;
(2) sell, exchange, release, surrender, realize upon, enforce
or otherwise deal with in any manner and in any order any property
pledged, mortgaged or otherwise securing Senior Debt or any liability
of any obligor thereon, to such holder, or any liability incurred
directly or indirectly in respect thereof;
(3) settle or compromise any Senior Debt or any other
liability of any obligor of the Senior Debt to such holder or any
security therefor or any liability incurred directly or indirectly in
respect thereof and apply any sums by whomsoever paid and however
realized to any liability (including, without limitation, Senior Debt)
in any manner or order; and
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(4) fail to take or to record or to otherwise perfect, for any
reason or for no reason, any lien or security interest securing Senior
Debt by whomsoever granted, exercise or delay in or refrain from
exercising any right or remedy against any obligor or any Subsidiary
Guarantor or any other Person, elect any remedy and otherwise deal
freely with any obligor and any security for the Senior Debt or any
liability of any obligor to such holder or any liability incurred
directly or indirectly in respect thereof.
SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE.
Whenever a distribution is to be made or a notice given to holders of
Senior Debt of the Subsidiary Guarantors, the distribution may be made and the
notice given to their Representative.
Upon any payment or distribution of assets of any Subsidiary Guarantor
referred to in this Article 12, the Trustee and the Holders of the Subsidiary
Guarantee of such Subsidiary Guarantor shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction so long as such order or
decree recognizes the provisions of this Article 12 or upon any certificate of
such Representative or of the liquidating trustee or agent or other Person
making any distribution to the Trustee or to the Holders of such Subsidiary
Guarantee for the purpose of ascertaining the Persons entitled to participate in
such distribution, the holders of the Senior Debt of such Subsidiary Guarantor
and other Indebtedness of the Company or any Subsidiary Guarantor, the amount
thereof or payable thereon, the amount or amounts paid or distributed thereon
and all other facts pertinent thereto or to this Article 12.
SECTION 12.11. RIGHTS OF TRUSTEE AND PAYING AGENT.
Notwithstanding the provisions of this Article 12 or any other
provision of this Indenture, the Trustee shall not be charged with knowledge of
the existence of any facts that would prohibit the making of any payment or
distribution by the Trustee, and the Trustee and the Paying Agent may continue
to make payments on the Notes or the Subsidiary Guarantees, unless the Trustee
shall have received at its Corporate Trust Office at least three Business Days
prior to the date of such payment written notice of facts that would cause the
payment of any Obligations with respect to the Notes or the Subsidiary
Guarantees to violate this Article, which notice shall specifically refer to
this Article 12 (provided that, notwithstanding the foregoing, the making of any
such payments shall otherwise be subject to the provisions of Sections 12.02,
12.03 and 12.05 hereof). Only the Company, the Subsidiary Guarantors or a
Representative may give the notice. Nothing in this Article 12 shall impair the
claims of, or payments to, the Trustee under or pursuant to Section 7.07 hereof.
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The Trustee in its individual or any other capacity may hold Senior
Debt of the Subsidiary Guarantors with the same rights it would have if it were
not Trustee. Any Agent may do the same with like rights.
SECTION 12.12. AMENDMENTS.
Any amendment to the provisions of this Article 12 shall require the
consent of the Holders of at least 75% in aggregate amount of Notes then
Outstanding if such amendment would adversely affect the rights of the Holders
of Subsidiary Guarantees.
ARTICLE 13
MISCELLANEOUS
SECTION 13.01. TRUST INDENTURE ACT CONTROLS.
If any provision of this Indenture limits, qualifies or conflicts with
the duties imposed by TIA Section 318(c), the imposed duties shall control.
SECTION 13.02. NOTICES.
Any notice or communication by the Company, the Subsidiary Guarantors
or the Trustee to the others is duly given if in writing and delivered in person
or mailed by first class mail (registered or certified, return receipt
requested), telecopier or overnight air courier guaranteeing next day delivery,
to the others' addresses:
If to the Company or any Subsidiary Guarantor:
PharMerica, Inc.
3611 Queen Palm Drive
Tampa, Florida
33619
Attention: Chief Financial Officer
Tel: (972) 753-0900
Facsimile: (972) 753-0721
With a copy to:
Harwell, Howard, Hyne, Gabbert & Manner
1800 First American Center
315 Deaderick Street
Nashville, TN 37238
Attention: John Brittingham, Esq.
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<PAGE> 101
Tel: (615) 256-0500
Fascimile: (615) 251-1059
If to the Trustee:
Harris Trust and Savings Bank
311 West Monroe Street
12th Floor
Chicago, Illinois 60606
Attention: Indenture Trust Administration
Tel: (312) 461-2908
Facsimile: (312) 461-3525
The Company, the Subsidiary Guarantors or the Trustee, by notice to the
others may designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall
be deemed to have been duly given: at the time delivered by hand, if personally
delivered; five Business Days after being deposited in the mail, postage
prepaid, if mailed; when receipt is acknowledged, if telecopied; and the next
Business Day after timely delivery to the courier, if sent by overnight air
courier promising next Business Day delivery.
Any notice or communication to a Holder shall be mailed by first class
mail or by overnight air courier promising next Business Day delivery to its
address shown on the register kept by the Registrar. Any notice or communication
shall also be so mailed to any Person described in TIA Section 313(c), to the
extent required by the TIA. Failure to mail a notice or communication to a
Holder or any defect in it shall not affect its sufficiency with respect to
other Holders.
If a notice or communication is mailed in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it; provided that notice to the Trustee shall not be deemed to have
been given until receipt by the Trustee of such notice.
If the Company mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
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SECTION 13.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Notes. The
Company, the Trustee, the Registrar and anyone else shall have the protection of
TIA Section 312(c).
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT.
Upon any request or application by the Company or any Subsidiary
Guarantor to the Trustee to take any action under this Indenture (other than the
initial issuance of the Senior Subordinated Notes), the Company or such
Subsidiary Guarantor shall furnish to the Trustee:
(a) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 13.05 hereof) stating that, in the opinion of the
signers, all conditions precedent and covenants, if any, provided for
in this Indenture relating to the proposed action have been satisfied;
and
(b) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee (which shall include the statements set
forth in Section 13.05 hereof) stating that, in the opinion of such
counsel, all such conditions precedent and covenants have been
satisfied.
SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture (other than a certificate provided
pursuant to TIA Section 314(a)(4)) shall comply with the provisions of TIA
Section 314(e) and shall include:
(a) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of such Person, he or she
has made such examination or investigation as is necessary to enable
him to express an
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informed opinion as to whether or not such covenant or condition has
been satisfied; and
(d) a statement as to whether or not, in the opinion of such
Person, such condition or covenant has been satisfied.
SECTION 13.06. RULES BY TRUSTEE AND AGENTS.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
SECTION 13.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND
STOCKHOLDERS.
No director, officer, employee, incorporator or stockholder of the
Company or any Subsidiary Guarantor, as such, shall have any liability for any
obligations of the Company under the Notes, any Subsidiary Guarantee or this
Indenture or for any claim based on, in respect of, or by reason of, such
obligations or their creation. Each Holder of Notes by accepting a Note waives
and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes and the Subsidiary Guarantees.
SECTION 13.08. GOVERNING LAW.
THE INTERNAL LAW OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CHOICE
OF LAW RULES THEREOF, SHALL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE
NOTES AND THE SUBSIDIARY GUARANTEES.
SECTION 13.09 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS.
This Indenture may not be used to interpret any other indenture, loan
or debt agreement of the Company or its Subsidiaries or of any other Person. Any
such indenture, loan or debt agreement may not be used to interpret this
Indenture.
SECTION 13.10. SUCCESSORS.
All agreements of the Company and the Subsidiary Guarantors in this
Indenture, the Notes and the Subsidiary Guarantees shall bind their respective
successors and assigns. All agreements of the Trustee in this Indenture shall
bind its successors and assigns.
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SECTION 13.11. SEVERABILITY.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 13.12. COUNTERPART ORIGINALS.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement.
SECTION 13.13. TABLE OF CONTENTS, HEADINGS, ETC.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
[Signatures on following page]
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<PAGE> 105
SIGNATURES
PHARMERICA, INC.
By:
-----------------------------------------
Name: James D. Shelton
Title: Executive Vice President,
Chief Financial Officer and Secretary
ALLIANCE HEALTH SERVICES, INC.
BEVERLY ACQUISITION CORPORATION
COMPUTRAN SYSTEMS, INC.
DUNNINGTON DRUG, INC.
HEALTHCARE PRESCRIPTION SERVICES,INC.
INSTA-CARE HOLDINGS, INC.
MEDICAL HEALTH INDUSTRIES INC.
ALLIANCE HOME HEALTH CARE, INC.
BROWNSTONE PHARMACY, INC.
OMNI MED B, INC.
DUNNINGTON RX SERVICES OF
MASSACHUSETTS, INC.
DUNNINGTON RX SERVICES OF RHODE
ISLAND, INC.
DD WHOLESALE, INC.
PHARMACY CORPORATION OF AMERICA -
MASSACHUSETTS, INC.
INSTA-CARE PHARMACY SERVICES
CORPORATION
PHARMACY DYNAMICS GROUP, INC.
PHARMACY CORPORATION OF AMERICA
CAPSTONE MED., INC.
MEDIDYNE CORP.
PHARMERICA DRUG SYSTEMS, INC.
ROMBRO'S DRUG CENTER, INC.
COMPUSCRIPT, INC.
CAPSTONE PHARMACY OF DELAWARE, INC.
DOC PHARMACY, INC.
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<PAGE> 106
PREMIER PHARMACY, INC.
HOLLINS MANOR I, LLC
GOOT'S GOODIES, INC.
SOUTHWEST PHARMACIES, INC.
FAMILY CENTER PHARMACY, INC.
TMESYS, INC.
EXPRESS PHARMACY SERVICES, INC.
GOOT WESTBRIDGE PHARMACY, INC.
GOOT NURSING HOME PHARMACY, INC.
GOOT'S PHARMACY & ORTHOPEDIC SUPPLY,
INC.
By:
----------------------------------
Name: James D. Shelton
Title: Chief Financial Officer,
Treasurer and Secretary
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By:
---------------------------
Name:
Title:
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<PAGE> 107
EXHIBIT A-1
-----------
(Face of Note)
8 3/8% Senior Subordinated Notes due 2008
No. $
---- ------------------
CUSIP NO. 717135AA5
PHARMERICA, INC.
promises to pay to _____________ or registered assigns, the principal sum of
___________ Dollars on April 1, 2008.
Interest Payment Dates: April 1 and October 1
Record Dates: March 15 and September 15
PHARMERICA, INC.
By:
---------------------
Name:
Title:
This is one of the
Notes referred to in the
within-mentioned Indenture:
Dated:
------------
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By:
------------------------
Name:
Title:
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<PAGE> 108
(Back of Note)
8 3/8% Senior Subordinated Notes due 2008
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"),
to the issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as may be requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.] (1)
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY
WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE
SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON AN EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT
IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT
OR (C) IS OTHERWISE PERMITTED TO PURCHASE THE NOTES
PURSUANT TO THE REQUIREMENTS OF CLAUSE (2) BELOW, (2)
AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH
SECURITY
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<PAGE> 109
MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY
(A) TO THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO
A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 AND 904 OF THE SECURITIES
ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (E) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND IN THE CASE
OF CLAUSE (E) BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY) OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE,
IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED
HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER
ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING."(2)
- --------------------------
(1) This paragraph should be included only if the Senior Subordinated Note is
issued in global form.
(2) This paragraph should be removed upon the exchange of Senior Subordinated
Notes for New Subordinated Notes in the Exchange Offer or upon the registration
of the Senior Subordinated Notes pursuant to the terms of the Registration
Rights Agreement.
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
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<PAGE> 110
1. INTEREST. PharMerica, Inc., a Delaware corporation, or its successor
(the "Company"), promises to pay interest on the principal amount of
this Note at the rate of 8 3/8% per annum and shall pay the Liquidated
Damages, if any, payable pursuant to Section 5 of the Registration
Rights Agreement referred to below. The Company will pay interest and
Liquidated Damages, if any, in United States dollars semi-annually in
arrears on April 1 and October 1, commencing on October 1, 1998, (each
an "Interest Payment Date") or if any such day is not a Business Day,
on the next succeeding Business Day. Interest on the Notes shall accrue
from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of issuance; provided that if
there is no existing Default or Event of Default in the payment of
interest, and if this Note is authenticated between a record date
referred to on the face hereof and the next succeeding Interest Payment
Date, interest shall accrue from such next succeeding Interest Payment
Date, except in the case of the original issuance of Notes, in which
case interest shall accrue from the date of authentication. The Company
shall pay interest (including post-petition interest in any proceeding
under any Bankruptcy Law) on overdue principal at the rate equal to 1%
per annum in excess of the then applicable interest rate on the Notes
to the extent lawful; it shall pay interest (including post-petition
interest in any proceeding under any Bankruptcy Law) on overdue
installments of interest and Liquidated Damages (without regard to any
applicable grace period) at the same rate to the extent lawful.
Interest shall be computed on the basis of a 360-day year comprised of
twelve 30-day months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except
defaulted interest) and Liquidated Damages, if any, on the applicable
Interest Payment Date to the Persons who are registered Holders of
Notes at the close of business on the March 15 or September 15 next
preceding the Interest Payment Date, even if such Notes are canceled
after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture with respect to
defaulted interest. The Notes shall be payable as to principal, premium
and Liquidated Damages, if any, and interest at the office or agency of
the Company maintained for such purpose within or without the City and
State of New York, or, at the option of the Company, payment of
interest and Liquidated Damages, if any, may be made by check mailed to
the Holders at their addresses set forth in the register of Holders;
provided that payment by wire transfer of immediately available funds
shall be required with respect to principal of, premium and Liquidated
Damages, if any, and interest on, all Global Notes and all other Notes
the Holders of which shall have provided written wire transfer
instructions to the Company and the Paying Agent. Such payment shall be
in such
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coin or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Harris Trust and Savings Bank,
the Trustee under the Indenture, shall act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in
any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as of
March 31, 1998 ("Indenture") among the Company, the Subsidiary
Guarantors and the Trustee. The terms of the Notes include those stated
in the Indenture and those made a part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections
77aaa-77bbbb) (the "TIA"). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of
such terms. The Notes are general unsecured Obligations of the Company
limited to $325,000,000 in aggregate principal amount, plus amounts, if
any, sufficient to pay premium or Liquidated Damages, if any, and
interest on Outstanding Notes as set forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
Except as provided in the following paragraph, the Notes will
not be redeemable at the Company's option prior to April 1, 2003.
Thereafter, the Notes will be subject to redemption at the option of
the Company, in whole or in part, upon not less than 30 nor more than
60 days notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date,
if redeemed during the twelve-month period beginning on April 1 of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003........................................................................... 104.19%
2004........................................................................... 102.79%
2005........................................................................... 101.40%
2006 and thereafter............................................................ 100.00%
</TABLE>
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<PAGE> 112
Notwithstanding the foregoing, at any time prior to April 1,
2003 the Company may on any one or more occasions redeem up to 33 1/3%
of the aggregate principal amount of Notes originally issued in the
Offering at a redemption price of 108.375% of the principal amount
thereof, plus accrued and unpaid interest and Liquidated Damages, if
any, thereon to the redemption date, with the net proceeds of one or
more Public Equity Offerings; provided that at least $200 million
aggregate principal amount of Notes remains Outstanding immediately
after the occurrence of each such redemption; and provided, further,
that each such redemption shall occur within 60 days of the closing of
the Public Equity Offering to which it relates.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall
not be required to make mandatory redemption or sinking fund payments
with respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder will have
the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer")
at a price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if
any, thereon to the date of purchase (the "Change of Control Payment").
Within ten days following any Change of Control, the Company will mail
or cause to be mailed a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and
offering to repurchase Notes pursuant to the procedures required by the
Indenture.
(b) When the aggregate amount of Excess Proceeds exceeds $10.0 million,
the Company shall be required to make an offer to all Holders and
holders of any other Indebtedness of the Company ranking senior to or
pari passu with the Notes with similar provisions requiring the Company
to make an offer to purchase or to redeem such Indebtedness with the
proceeds from any Asset Sales pro rata in proportion to the respective
principal amounts of Notes and such other Indebtedness then outstanding
(collectively, an "Asset Sale Offer") to purchase the maximum principal
amount of Notes and such other Indebtedness that may be purchased out
of the Excess Proceeds, at a price in cash equal to 100% of the
principal amount thereof plus accrued and unpaid interest and
Liquidated
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<PAGE> 113
Damages, if any, thereon to the date of purchase, in accordance with
the procedures set forth in the Indenture. To the extent that the
aggregate amount of Notes and such other Indebtedness tendered pursuant
to an Asset Sale Offer is less than the Excess Proceeds, the Company or
its Restricted Subsidiary, as the case may be, may use any remaining
Excess Proceeds for general corporate purposes. If the aggregate
principal amount of Notes and such other Indebtedness surrendered by
holders thereof exceeds the amount of Excess Proceeds, the Notes and
such other Indebtedness will be purchased on a pro rata basis in
accordance with the terms of the Indenture. Upon completion of each
Asset Sale Offer, the amount of Excess Proceeds shall be reset at zero.
(c) Holders of the Notes that are the subject of an offer to purchase
will receive a Change of Control Offer or Asset Sale Offer from the
Company prior to any related purchase date and may elect to have such
Notes purchased by completing the form titled "Option of Holder to
Elect Purchase" appearing below.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30
days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes
in denominations larger than $1,000 may be redeemed in part but only in
whole multiples of $1,000, unless all of the Notes held by a Holder are
to be redeemed. On and after the redemption date, interest and
Liquidated Damages, if any, ceases to accrue on the Notes or portions
thereof called for redemption.
9. SUBORDINATION. The payment of principal, premium, if any, and interest
and Liquidated Damages on the Notes, and payment under each Subsidiary
Guarantee, as the case may be, is subordinated in right of payment, as
set forth in the Indenture, to the prior payment in full of all Senior
Debt, which is (i) Indebtedness pursuant to the Bank Credit Facility,
(ii) any other Indebtedness permitted to be incurred by the Company or
a Subsidiary Guarantor, as the case may be, under the terms of the
Indenture and any Hedging Obligation permitted to be incurred under the
terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with
or subordinated in right of payment to the Notes or the Subsidiary
Guarantees, as applicable, and (iii) all Obligations with respect to
the foregoing. Notwithstanding anything to the contrary in the
foregoing, Senior Debt will not include (a) Indebtedness evidenced by
the Notes; (b) Indebtedness that is expressly subordinated in right of
payment to any Indebtedness of the Company or any Subsidiary Guarantor,
as applicable; (c) Indebtedness that by operation of law is subordinate
to any general unsecured obligation of the Company or any Subsidiary
Guarantor, as applicable; (d) Indebtedness which when incurred and
without respect to any election under
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Section 1111(b) of Title 11 of the United States Code is without
recourse to the Company or any of its Subsidiaries; (e) any liability
for federal, state, local or other taxes; (f) any Indebtedness of the
Company or any Subsidiary Guarantor to the Company or any Subsidiary of
the Company or any of their respective Affiliates; (g) any trade
payables; or (h) any Indebtedness that is incurred in violation of this
Indenture. To the extent provided in the Indenture, Senior Debt must be
paid before the Notes may be paid. The Company agrees and each Holder
of Notes by accepting a Note consents and agrees to the subordination
provided in the Indenture and authorizes the Trustee to give it effect.
10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in initial denominations of $1,000 and integral
multiples of $1,000. The transfer of the Notes may be registered and
the Notes may be exchanged as provided in the Indenture. The Registrar
and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted
by the Indenture. The Registrar need not exchange or register the
transfer of any Note or portion of a Note selected for redemption,
except for the unredeemed portion of any Note being redeemed in part.
Also, it need not exchange or register the transfer of any Notes for a
period of 15 days before a selection of Notes to be redeemed or during
the period between a record date and the corresponding Interest Payment
Date.
11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to the following paragraphs,
the Indenture, the Notes and the Subsidiary Guarantees may be amended
or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then Outstanding (including consents
obtained in connection with a tender offer or exchange offer for
Notes), and any existing Default or Event of Default or compliance with
any provision of the Indenture, the Notes or the Subsidiary Guarantees
may be waived with the consent of the Holders of a majority in
principal amount of the then Outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for
Notes). Without the consent of any Holder of Notes, the Company and the
Trustee may amend or supplement the Indenture, the Subsidiary
Guarantees or the Notes to cure any ambiguity, defect or inconsistency,
to provide for uncertificated Notes in addition to or in place of
certificated Notes, to provide for the assumption of the Company's or a
Subsidiary Guarantor's obligations to Holders of Notes in the case of a
merger, consolidation or sale of assets, to make any change that would
provide
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<PAGE> 115
any additional rights or benefits to the Holders of Notes or that does
not adversely affect the legal rights under the Indenture of any such
Holder, or to comply with the requirements of the Commission in order
to effect or maintain the qualification of the Indenture under the
Trust Indenture Act. Any amendments with respect to subordination
provisions of the Notes or the Subsidiary Guarantees would require the
consent of the Holders of at least 75% in aggregate amount of Notes
then Outstanding if such amendment would adversely affect the rights of
the Holders of Notes. Notwithstanding the foregoing, the provisions
with respect to Asset Sales or any of the definitions related thereto
may be amended or supplemented with the consent of the Holders of at
least two-thirds in principal amount of the Notes then Outstanding
(including consents obtained in connection with a tender offer or
exchange offer for the Notes). In addition, any amendment to the
provisions of Articles 10 and 12 of this Indenture (which relate to
subordination) will require the consent of the Holders of at least 75%
in aggregate amount of Notes then Outstanding if such amendment would
adversely affect the rights of Holders of Notes.
13. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due, upon redemption, acceleration or
otherwise, of interest on, or Liquidated Damages with respect to, the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due of the principal of or
premium, if any, on the Notes; (iii) failure by the Company or any
Subsidiary Guarantor to comply with the provisions of Sections 4.10.,
4.14 or 5.01 of the Indenture (whether or not prohibited by the
subordination provisions of the Indenture); (iv) failure by the Company
or any Subsidiary Guarantor for 60 days after notice from the Trustee
or from Holders of at least 25% of the principal amount of the Notes
then Outstanding to comply with any of its other agreements in the
Indenture or the Notes; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company
or any of its Restricted Subsidiaries (or the payment of which is
Guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or Guarantee now exists, or is created after
the date hereof, which default (A) (1) is caused by a failure to pay
when due at final stated maturity principal of (a "Payment Default") or
(2) results in the acceleration of such Indebtedness prior to its
express maturity and (B) in each case, the principal amount of any such
Indebtedness due to be paid, together with the principal amount of any
other such Indebtedness under which there has been a Payment Default or
the maturity of which has been so accelerated, aggregates $15.0 million
or more; (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments (to the extent not covered by
insurance and as to which the insurer has not acknowledged coverage in
writing)
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<PAGE> 116
aggregating in excess of $15.0 million, which judgments are not paid,
discharged, fully bonded or stayed for a period of 60 days after their
entry; (vii) certain events of bankruptcy or insolvency with respect to
the Company, any of its Restricted Subsidiaries that is a Significant
Subsidiary or any group of Restricted Subsidiaries that, taken
together, would constitute a Significant Subsidiary; and (viii) the
termination of the Subsidiary Guarantee(s) of either a Subsidiary
Guarantor that is a Significant Subsidiary or group of Subsidiary
Guarantors that together would constitute a Significant Subsidiary for
any reason not permitted by the Indenture, or the denial of any Person
acting on behalf of any Subsidiary Guarantor or group of Subsidiary
Guarantors of its Obligations under any such Subsidiary Guarantee(s).
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding
Notes may declare all the Notes to be due and payable by notice in
writing to the Company and the Trustee. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Notes will become
due and payable without further action or notice. Holders of the Notes
may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee
in its exercise of any trust or power.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding, by notice to the Trustee, may on behalf of the
Holders of all of the Notes waive any existing Default or Event of
Default and its consequences under the Indenture, except a continuing
Default or Event of Default in the payment of interest or premium on,
or principal of, the Notes. The Trustee may withhold from Holders of
the Notes notice of any continuing Default or Event of Default (except
a Default or Event of Default relating to the payment of principal,
premium or interest) if it determines that withholding notice is in
such Holders' interest.
14. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform
services for the Company, the Subsidiary Guarantors or their respective
Affiliates, and may otherwise deal with the Company, the Subsidiary
Guarantors or their respective Affiliates, as if it were not the
Trustee.
15. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder of the Company or any Subsidiary Guarantor,
as such, shall have any liability for any obligations of the Company
under the Notes, any
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<PAGE> 117
Subsidiary Guarantee or the Indenture or for any claim based on, in
respect of, or by reason of, such obligations or their creation. Each
Holder of Notes by accepting a Note waives and releases all such
liability. The waiver and release are part of the consideration for
issuance of the Notes and the Subsidiary Guarantees.
16. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
17. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
18. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of the Notes under the
Indenture, Holders of Transfer Restricted Securities (as defined in the
Registration Rights Agreement) shall have all the rights set forth in
the Registration Rights Agreement, dated as of the date hereof, among
the Company, the Subsidiary Guarantors and the Initial Purchasers (the
"Registration Rights Agreement").
19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company
has caused CUSIP numbers to be printed on the Notes and the Trustee may
use CUSIP numbers in notices of redemption as a convenience to the
Holders. No representation is made as to the accuracy of such numbers
either as printed on the Notes or as contained in any notice of
redemption and reliance may be placed only on the other identification
numbers placed thereon.
The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
PharMerica, Inc.
3611 Queen Palm Drive
Tampa, Florida 33619
Attention: Chief Financial Officer
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<PAGE> 118
ASSIGNMENT FORM
To assign this Note, fill in the form below: (I) or (we) assign and
transfer this Note to
---------------------------------------------------------------
(Insert assignee's soc. sec. or tax I.D. no.)
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
---------------------------------------------------------------
(Print or type assignee's name, address and zip code)
and irrevocably appoint____________________________________________ as agent to
transfer this Note on the books of the Company. The agent may substitute another
to act for it.
Date:
---------------------
Your Signature:
-------------------------
(Sign exactly as your name appears
on the face of this Note)
Signature Guarantee:
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<PAGE> 119
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.10 or 4.14 of the Indenture, check the box below:
/ / Section 4.10 / / Section 4.14
If you want to elect to have only part of the Note purchased by the
Company pursuant to Section 4.10 or Section 4.14 of the Indenture, state the
amount you elect to have purchased: $___________
Date:
---------------------
Your Signature:_______________________
(Sign exactly as your name appears on
the face of this Note)
Tax Identification No.:______________
Signature Guarantee.
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<PAGE> 120
SCHEDULE OF EXCHANGES OF NOTES (3)
THE FOLLOWING EXCHANGES OF A PART OF THIS GLOBAL NOTE FOR OTHER NOTES HAVE BEEN
MADE:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Principal Amount of
Signature of this Global Note
Amount of decrease authorized officer Amount of increase in following such
in Principal Amount of Trustee or Note Principal Amount of decrease (or
Date of Exchange of this Global Note Custodian this Global Note increase)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
- ----------------------
(3) This should be included only if the Senior Subordinated Note is issued in
global form.
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<PAGE> 121
EXHIBIT A-2
---------
(Face of Regulation S Temporary Global Note)
8 3/8% Senior Subordinated Notes due 2008
No. $
---- --------------------
CIN NO. USU7172PAA67
PHARMERICA, INC.
promises to pay to ________________ or registered assigns, the principal sum of
________ Dollars on April 1, 2008.
Interest Payment Dates: April 1 and October 1
Record Dates: March 15 and September 15
PHARMERICA, INC.
By:
------------------------
Name:
Title:
This is one of the
Notes referred to in
the within-mentioned Indenture:
Dated:
-------------------------
HARRIS TRUST AND SAVINGS BANK,
as Trustee
By:
-----------------------------
Name:
Title:
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<PAGE> 122
(Back of Regulation S Temporary Global Note)
8 3/8% Senior Subordinated Notes due 2008
[Unless and until it is exchanged in whole or in part for Notes in
definitive form, this Note may not be transferred except as a whole by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary. Unless this certificate is presented by an authorized representative
of The Depository Trust Company (55 Water Street, New York, New York) ("DTC"),
to the issuer or its agent for registration of transfer, exchange or payment,
and any certificate issued is registered in the name of Cede & Co. or such other
name as may be requested by an authorized representative of DTC (and any payment
is made to Cede & Co. or such other entity as may be requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.] (1)
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY
WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM
REGISTRATION UNDER THE U.S. SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY,
MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE
SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE
SELLER MAY BE RELYING ON AN EXEMPTION FROM THE
PROVISIONS OF SECTION 5 OF THE SECURITIES ACT
PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE
SECURITY EVIDENCED HEREBY (1) REPRESENTS THAT (A) IT
IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN
RULE 144A UNDER THE SECURITIES ACT) (A "QIB"), (B) IT
IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT
OR (C) IS OTHERWISE PERMITTED TO PURCHASE THE NOTES
PURSUANT TO THE
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<PAGE> 123
REQUIREMENTS OF CLAUSE (2) BELOW, (2) AGREES FOR THE
BENEFIT OF THE COMPANY THAT SUCH SECURITY MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (A) TO
THE COMPANY OR ANY OF ITS SUBSIDIARIES, (B) TO A
PERSON WHOM THE SELLER REASONABLY BELIEVES IS A QIB
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF
A QIB IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144A, (C) IN AN OFFSHORE TRANSACTION MEETING THE
REQUIREMENTS OF RULE 903 AND 904 OF THE SECURITIES
ACT, (D) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (E) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND IN THE CASE
OF CLAUSE (E) BASED UPON AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY) OR (F) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE,
IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (3) AGREES THAT IT WILL
DELIVER TO EACH PERSON TO WHOM THE SECURITY EVIDENCED
HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. AS USED HEREIN, THE TERMS
"OFFSHORE TRANSACTION" AND "UNITED STATES" HAVE THE
MEANINGS GIVEN TO THEM BY RULE 902 OF REGULATION S
UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO REGISTER
ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING."
[Until this Regulation S Temporary Global Note is exchanged for
Regulation S Permanent Global Notes, the Holder hereof shall not be entitled to
receive payments of interest or Liquidated Damages, if any, hereon although
interest and Liquidated Damages, if any, will continue to accrue; until so
exchanged in full, this Regulation S Temporary Global Note shall in all other
respects be entitled to the same benefits as other Notes under the Indenture.
This Regulation S Temporary Global Note is exchangeable in whole or in
part for one or more Regulation S Permanent Global Notes or Rule 144A Global
Notes only (i) on
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<PAGE> 124
or after the termination of the 40-day restricted period (as defined in
Regulation S) and (ii) upon presentation of certificates (accompanied by an
Opinion of Counsel, if applicable) required by Article 2 of the Indenture. Upon
exchange of this Regulation S Temporary Global Note for one or more Regulation S
Permanent Global Notes or Rule 144A Global Notes, the Trustee shall cancel this
Regulation S Temporary Global Note.
This Regulation S Temporary Global Note shall not become valid or
obligatory until the certificate of authentication hereon shall have been duly
manually signed by the Trustee in accordance with the Indenture. This Regulation
S Temporary Global Note shall be governed by and construed in accordance with
the laws of the State of the New York.] (2)
- -----------------------
(1) These paragraphs should be removed upon the exchange of Senior Subordinated
Notes for New Senior Subordinated Notes in the Exchange Offer or upon the
registration of the Senior Subordinated Notes pursuant to the terms of the
Registration Rights Agreement.
(2) These paragraphs should be removed upon the exchange of the Regulation S
Temporary Global Notes for Regulation S Permanent Global Notes pursuant to the
Indenture.
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<PAGE> 125
All references to "$," "Dollars," "dollars" or "U.S. $" are to such
coin or currency of the United States of America as at the time shall be legal
tender for the payment of public and private debts therein.
Capitalized terms used herein shall have the meanings assigned to them
in the Indenture referred to below unless otherwise indicated.
1. INTEREST. PharMerica, Inc., a Delaware corporation, or its successor
(the "Company"), promises to pay interest on the principal amount of
this Note at the rate of 8 3/8% per annum and shall pay the Liquidated
Damages, if any, payable pursuant to Section 5 of the Registration
Rights Agreement referred to below. The Company will pay interest and
Liquidated Damages, if any, in United States dollars (except as
otherwise provided herein) semi-annually in arrears on April 1 and
October 1, commencing on October 1, 1998 (each an "Interest Payment
Date"), or if any such day is not a Business Day, on the next
succeeding Business Day. Interest on the Notes shall accrue from the
most recent date to which interest has been paid or, if no interest has
been paid, from the date of issuance; provided that if there is no
existing Default or Event of Default in the payment of interest, and if
this Note is authenticated between a record date referred to on the
face hereof and the next succeeding Interest Payment Date, interest
shall accrue from such next succeeding Interest Payment Date, except in
the case of the original issuance of Notes, in which case interest
shall accrue from the date of authentication. The Company shall pay
interest (including post-petition interest in any proceeding under any
Bankruptcy Law) on overdue principal at the rate equal to 1% per annum
in excess of the then applicable interest rate on the Notes to the
extent lawful; it shall pay interest (including post-petition interest
in any proceeding under any Bankruptcy Law) on overdue installments of
interest and Liquidated Damages (without regard to any applicable grace
period) at the same rate to the extent lawful. Interest shall be
computed on the basis of a 360-day year comprised of twelve 30-day
months.
2. METHOD OF PAYMENT. The Company will pay interest on the Notes (except
defaulted interest) and Liquidated Damages, if any, on the applicable
Interest Payment Date to the Persons who are registered Holders of
Notes at the close of business on the March 15 or September 15 next
preceding the Interest Payment Date, even if such Notes are canceled
after such record date and on or before such Interest Payment Date,
except as provided in Section 2.12 of the Indenture with respect to
defaulted interest. The Notes shall be payable as to principal, premium
and Liquidated Damages, if any, and interest at the office or agency of
the Company maintained for such purpose within or without the City and
State of New
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<PAGE> 126
York, or, at the option of the Company, payment of interest and
Liquidated Damages, if any, may be made by check mailed to the Holders
at their addresses set forth in the register of Holders; provided that
payment by wire transfer of immediately available funds shall be
required with respect to principal of, premium and Liquidated Damages,
if any, and interest on, all Global Notes and all other Notes the
Holders of which shall have provided written wire transfer instructions
to the Company and the Paying Agent. Such payment shall be in such coin
or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts.
3. PAYING AGENT AND REGISTRAR. Initially, Harris Trust and Savings Bank,
the Trustee under the Indenture, shall act as Paying Agent and
Registrar. The Company may change any Paying Agent or Registrar without
notice to any Holder. The Company or any of its Subsidiaries may act in
any such capacity.
4. INDENTURE. The Company issued the Notes under an Indenture dated as of
March 31, 1998 ("Indenture") among the Company, the Subsidiary
Guarantors and the Trustee. The terms of the Notes include those stated
in the Indenture and those made a part of the Indenture by reference to
the Trust Indenture Act of 1939, as amended (15 U.S. Code Sections
77aaa-77bbbb) (the "TIA"). The Notes are subject to all such terms, and
Holders are referred to the Indenture and such Act for a statement of
such terms. The Notes are general unsecured Obligations of the Company
limited to $325,000,000 in aggregate principal amount, plus amounts, if
any, sufficient to pay premium or Liquidated Damages, if any, and
interest on Outstanding Notes as set forth in Paragraph 2 hereof.
5. OPTIONAL REDEMPTION.
Except as provided in the following paragraph, the Notes will not be
redeemable at the Company's option prior to April 1, 2003. Thereafter,
the Notes will be subject to redemption at the option of the Company,
in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal
amount) set forth below plus accrued and unpaid interest and Liquidated
Damages, if any, thereon to the applicable redemption date, if redeemed
during the twelve-month period beginning on April 1 of the years
indicated below:
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<PAGE> 127
<TABLE>
<CAPTION>
YEAR PERCENTAGE
<S> <C>
2003................................................................... 104.19%
2004................................................................... 102.79%
2005................................................................... 101.40%
2006 and thereafter.................................................... 100.00%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 1, 2003 the
Company may on any one or more occasions redeem up to 33 1 3% of the
aggregate principal amount of Notes originally issued in the Offering
at a redemption price of 108.375% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to
the redemption date, with the net proceeds of one or more Public Equity
Offerings; provided that at least $200 million aggregate principal
amount of Notes remains Outstanding immediately after the occurrence of
each such redemption; and provided, further, that each such redemption
shall occur within 60 days of the closing of the Public Equity Offering
to which it relates.
6. MANDATORY REDEMPTION.
Except as set forth in paragraph 7 below, the Company shall not be
required to make mandatory redemption or sinking fund payments with
respect to the Notes.
7. REPURCHASE AT OPTION OF HOLDER.
(a) Upon the occurrence of a Change of Control, each Holder will have
the right to require the Company to repurchase all or any part (equal
to $1,000 or an integral multiple thereof) of such Holder's Notes
pursuant to the offer described below (the "Change of Control Offer")
at a price in cash equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest and Liquidated Damages, if
any, thereon to the date of purchase (the "Change of Control Payment").
Within ten days following any Change of Control, the Company will mail
or cause to be mailed a notice to each Holder describing the
transaction or transactions that constitute the Change of Control and
offering to repurchase Notes pursuant to the procedures required by the
Indenture.
(b) When the aggregate amount of Excess Proceeds exceeds $10.0 million,
the Company shall be required to make an offer to all Holders and
holders of any other Indebtedness of the Company ranking senior to or
pari passu with the Notes with similar provisions requiring the Company
to make an offer to purchase or to
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<PAGE> 128
redeem such Indebtedness with the proceeds from any Asset Sales pro
rata in proportion to the respective principal amounts of Notes and
such other Indebtedness then outstanding (collectively, an "Asset Sale
Offer") to purchase the maximum principal amount of Notes and such
other Indebtedness that may be purchased out of the Excess Proceeds, at
a price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest and Liquidated Damages, if any, thereon to
the date of purchase, in accordance with the procedures set forth in
the Indenture. To the extent that the aggregate amount of Notes and
such other Indebtedness tendered pursuant to an Asset Sale Offer is
less than the Excess Proceeds, the Company or its Restricted
Subsidiary, as the case may be, may use any remaining Excess Proceeds
for general corporate purposes. If the aggregate principal amount of
Notes and such other Indebtedness surrendered by holders thereof
exceeds the amount of Excess Proceeds, the Notes and such other
Indebtedness will be purchased on a pro rata basis in accordance with
the terms of the Indenture. Upon completion of each Asset Sale Offer,
the amount of Excess Proceeds shall be reset at zero.
(c) Holders of the Notes that are the subject of an offer to purchase
will receive a Change of Control Offer or Asset Sale Offer from the
Company prior to any related purchase date and may elect to have such
Notes purchased by completing the form titled "Option of Holder to
Elect Purchase" appearing below.
8. NOTICE OF REDEMPTION. Notice of redemption shall be mailed at least 30
days but not more than 60 days before the redemption date to each
Holder whose Notes are to be redeemed at its registered address. Notes
in denominations larger than $1,000 may be redeemed in part but only in
whole multiples of $1,000, unless all of the Notes held by a Holder are
to be redeemed. On and after the redemption date, interest and
Liquidated Damages, if any, ceases to accrue on the Notes or portions
thereof called for redemption.
9. SUBORDINATION. The payment of principal, premium, if any, and interest
and Liquidated Damages on the Notes, and payment under each Subsidiary
Guarantee, as the case may be, is subordinated in right of payment, as
set forth in the Indenture, to the prior payment in full of all Senior
Debt, which is (i) Indebtedness pursuant to the Bank Credit Facility,
(ii) any other Indebtedness permitted to be incurred by the Company or
a Subsidiary Guarantor, as the case may be, under the terms of the
Indenture and any Hedging Obligation permitted to be incurred under the
terms of the Indenture, unless the instrument under which such
Indebtedness is incurred expressly provides that it is on a parity with
or subordinated in right of payment to the Notes or the Subsidiary
Guarantees, as applicable, and (iii) all Obligations with respect to
the foregoing. Notwithstanding anything to the
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<PAGE> 129
contrary in the foregoing, Senior Debt will not include (a)
Indebtedness evidenced by the Notes; (b) Indebtedness that is expressly
subordinated in right of payment to any Indebtedness of the Company or
any Subsidiary Guarantor, as applicable; (c) Indebtedness that by
operation of law is subordinate to any general unsecured obligation of
the Company or any Subsidiary Guarantor, as applicable; (d)
Indebtedness which when incurred and without respect to any election
under Section 1111(b) of Title 11 of the United States Code is without
recourse to the Company or any of its Subsidiaries; (e) any liability
for federal, state, local or other taxes; (f) any Indebtedness of the
Company or any Subsidiary Guarantor to the Company or any Subsidiary of
the Company or any of their respective Affiliates; (g) any trade
payables; or (h) any Indebtedness that is incurred in violation of this
Indenture. To the extent provided in the Indenture, Senior Debt must be
paid before the Notes may be paid. The Company agrees and each Holder
of Notes by accepting a Note consents and agrees to the subordination
provided in the Indenture and authorizes the Trustee to give it effect.
10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in initial denominations of $1,000 and integral
multiples of $1,000. The transfer of the Notes may be registered and
the Notes may be exchanged as provided in the Indenture. The Registrar
and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted
by the Indenture. The Registrar need not exchange or register the
transfer of any Note or portion of a Note selected for redemption,
except for the unredeemed portion of any Note being redeemed in part.
Also, it need not exchange or register the transfer of any Notes for a
period of 15 days before a selection of Notes to be redeemed or during
the period between a record date and the corresponding Interest Payment
Date.
11. PERSONS DEEMED OWNERS. The registered Holder of a Note may be treated
as its owner for all purposes.
12. AMENDMENT, SUPPLEMENT AND WAIVER. Subject to the following paragraphs,
the Indenture, the Notes and the Subsidiary Guarantees may be amended
or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then Outstanding (including, without
limitation, consents obtained in connection with a purchase of or,
tender offer or exchange offer for Notes), and any existing Default or
Event of Default or compliance with any provision of the Indenture, the
Notes or the Subsidiary Guarantees may be waived with the consent of
the Holders of a majority in principal amount of the then Outstanding
Notes (including consents obtained in connection with a tender
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<PAGE> 130
offer or exchange offer for Notes). Without the consent of any Holder
of Notes, the Company and the Trustee may amend or supplement the
Indenture, the Subsidiary Guarantees or the Notes to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Notes
in addition to or in place of certificated Notes, to provide for the
assumption of the Company's or a Subsidiary Guarantor's obligations to
Holders of Notes in the case of a merger, consolidation or sale of
assets, to make any change that would provide any additional rights or
benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
the requirements of the Commission in order to effect or maintain the
qualification of the Indenture under the Trust Indenture Act. Any
amendments with respect to subordination provisions of the Notes or the
Subsidiary Guarantees would require the consent of the Holders of at
least 75% in aggregate amount of Notes then Outstanding if such
amendment would adversely affect the rights of the Holders of Notes.
Notwithstanding the foregoing, the provisions with respect to Asset
Sales or any of the definitions related thereto may be amended or
supplemented with the consent of the Holders of at least two-thirds in
principal amount of the Notes then Outstanding (including consents
obtained in connection with a tender offer or exchange offer for the
Notes). In addition, any amendment to the provisions of Articles 10 and
12 of this Indenture (which relate to subordination) will require the
consent of the Holders of at least 75% in aggregate amount of Notes
then Outstanding if such amendment would adversely affect the rights of
Holders of Notes.
13. DEFAULTS AND REMEDIES. Events of Default include: (i) default for 30
days in the payment when due, upon redemption, acceleration or
otherwise, of interest on, or Liquidated Damages with respect to, the
Notes (whether or not prohibited by the subordination provisions of the
Indenture); (ii) default in payment when due of the principal of or
premium, if any, on the Notes; (iii) failure by the Company or any
Subsidiary Guarantor to comply with the provisions of Sections 4.10.,
4.14 or 5.01 of the Indenture (whether or not prohibited by the
subordination provisions of the Indenture); (iv) failure by the Company
or any Subsidiary Guarantor for 60 days after notice from the Trustee
or from Holders of at least 25% of the principal amount of the Notes
then Outstanding to comply with any of its other agreements in the
Indenture or the Notes; (v) default under any mortgage, indenture or
instrument under which there may be issued or by which there may be
secured or evidenced any Indebtedness for money borrowed by the Company
or any of its Restricted Subsidiaries (or the payment of which is
Guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or Guarantee now exists, or is created after
the date hereof, which default (A) (1) is caused by a failure to pay
when due at final stated maturity principal of (a "Payment Default")
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<PAGE> 131
or (2) results in the acceleration of such Indebtedness prior to its
express maturity and (B) in each case, the principal amount of any such
Indebtedness due to be paid, together with the principal amount of any
other such Indebtedness under which there has been a Payment Default or
the maturity of which has been so accelerated, aggregates $15.0 million
or more; (vi) failure by the Company or any of its Restricted
Subsidiaries to pay final judgments (to the extent not covered by
insurance and as to which the insurer has not acknowledged coverage in
writing) aggregating in excess of $15.0 million, which judgments are
not paid, discharged, fully bonded or stayed for a period of 60 days
after their entry; (vii) certain events of bankruptcy or insolvency
with respect to the Company, any of its Restricted Subsidiaries that is
a Significant Subsidiary or any group of Restricted Subsidiaries that,
taken together, would constitute a Significant Subsidiary; and (viii)
the termination of the Subsidiary Guarantee(s) of either a Subsidiary
Guarantor that is a Significant Subsidiary or group of Subsidiary
Guarantors that together would constitute a Significant Subsidiary for
any reason not permitted by the Indenture, or the denial of any Person
acting on behalf of any Subsidiary Guarantor or group of Subsidiary
Guarantors of its Obligations under any such Subsidiary Guarantee(s).
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding
Notes may declare all the Notes to be due and payable by notice in
writing to the Company and the Trustee. Notwithstanding the foregoing,
in the case of an Event of Default arising from certain events of
bankruptcy or insolvency with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would
constitute a Significant Subsidiary, all outstanding Notes will become
due and payable without further action or notice. Holders of the Notes
may not enforce the Indenture or the Notes except as provided in the
Indenture. Subject to certain limitations, Holders of a majority in
principal amount of the then outstanding Notes may direct the Trustee
in its exercise of any trust or power.
The Holders of a majority in aggregate principal amount of the Notes
then outstanding, by notice to the Trustee, may on behalf of the
Holders of all of the Notes waive any existing Default or Event of
Default and its consequences under the Indenture, except a continuing
Default or Event of Default in the payment of interest or premium on,
or principal of, the Notes. The Trustee may withhold from Holders of
the Notes notice of any continuing Default or Event of Default (except
a Default or Event of Default relating to the payment of principal,
premium or interest) if it determines that withholding notice is in
such Holders' interest.
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14. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform
services for the Company, the Subsidiary Guarantors or their respective
Affiliates, and may otherwise deal with the Company, the Subsidiary
Guarantors or their respective Affiliates, as if it were not the
Trustee.
15. NO RECOURSE AGAINST OTHERS. No director, officer, employee,
incorporator or stockholder of the Company or any Subsidiary Guarantor,
as such, shall have any liability for any obligations of the Company
under the Notes, any Subsidiary Guarantee or the Indenture or for any
claim based on, in respect of, or by reason of, such obligations or
their creation. Each Holder of Notes by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes and the Subsidiary Guarantees.
16. AUTHENTICATION. This Note shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent.
17. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT
(= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and
U/G/M/A (= Uniform Gifts to Minors Act).
18. ADDITIONAL RIGHTS OF HOLDERS OF TRANSFER RESTRICTED SECURITIES. In
addition to the rights provided to Holders of the Notes under the
Indenture, Holders of Transferred Restricted Securities (as defined in
the Registration Rights Agreement) shall have all the rights set forth
in the Registration Rights Agreement, dated as of the date hereof,
among the Company, the Subsidiary Guarantors and the Initial Purchaser
(the "Registration Rights Agreement").
19. CUSIP NUMBERS. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company
has caused CUSIP numbers to be printed on the Notes and the Trustee may
use CUSIP numbers in notices of redemption as a convenience to the
Holders. No representation is made as to the accuracy of such numbers
either as printed on the Notes or as contained in any notice of
redemption and reliance may be placed only on the other identification
numbers placed thereon.
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The Company shall furnish to any Holder upon written request and
without charge a copy of the Indenture and/or the Registration Rights Agreement.
Requests may be made to:
PharMerica, Inc.
3611 Queen Palm Drive
Tampa, Florida 33619
Attention: Chief Financial Officer
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<PAGE> 134
SCHEDULE OF EXCHANGES FOR GLOBAL NOTES
The following exchanges of a part of this Regulation S Temporary Global
Note for other Global Notes have been made:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
Principal Amount of
Signature of this Global Note
Amount of decrease authorized officer Amount of increase in following such
in Principal Amount of Trustee or Note Principal Amount of decrease (or
Date of Exchange of this Global Note Custodian this Global Note increase)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
</TABLE>
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<PAGE> 135
EXHIBIT B-1
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL NOTE TO REGULATION S GLOBAL NOTE
(Pursuant to Section 2.06(a)(i) of the Indenture)
[Registrar]
Re: 8 3/8% Senior Subordinated Notes due 2008 of PharMerica, Inc.
Reference is hereby made to the Indenture, dated as of March 31, 1998
(the "Indenture"), among PharMerica, Inc., a Delaware corporation (the
"Company"), the Subsidiary Guarantors listed on Schedule A that execute a
Subsidiary Guarantee substantially in the form of Exhibit C to the Indenture
(collectively, the "Subsidiary Guarantors") and Harris Trust and Savings Bank,
as trustee (the "Trustee"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
This letter relates to $ _______________ principal amount of Senior
Subordinated Notes which are evidenced by one or more Rule 144A Global Notes and
held with the Depositary in the name of ______________________ (the
"Transferor"). The Transferor has requested a transfer of such beneficial
interest in the Senior Subordinated Notes to a Person who will take delivery
thereof in the form of an equal principal amount of Senior Subordinated Notes
evidenced by one or more Regulation S Global Notes, which amount, immediately
after such transfer, is to be held with the Depositary through Euroclear or
Cedel or both.
In connection with such request and in respect of such Senior
Subordinated Notes, the Transferor hereby certifies that such transfer has been
effected in compliance with the transfer restrictions applicable to the Global
Notes and pursuant to and in accordance with Rule 903 or Rule 904 under the
United States Securities Act of 1933, as amended (the "Securities Act"), and
accordingly the Transferor hereby further certifies that:
(1) The offer of the Senior Subordinated Notes was not made to a
person in the United States;
(2) either:
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<PAGE> 136
(a) at the time the buy order was originated, the transferee
was outside the United States or the Transferor and any
person acting on its behalf reasonably believed and
believes that the transferee was outside the United
States; or
(b) the transaction was executed in, on or through the
facilities of a designated offshore securities market
and neither the Transferor nor any person acting on its
behalf knows that the transaction was prearranged with a
buyer in the United States;
(3) no directed selling efforts have been made in
contravention of the requirements of Rule 904(b) of
Regulation S;
(4) the transaction is not part of a plan or scheme to
evade the registration provisions of the Securities
Act; and
(5) upon completion of the transaction, the beneficial
interest being transferred as described above is to be
held with the Depositary through Euroclear or Cedel or
both.
Upon giving effect to this request to exchange a beneficial interest in
a Rule 144A Global Note for a beneficial interest in a Regulation S Global Note,
the resulting beneficial interest shall be subject to the restrictions on
transfer applicable to Regulation S Global Notes pursuant to the Indenture and
the Securities Act and, if such transfer occurs prior to the end of the 40-day
Restricted Period associated with the initial offering of Senior Subordinated
Notes, the additional restrictions applicable to transfers of interest in the
Regulation S Temporary Global Note.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company, the Subsidiary Guarantors and Donaldson,
Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc, BancAmerica
Robertson Stephens, Chase Securities Inc. and CIBC Oppenheimer Corp., the
initial purchasers of such Senior Subordinated Notes being transferred. Terms
used in this certificate and not otherwise defined in the Indenture have the
meanings set forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
--------------------------
Name:
Title:
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<PAGE> 137
Dated:
cc: PharMerica, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Salomon Brothers Inc
BancAmerica Robertson Stephens
Chase Securities Inc.
CIBC Oppenheimer Corp.
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<PAGE> 138
EXHIBIT B-2
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM REGULATION S GLOBAL NOTE TO RULE 144A GLOBAL NOTE
(Pursuant to Section 2.06(a)(ii) of the Indenture)
-----------------
[Registrar]
Re: 8 3/8% Senior Subordinated Notes due 2008 of PharMerica, Inc.
Reference is hereby made to the Indenture, dated as of March 31, 1998
(the "Indenture"), among PharMerica, Inc., a Delaware corporation (the
"Company"), the Subsidiary Guarantors listed on Schedule A that execute a
Subsidiary Guarantee substantially in the form of Exhibit C to the Indenture
(collectively, the "Subsidiary Guarantors") and Harris Trust and Savings Bank,
as trustee (the "Trustee"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
This letter relates to $_________ principal amount of Senior
Subordinated Notes which are evidenced by one or more Regulation S Global Notes
and held with the Depositary through Euroclear or Cedel in the name of
__________________________________ (the "Transferor"). The Transferor has
requested a transfer of such beneficial interest in the Senior Subordinated
Notes to a Person who will take delivery thereof in the form of an equal
principal amount of Senior Subordinated Notes evidenced by one or more Rule 144A
Global Notes to be held with the Depositary.
In connection with such request and in respect of such Senior
Subordinated Notes, the Transferor hereby certifies that:
[CHECK ONE]
// such transfer is being effected pursuant to and in accordance with Rule
144A under the United States Securities Act of 1933, as amended (the
"Securities Act"), and, accordingly, the Transferor hereby further
certifies that the Senior Subordinated Notes are being transferred to a
Person that the Transferor reasonably believes is purchasing the Senior
Subordinated Notes for its own account, or for one or more accounts with
respect to which such Person exercises sole investment discretion, and such
Person
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<PAGE> 139
and each such account is a "qualified institutional buyer" within the
meaning of Rule 144A in a transaction meeting the requirements of Rule
144A;
or
/ / such transfer is being effected pursuant to and in accordance with Rule
144 under the Securities Act;
or
/ / such transfer is being effected pursuant to an exemption under the
Securities Act other than Rule 144A or Rule 144 and the Transferor further
certifies that the transfer complies with the transfer restrictions
applicable to beneficial interests in Global Notes and Definitive Senior
Subordinated Notes bearing the Private Placement Legend and the
requirements of the exemption claimed;
or
/ / such transfer is being effected pursuant to an effective registration
statement under the Securities Act;
or
/ / such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A or
Rule 144, and the Transferor hereby further certifies that the Senior
Subordinated Notes are being transferred in compliance with the transfer
restrictions applicable to the Global Notes and in accordance with the
requirements of the exemption claimed, which certification is supported by
an Opinion of Counsel, provided by the Transferor or the transferee (a copy
of which the Transferor has attached to this certification) in form
reasonably acceptable to the Company and to the Registrar, to the effect
that such transfer is in compliance with the Securities Act;
and such Senior Subordinated Notes are being transferred in compliance with any
applicable blue sky securities laws of any state of the United States.
Upon giving effect to this request to exchange a beneficial interest in
Regulation S Global Notes for a beneficial interest in 144A Global Senior
Subordinated Notes, the resulting beneficial interest shall be subject to the
restrictions on transfer applicable to Rule 144A Global Notes pursuant to the
Indenture and the Securities Act.
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<PAGE> 140
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company, the Subsidiary Guarantors and Donaldson,
Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc, BancAmerica
Robertson Stephens, Chase Securities Inc. and CIBC Oppenheimer Corp., the
initial purchasers of such Senior Subordinated Notes being transferred. Terms
used in this certificate and not otherwise defined in the Indenture have the
meanings set forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By: _____________________
Name:
Title:
Dated:
cc: PharMerica, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Salomon Brothers Inc
BancAmerica Robertson Stephens
Chase Securities Inc.
CIBC Oppenheimer Corp.
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<PAGE> 141
EXHIBIT B-3
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF
TRANSFER OF DEFINITIVE SENIOR SUBORDINATED NOTES FOR
OTHER DEFINITIVE SENIOR SUBORDINATED NOTES OR BENEFICIAL
INTERESTS IN GLOBAL NOTES
(Pursuant to Section 2.06(b) or (e) of the Indenture)
[Registrar]
Re: 8 3/8% Senior Subordinated Notes due 2008 of PharMerica, Inc.
Reference is hereby made to the Indenture, dated as of March 31, 1998
(the "Indenture"), among PharMerica, Inc., a Delaware corporation (the
"Company"), the Subsidiary Guarantors listed on Schedule A that executes a
Subsidiary Guarantee substantially in the form of Exhibit C to the Indenture
(collectively, the "Subsidiary Guarantors") and Harris Trust and Savings Bank,
as trustee (the "Trustee"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
This relates to $ __________ principal amount of Senior Subordinated
Notes which are evidenced by one or more Definitive Senior Subordinated Notes in
the name of (the "Transferor"). The Transferor has requested an exchange or
transfer of such Definitive Senior Subordinated Note(s) in the form of an equal
principal amount of Senior Subordinated Notes evidenced by (a) one or more
Definitive Senior Subordinated Notes, to be delivered to the Transferor or, in
the case of a transfer of such Senior Subordinated Notes, to such Person as the
Transferor instructs the Trustee or (b) a beneficial interest in one or more
Global Notes.
In connection with such request and in respect of the Senior
Subordinated Notes surrendered to the Registrar herewith for exchange (the
"Surrendered Senior Subordinated Notes"), the Holder of such Surrendered Senior
Subordinated Notes hereby certifies that:
[CHECK ONE]
/ / 1. the Surrendered Senior Subordinated Notes are being acquired for the
Transferor's own account, without transfer;
or
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<PAGE> 142
/ / 2. the Surrendered Senior Subordinated Notes are being transferred to
the Company;
or
/ / 3. the Surrendered Senior Subordinated Notes are being transferred
pursuant to and in accordance with Rule 144A under the United States
Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the
Surrendered Senior Subordinated Notes are being transferred to a Person
that the Transferor reasonably believes is purchasing the Surrendered
Senior Subordinated Notes for its own account, or for one or more
accounts with respect to which such Person exercises sole investment
discretion, and such Person and each such account is a "qualified
institutional buyer" within the meaning of Rule 144A, in each case in a
transaction meeting the requirements of Rule 144A; or
/ / 4. the Surrendered Senior Subordinated Notes are being transferred in a
transaction permitted by Rule 144 under the Securities Act;
or
/ / 5. the Surrendered Senior Subordinated Notes are being transferred in a
transaction permitted by Rule 903 or Rule 904 under the Securities Act;
or
/ / 6. the Surrendered Senior Subordinated Notes are being transferred
pursuant to an exemption under the Securities Act other than Rule
144A, Rule 144 or Rule 904 and the Transferor further certifies that
the transfer complies with the transfer restrictions applicable to
beneficial interests in Global Notes and Definitive Senior
Subordinated Notes bearing the Private Placement Legend and the
requirements of the exemption claimed;
or
/ / 8. the Surrendered Senior Subordinated Notes are being transferred
pursuant to an effective registration statement under the Securities
Act;
or
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<PAGE> 143
/ / 9. such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A
or Rule 144, and the Transferor hereby further certifies that the
Senior Subordinated Notes are being transferred in compliance with the
transfer restrictions applicable to the Global Notes and in accordance
with the requirements of the exemption claimed, which certification is
supported by an Opinion of Counsel provided by the Transferor or the
transferee (a copy of which the Transferor has attached to this
certification) in form reasonably acceptable to the Company and to the
Registrar, to the effect that such transfer is in compliance with the
Securities Act;
and the Surrendered Senior Subordinated Notes are being transferred in
compliance with any applicable blue sky securities laws of any state of the
United States.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company, the Subsidiary Guarantors and Donaldson,
Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc, BancAmerica
Robertson Stephens, Chase Securities Inc. and CIBC Oppenheimer Corp., the
initial purchasers of such Senior Subordinated Notes being transferred. Terms
used in this certificate and not otherwise defined in the Indenture have the
meanings set forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
----------------------
Name:
Title:
Dated:
cc: PharMerica, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Salomon Brothers Inc
BancAmerica Robertson Stephens
Chase Securities Inc.
CIBC Oppenheimer Corp.
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<PAGE> 144
EXHIBIT B-4
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF TRANSFER
FROM RULE 144A GLOBAL NOTE OR REGULATION S
PERMANENT GLOBAL NOTE
TO DEFINITIVE SENIOR SUBORDINATED NOTE
(Pursuant to Section 2.06(c) of the Indenture)
[Registrar]
Re: 8 3/8% Senior Subordinated Notes due 2008 of PharMerica, Inc.
Reference is hereby made to the Indenture, dated as of March 31, 1998
(the "Indenture"), among PharMerica, Inc., a Delaware corporation (the
"Company"), the Subsidiary Guarantors listed on Schedule A that executes a
Subsidiary Guarantee substantially in the form of Exhibit C to the Indenture
(collectively, the "Subsidiary Guarantors") and Harris Trust and Savings Bank,
as trustee (the "Trustee"). Capitalized terms used but not defined herein shall
have the meanings given to them in the Indenture.
This letter relates to $__________ principal amount of Senior
Subordinated Notes which are evidenced by a beneficial interest in one or more
Rule 144A Global Notes or Regulation S Permanent Global Notes in the name of
(the "Transferor"). The Transferor has requested an exchange or transfer of such
beneficial interest in the form of an equal principal amount of Senior
Subordinated Notes evidenced by one or more Definitive Senior Subordinated Notes
to be delivered to the Transferor or, in the case of a transfer of such Senior
Subordinated Notes, to such Person as the Transferor instructs the Trustee.
In connection with such request and in respect of the Senior
Subordinated Notes surrendered to the Registrar herewith for exchange (the
"Surrendered Senior Subordinated Notes"), the Holder of such Surrendered Senior
Subordinated Notes hereby certifies that:
[CHECK ONE]
/ / 1. the Surrendered Senior Subordinated Notes are being transferred to
the beneficial owner of such Senior Subordinated Notes;
or
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<PAGE> 145
/ / 2. the Surrendered Senior Subordinated Notes are being transferred
pursuant to and in accordance with Rule 144A under the United States
Securities Act of 1933, as amended (the "Securities Act"), and,
accordingly, the Transferor hereby further certifies that the
Surrendered Senior Subordinated Notes are being transferred to a
Person that the Transferor reasonably believes is purchasing the
Surrendered Senior Subordinated Notes for its own account, or for one
or more accounts with respect to which such Person exercises sole
investment discretion, and such Person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A, in
each case in a transaction meeting they requirements of Rule 144A;
or
/ / 3. the Surrendered Senior Subordinated Notes are being transferred in a
transaction permitted by Rule 144 under the Securities Act;
or
/ / 4. the Surrendered Senior Subordinated Notes are being transferred
pursuant to an effective registration statement under the Securities
Act;
or
/ / 5. the Surrendered Senior Subordinated Notes are being transferred in a
transaction permitted by Rule 903 or Rule 904 under the Securities
Act;
or
/ / 6. the Surrendered Senior Subordinated Notes are being transferred
pursuant to an exemption under the Securities Act other than Rule
144A, Rule 144 or Rule 904 and the Transferor further certifies that
the transfer complies with the transfer restrictions applicable to
beneficial interests in Global Notes and Definitive Senior
Subordinated Notes bearing the Private Placement Legend and the
requirements of the exemption claimed;
or
/ / 7. such transfer is being effected pursuant to an exemption from the
registration requirements of the Securities Act other than Rule 144A
or Rule 144, and the Transferor hereby further certifies that the
Senior Subordinated Notes are being transferred in compliance with
the transfer restrictions applicable to the Global
-144-
<PAGE> 146
Notes and in accordance with the requirements of the exemption
claimed, which certification is supported by an Opinion of Counsel
provided by the Transferor or the transferee (a copy of which the
Transferor has attached to this certification) in form reasonably
acceptable to the Company and to the Registrar, to the effect that
such transfer is in compliance with the Securities Act;
and the Surrendered Senior Subordinated Notes are being transferred in
compliance with any applicable blue sky securities laws of any state of the
United States.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company, the Subsidiary Guarantors and Donaldson,
Lufkin & Jenrette Securities Corporation, Salomon Brothers Inc, BancAmerica
Robertson Stephens, Chase Securities Inc. and CIBC Oppenheimer Corp., the
initial purchasers of such Senior Subordinated Notes being transferred. Terms
used in this certificate and not otherwise defined in the Indenture have the
meanings set forth in Regulation S under the Securities Act.
[Insert Name of Transferor]
By:
-----------------------
Name:
Title:
Dated:
cc: PharMerica, Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
Salomon Brothers Inc
BancAmerica Robertson Stephens
Chase Securities Inc.
CIBC Oppenheimer Corp.
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<PAGE> 147
EXHIBIT C
SUBSIDIARY GUARANTEE
Subject to Section 11.04 of the Indenture, each Subsidiary Guarantor
hereby, jointly and severally, unconditionally guarantees to each Holder of a
Note authenticated and delivered by the Trustee and to the Trustee and its
successors and assigns, irrespective of the validity and enforceability of the
Indenture, the Notes and the Obligations of the Company under the Notes or under
the Indenture, that: (a) the principal of, premium, if any, interest and
Liquidated Damages, if any, on the Notes will be promptly paid in full when due,
subject to any applicable grace period, whether at maturity, by acceleration,
redemption or otherwise, and interest on overdue principal, premium, if any, (to
the extent permitted by law) interest on any interest, if any, and Liquidated
Damages, if any, on the Notes and all other payment Obligations of the Company
to the Holders or the Trustee under the Indenture or under the Notes will be
promptly paid in full and performed, all in accordance with the terms thereof;
and (b) in case of any extension of time of payment or renewal of any Notes or
any of such other payment Obligations, the same will be promptly paid in full
when due or performed in accordance with the terms of the extension or renewal,
subject to any applicable grace period, whether at stated maturity, by
acceleration, redemption or otherwise. Failing payment when so due of any amount
so guaranteed for whatever reason, the Subsidiary Guarantors will be jointly and
severally obligated to pay the same immediately.
The obligations of the Subsidiary Guarantor to the Holders and to the
Trustee pursuant to this Subsidiary Guarantee and the Indenture are (a)
expressly set forth in Article 11 of the Indenture and (b) subordinated to
Senior Debt as set forth in the Indenture, and reference is hereby made to such
Indenture for the precise terms of this Subsidiary Guarantee. The terms of
Article 11 of the Indenture are incorporated herein by reference. This
Subsidiary Guarantee is subject to release as and to the extent provided in
Section 11.03 of the Indenture.
This is a continuing Guarantee and shall remain in full force and
effect and shall be binding upon each Subsidiary Guarantor and its respective
successors and assigns to the extent set forth in the Indenture until full and
final payment of all of the Company's Obligations under the Notes and the
Indenture and shall inure to the benefit of the successors and assigns of the
Trustee and the Holders and, in the event of any transfer or assignment of
rights by any Holder or the Trustee, the rights and privileges herein conferred
upon that party shall automatically extend to and be vested in such transferee
or assignee, all subject to the terms and conditions hereof. This is a
Subsidiary Guarantee of payment and not a guarantee of collection.
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<PAGE> 148
This Subsidiary Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication on the Note upon which this
Subsidiary Guarantee is noted shall have been executed by the Trustee under the
Indenture by the manual signature of one of its authorized officers.
For purposes hereof, each Subsidiary Guarantor's liability shall be
limited to the lesser of (i) the aggregate amount of the Obligations of the
Company under the Notes and the Indenture and (ii) the amount, if any, which
would not have (A) rendered such Subsidiary Guarantor "insolvent" (as such term
is defined in the United States Bankruptcy Code and in the Debtor and Creditor
Law of the State of New York) or (B) left such Subsidiary Guarantor with
unreasonably small capital at the time its Subsidiary Guarantee of the Notes was
entered into; provided that it will be a presumption in any lawsuit or other
proceeding in which a Subsidiary Guarantor is a party that the amount guaranteed
pursuant to the Subsidiary Guarantee is the amount set forth in clause (i) above
unless any creditor, or representative of creditors of such Subsidiary
Guarantor, or debtor in possession or trustee in bankruptcy of such Subsidiary
Guarantor, otherwise proves in such a lawsuit that the aggregate liability of
the Subsidiary Guarantor is the amount set forth in clause (ii) above. The
Indenture provides that, in making any determination as to the solvency or
sufficiency of capital of a Subsidiary Guarantor in accordance with the previous
sentence, the right of such Subsidiary Guarantor to contribution from other
Subsidiary Guarantors, and any other rights such Subsidiary Guarantor may have,
contractual or otherwise, shall be taken into account.
Capitalized terms used herein have the same meanings given in the
Indenture unless otherwise indicated.
Dated as of
------------------ [NAME OF SUBSIDIARY GUARANTOR]
By:
----------------------
Name:
Title:
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<PAGE> 149
EXHIBIT D
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
___________, between Subsidiary Guarantor (the "New Subsidiary Guarantor"), a
subsidiary of PharMerica, Inc., a Delaware corporation (the "Company"), and
Harris Trust and Savings Bank, as trustee under the indenture referred to below
(the "Trustee"). Capitalized terms used herein and not defined herein shall have
the meaning ascribed to them in the Indenture (as defined below).
W I T N E S S E T H
WHEREAS, the Company has heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of March 31, 1998, providing
for the issuance of an aggregate principal amount of $325,000,000 of 8 3/8%
Senior Subordinated Notes due 2008 (the "Senior Subordinated Notes");
WHEREAS, Section 5.01 of the Indenture provides that under certain
circumstances the Company is required to cause certain of its Subsidiaries to
execute and deliver to the Trustee a supplemental indenture pursuant to which
such Subsidiaries shall unconditionally guarantee all of the Company's
Obligations under the Senior Subordinated Notes pursuant to a Subsidiary
Guarantee on the terms and conditions set forth herein; and
WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is
authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt of which is hereby acknowledged, the New
Subsidiary Guarantor and the Trustee mutually covenant and agree for the equal
and ratable benefit of the Holders of the Senior Subordinated Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without definition
shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO SUBSIDIARY GUARANTEE. The New Subsidiary Guarantor
hereby agrees, jointly and severally with all other Subsidiary Guarantors, to
guarantee the Company's Obligations under the Senior Subordinated Notes and the
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<PAGE> 150
Indenture on the terms and subject to the conditions set forth in Article 11 of
the Indenture and to be bound by all other applicable provisions of the
Indenture.
3. NO RECOURSE AGAINST OTHERS. No past, present or future director,
officer, employee, incorporator, shareholder or agent of any Subsidiary
Guarantor, as such, shall have any liability for any obligations of the Company
or any Subsidiary Guarantor under the Senior Subordinated Notes, any Subsidiary
Guarantees, the Indenture or this Supplemental Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder by accepting a Senior Subordinated Note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the Senior Subordinated Notes.
4. NEW YORK LAW TO GOVERN. The internal law of the State of New York
shall govern and be used to construe this Supplemental Indenture.
5. COUNTERPARTS The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
6. EFFECT OF HEADINGS. The Section headings herein are for convenience
only and shall not affect the construction hereof.
7. THE TRUSTEE. The Trustee shall not be responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the correctness of the recitals of fact
contained herein, all of which recitals are made solely by the New Subsidiary
Guarantor.
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<PAGE> 151
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture
to be duly executed and attested, all as of the date first above written.
Dated:
---------------- [NAME OF NEW SUBSIDIARY
GUARANTOR]
By:
-----------------------------
Name:
Title:
Dated:
---------------- HARRIS TRUST AND SAVINGS BANK,
as Trustee
By:
-----------------------------
Name:
Title:
-150-
<PAGE> 152
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT Section INDENTURE SECTION
<S> <C> <C>
310 (a) (1).......................................................................... 7.10
(a) (2).......................................................................... 7.10
(a) (3).......................................................................... N.A.
(a) (4).......................................................................... N.A.
(a) (5).......................................................................... 7.10
(b).............................................................................. 7.10
(c).............................................................................. N.A.
311 (a)..................................................................... 7.11
(b).............................................................................. 7.11
(c).............................................................................. N.A.
312 (a).............................................................................. 2.05
(b).............................................................................. 13.03
(c).............................................................................. 13.03
313 (a).............................................................................. 7.06
(b).............................................................................. 7.06
(c).............................................................................. 7.06; 13.02
(d).............................................................................. 7.06
314 (a).............................................................................. 4.03; 13.05
(b).............................................................................. N.A.
(c)(3)........................................................................... N.A.
(d).............................................................................. N.A.
(e).............................................................................. 13.05
(f).............................................................................. N.A.
316 (a)(2)........................................................................... N.A.
(c).............................................................................. 2.13
318 (c).............................................................................. 13.01
</TABLE>
N.A. means not applicable.
*This Cross-Reference Table is not part of the Indenture.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
<S> <C> <C>
SECTION 1.01. DEFINITIONS.........................................................................................1
SECTION 1.02. OTHER DEFINITIONS..................................................................................22
SECTION 1.03. INCORPORATION BY REFERENCE OF TRUST
INDENTURE ACT..........................................................................22
SECTION 1.04. RULES OF CONSTRUCTION..............................................................................23
ARTICLE 2
THE NOTES
SECTION 2.01. FORM AND DATING....................................................................................23
SECTION 2.02. EXECUTION AND AUTHENTICATION.......................................................................25
SECTION 2.03. REGISTRAR AND PAYING AGENT.........................................................................26
SECTION 2.04. PAYING AGENT TO HOLD MONEY IN TRUST................................................................27
SECTION 2.05. HOLDER LISTS.......................................................................................27
SECTION 2.06. TRANSFER AND EXCHANGE..............................................................................27
SECTION 2.07. REPLACEMENT NOTES..................................................................................39
SECTION 2.08. OUTSTANDING NOTES..................................................................................39
SECTION 2.09. TREASURY NOTES.....................................................................................40
SECTION 2.10. TEMPORARY NOTES....................................................................................40
SECTION 2.11. CANCELLATION.......................................................................................41
SECTION 2.12. DEFAULTED INTEREST.................................................................................41
SECTION 2.13. RECORD DATE........................................................................................41
SECTION 2.14. COMPUTATION OF INTEREST............................................................................41
SECTION 2.15. CUSIP NUMBER.......................................................................................42
ARTICLE 3
REDEMPTION AND PREPAYMENT
SECTION 3.01. NOTICES TO TRUSTEE.................................................................................42
SECTION 3.02. SELECTION OF NOTES TO BE REDEEMED..................................................................42
SECTION 3.03. NOTICE OF REDEMPTION...............................................................................43
SECTION 3.04. EFFECT OF NOTICE OF REDEMPTION.....................................................................44
SECTION 3.05. DEPOSIT OF REDEMPTION OR PURCHASE PRICE............................................................44
SECTION 3.06. NOTES REDEEMED IN PART.............................................................................45
SECTION 3.07. OPTIONAL REDEMPTION................................................................................45
SECTION 3.08. MANDATORY REDEMPTION...............................................................................45
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 3.09. REPURCHASE OFFERS..................................................................................45
ARTICLE 4
COVENANTS
SECTION 4.01. PAYMENT OF NOTES...................................................................................48
SECTION 4.02. MAINTENANCE OF OFFICE OR AGENCY....................................................................48
SECTION 4.03. COMMISSION REPORTS.................................................................................49
SECTION 4.04. COMPLIANCE CERTIFICATE.............................................................................50
SECTION 4.05. TAXES..............................................................................................51
SECTION 4.06. STAY, EXTENSION AND USURY LAWS.....................................................................51
SECTION 4.07. RESTRICTED PAYMENTS................................................................................51
SECTION 4.08. DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING RESTRICTED SUBSIDIARIES.........................54
SECTION 4.09. INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK.........................................55
SECTION 4.10. ASSETS SALES.......................................................................................57
SECTION 4.11. TRANSACTIONS WITH AFFILIATES.......................................................................58
SECTION 4.12. LIENS..............................................................................................59
SECTION 4.13. SALE AND LEASEBACK TRANSACTIONS....................................................................59
SECTION 4.14. OFFER TO PURCHASE UPON CHANGE OF CONTROL...........................................................59
SECTION 4.15. CORPORATE EXISTENCE................................................................................60
SECTION 4.16. LINE OF BUSINESS...................................................................................61
SECTION 4.17. PAYMENT FOR CONSENTS...............................................................................61
SECTION 4.18. NO SENIOR SUBORDINATED DEBT........................................................................61
SECTION 4.19. LIMITATIONS ON ISSUANCES OF GUARANTEES OF INDEBTEDNESS.............................................61
ARTICLE 5
SUCCESSORS
SECTION 5.01. MERGER, CONSOLIDATION OR SALE OF ASSETS............................................................62
SECTION 5.02. SUCCESSOR CORPORATION SUBSTITUTED..................................................................64
ARTICLE 6
DEFAULTS AND REMEDIES
SECTION 6.01. EVENTS OF DEFAULT..................................................................................64
SECTION 6.02. ACCELERATION.......................................................................................67
SECTION 6.04. WAIVER OF PAST DEFAULTS............................................................................67
SECTION 6.05. CONTROL BY MAJORITY................................................................................68
SECTION 6.06. LIMITATION ON SUITS................................................................................68
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 6.07. RIGHTS OF HOLDERS OF NOTES TO RECEIVE PAYMENT......................................................69
SECTION 6.08. COLLECTION SUIT BY TRUSTEE.........................................................................69
SECTION 6.09. TRUSTEE MAY FILE PROOFS OF CLAIM...................................................................69
SECTION 6.10. PRIORITIES.........................................................................................70
SECTION 6.11. UNDERTAKING FOR COSTS..............................................................................70
ARTICLE 7
TRUSTEE
SECTION 7.01. DUTIES OF TRUSTEE..................................................................................70
SECTION 7.02. RIGHTS OF TRUSTEE..................................................................................72
SECTION 7.03. INDIVIDUAL RIGHTS OF TRUSTEE.......................................................................73
SECTION 7.04. TRUSTEE'S DISCLAIMER...............................................................................73
SECTION 7.05. NOTICE OF DEFAULTS.................................................................................73
SECTION 7.06. REPORTS BY TRUSTEE TO HOLDERS OF THE NOTES.........................................................73
SECTION 7.07. COMPENSATION AND INDEMNITY.........................................................................74
SECTION 7.08. REPLACEMENT OF TRUSTEE.............................................................................75
SECTION 7.09. SUCCESSOR TRUSTEE BY MERGER, ETC...................................................................76
SECTION 7.10. ELIGIBILITY; DISQUALIFICATION......................................................................76
SECTION 7.11. PREFERENTIAL COLLECTION OF CLAIMS
AGAINST COMPANY........................................................................76
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. OPTION TO EFFECT LEGAL DEFEASANCE OR COVENANT DEFEASANCE...........................................77
SECTION 8.02. LEGAL DEFEASANCE AND DISCHARGE.....................................................................77
SECTION 8.03. COVENANT DEFEASANCE................................................................................77
SECTION 8.04. CONDITIONS TO LEGAL OR COVENANT DEFEASANCE.........................................................78
SECTION 8.05. DEPOSITED MONEY AND GOVERNMENT SECURITIES TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS......80
SECTION 8.06. REPAYMENT TO COMPANY...............................................................................80
SECTION 8.07. REINSTATEMENT......................................................................................81
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
SECTION 9.01. WITHOUT CONSENT OF HOLDERS OF NOTES................................................................81
SECTION 9.02. WITH CONSENT OF HOLDERS OF NOTES...................................................................82
SECTION 9.03. COMPLIANCE WITH TRUST INDENTURE ACT................................................................84
SECTION 9.04. REVOCATION AND EFFECT OF CONSENTS..................................................................84
</TABLE>
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<PAGE> 156
<TABLE>
<S> <C> <C>
SECTION 9.05. NOTATION ON OR EXCHANGE OF NOTES...................................................................85
SECTION 9.06. TRUSTEE TO SIGN AMENDMENTS, ETC....................................................................85
ARTICLE 10
SUBORDINATION
SECTION 10.01. AGREEMENT TO SUBORDINATE..........................................................................85
SECTION 10.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY..............................................................85
SECTION 10.03. DEFAULT ON DESIGNATED SENIOR DEBT.................................................................86
SECTION 10.04. ACCELERATION OF NOTES.............................................................................87
SECTION 10.05. WHEN DISTRIBUTION MUST BE PAID OVER...............................................................87
SECTION 10.06. NOTICE BY THE COMPANY.............................................................................87
SECTION 10.07. SUBROGATION.......................................................................................87
SECTION 10.08. RELATIVE RIGHTS...................................................................................88
SECTION 10.09. SUBORDINATION MAY NOT BE IMPAIRED BY THE COMPANY..................................................88
SECTION 10.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE..........................................................89
SECTION 10.11. RIGHTS OF TRUSTEE AND PAYING AGENT................................................................90
SECTION 10.12. AMENDMENTS........................................................................................90
ARTICLE 11
GUARANTEE OF NOTES
SECTION 11.01. SUBSIDIARY GUARANTEE..............................................................................90
SECTION 11.02. EXECUTION AND DELIVERY OF SUBSIDIARY GUARANTEE....................................................92
SECTION 11.03. RELEASES FOLLOWING SALE OF ASSETS, MERGER, SALE OF CAPITAL STOCK ETC..............................92
SECTION 11.04. LIMITATION ON SUBSIDIARY GUARANTOR LIABILITY......................................................93
SECTION 11.05. "TRUSTEE" TO INCLUDE PAYING AGENT.................................................................93
ARTICLE 12
SUBORDINATION OF SUBSIDIARY GUARANTEE
SECTION 12.01. AGREEMENT TO SUBORDINATE..........................................................................93
SECTION 12.02. LIQUIDATION; DISSOLUTION; BANKRUPTCY..............................................................94
SECTION 12.03. DEFAULT ON DESIGNATED SENIOR DEBT.................................................................94
SECTION 12.04. ACCELERATION OF SUBSIDIARY GUARANTEES.............................................................95
SECTION 12.05. WHEN DISTRIBUTION MUST BE PAID OVER...............................................................95
SECTION 12.06. NOTICE BY SUBSIDIARY GUARANTOR....................................................................96
SECTION 12.07. SUBROGATION.......................................................................................96
SECTION 12.08. RELATIVE RIGHTS...................................................................................96
</TABLE>
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<TABLE>
<S> <C> <C>
SECTION 12.09. SUBORDINATION MAY NOT BE IMPAIRED BY SUBSIDIARY GUARANTOR.........................................97
SECTION 12.10. DISTRIBUTION OR NOTICE TO REPRESENTATIVE..........................................................98
SECTION 12.11. RIGHTS OF TRUSTEE AND PAYING AGENT................................................................98
SECTION 12.12. AMENDMENTS........................................................................................99
ARTICLE 13
MISCELLANEOUS
SECTION 13.01. TRUST INDENTURE ACT CONTROLS......................................................................99
SECTION 13.02. NOTICES...........................................................................................99
SECTION 13.03. COMMUNICATION BY HOLDERS OF NOTES WITH OTHER HOLDERS OF NOTES....................................101
SECTION 13.04. CERTIFICATE AND OPINION AS TO CONDITIONS
PRECEDENT.............................................................................101
SECTION 13.05. STATEMENTS REQUIRED IN CERTIFICATE OR OPINION....................................................101
SECTION 13.06. RULES BY TRUSTEE AND AGENTS......................................................................102
SECTION 13.07. NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS.........................102
SECTION 13.08. GOVERNING LAW....................................................................................102
SECTION 13.09 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS....................................................102
SECTION 13.10. SUCCESSORS.......................................................................................102
SECTION 13.11. SEVERABILITY.....................................................................................103
SECTION 13.12. COUNTERPART ORIGINALS............................................................................103
SECTION 13.13. TABLE OF CONTENTS, HEADINGS, ETC.................................................................103
</TABLE>
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EXHIBITS
<TABLE>
<S> <C>
EXHIBIT A FORM OF NOTE
EXHIBIT B FORM OF CERTIFICATE OF TRANSFEROR
EXHIBIT C FORM OF SUBSIDIARY GUARANTEE
EXHIBIT D FORM OF SUPPLEMENTAL INDENTURE
SCHEDULE A LIST OF SUBSIDIARY GUARANTORS
</TABLE>
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<PAGE> 1
EXHIBIT 4.8
REGISTRATION RIGHTS AGREEMENT
Dated as of March 31, 1998
by and among
PharMerica, Inc.
the Guarantors listed on Schedule A hereto
and
Donaldson, Lufkin & Jenrette Securities Corporation
Salomon Brothers, Inc.
BancAmerica Robertson Stephens
Chase Securities Inc.
CIBC Oppenheimer Corp.
<PAGE> 2
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of March 31, 1998 by and among PharMerica, Inc., a Delaware_
corporation (the "COMPANY"), the Guarantors listed on Schedule A hereto (the
"GUARANTORS"), and Donaldson, Lufkin & Jenrette Securities Corporation, Salomon
Brothers, Inc., BancAmerica Robertson Stephens, Chase Securities Inc. and CIBC
Oppenheimer Corp. (each an "INITIAL PURCHASER" and, collectively, the "INITIAL
PURCHASERS"), each of whom has agreed to purchase the Company's 8 3/8% Series A
Senior Notes due 2008 (the "SERIES A NOTES") pursuant to the Purchase Agreement
(as defined below).
This Agreement is made pursuant to the Purchase Agreement, dated
March 25, 1998 (the "PURCHASE AGREEMENT"), by and among the Company, the
Guarantors and the Initial Purchasers. In order to induce the Initial Purchasers
to purchase the Series A Notes, the Company has agreed to provide the
registration rights set forth in this Agreement. The execution and delivery of
this Agreement is a condition to the obligations of the Initial Purchasers set
forth in Section 3 of the Purchase Agreement. Capitalized terms used herein and
not otherwise defined shall have the meaning assigned to them the Indenture,
dated as of March 31 1998, among the Company, the Guarantors and Harris Trust
and Savings Bank, as Trustee, relating to the Series A Notes and the Series B
Notes (the "INDENTURE").
The parties hereby agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement, the following capitalized terms shall have
the following meanings:
ACT: The Securities Act of 1933, as amended.
AFFILIATE: As defined in Rule 144 of the Act.
BROKER-DEALER: Any broker or dealer registered under the Exchange
Act.
CERTIFICATED SECURITIES: Definitive Notes, as defined in the
Indenture.
CLOSING DATE: The date hereof.
COMMISSION: The Securities and Exchange Commission.
CONSUMMATE: An Exchange Offer shall be deemed "Consummated" for
purposes of this Agreement upon the occurrence of (a) the filing and
effectiveness under the Act of the Exchange Offer Registration Statement
relating to the Series B Notes to be issued in the Exchange Offer, (b) the
maintenance of such Exchange Offer Registration Statement continuously effective
and the keeping of the Exchange Offer open for a period not less than the period
required pursuant to Section 3(b) hereof and (c) the delivery by the Company to
the Registrar under the Indenture of Series B Notes in the same aggregate
principal amount as the aggregate principal amount of Series A Notes tendered by
Holders thereof pursuant to the Exchange Offer.
CONSUMMATION DEADLINE: As defined in Section 3(b) hereof.
EFFECTIVENESS DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended.
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<PAGE> 3
EXCHANGE OFFER: The exchange and issuance by the Company of a
principal amount of Series B Notes (which shall be registered pursuant to the
Exchange Offer Registration Statement) equal to the outstanding principal amount
of Series A Notes that are tendered by such Holders in connection with such
exchange and issuance.
EXCHANGE OFFER REGISTRATION STATEMENT: The Registration Statement
relating to the Exchange Offer, including the related Prospectus.
EXEMPT RESALES: The transactions in which the Initial Purchasers
propose to sell the Series A Notes to certain "qualified institutional buyers,"
as such term is defined in Rule 144A under the Act and pursuant to Regulation S
under the Act.
FILING DEADLINE: As defined in Sections 3(a) and 4(a) hereof.
HOLDERS: As defined in Section 2 hereof.
PROSPECTUS: The prospectus included in a Registration Statement at
the time such Registration Statement is declared effective, as amended or
supplemented by any prospectus supplement and by all other amendments thereto,
including post-effective amendments, and all material incorporated by reference
into such Prospectus.
RECOMMENCEMENT DATE: As defined in Section 6(d) hereof.
REGISTRATION DEFAULT: As defined in Section 5 hereof.
REGISTRATION STATEMENT: Any registration statement of the Company and
the Guarantors relating to (a) an offering of Series B Notes pursuant to an
Exchange Offer or (b) the registration for resale of Transfer Restricted
Securities pursuant to the Shelf Registration Statement, in each case, (i) that
is filed pursuant to the provisions of this Agreement and (ii) including the
Prospectus included therein, all amendments and supplements thereto (including
post-effective amendments) and all exhibits and material incorporated by
reference therein.
REGULATION S: Regulation S promulgated under the Act.
RULE 144: Rule 144 promulgated under the Act.
SERIES B NOTES: The Company's 8 3/8% Series B Senior Notes due 2008
to be issued pursuant to the Indenture: (i) in the Exchange Offer or (ii) as
contemplated by Section 4 hereof.
SHELF REGISTRATION STATEMENT: As defined in Section 6(b) hereof.
SUSPENSION NOTICE: As defined in Section 6(d) hereof.
TIA: The Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-77bbbb)
as in effect on the date of the --- Indenture.
TRANSFER RESTRICTED SECURITIES: Each Series A Note, until the
earliest to occur of (a) the date on which such Series A Note is exchanged in
the Exchange Offer for a Series B Note which is entitled to be resold to the
public by the Holder thereof without complying with the prospectus delivery
requirements of the Act, (b) the date on which such Series A Note has been
disposed of in accordance with a Shelf
- 2 -
<PAGE> 4
Registration Statement (and the purchasers thereof have been issued Series B
Notes), or (c) the date on which such Series A Note is distributed to the public
pursuant to Rule 144 under the Act (and purchasers thereof have been issued
Series B Notes) and each Series B Note until the date on which such Series B
Note is disposed of by a Broker-Dealer pursuant to the "Plan of Distribution"
contemplated by the Exchange Offer Registration Statement (including the
delivery of the Prospectus contained therein).
SECTION 2. HOLDERS
A Person is deemed to be a holder of Transfer Restricted Securities
(each, a "HOLDER") whenever such Person owns Transfer Restricted Securities.
SECTION 3. REGISTERED EXCHANGE OFFER
(a) Unless the Exchange Offer shall not be permitted by applicable
federal law (after the procedures set forth in Section 6(a)(i) below have been
complied with), the Company and the Guarantors shall (i) cause the Exchange
Offer Registration Statement to be filed with the Commission as soon as
practicable after the Closing Date, but in no event later than 45 days after the
Closing Date (such 45th day being the "FILING DEADLINE"), (ii) use its best
efforts to cause such Exchange Offer Registration Statement to become effective
at the earliest possible time, but in no event later than 120 days after the
Closing Date (such 120th day being the "EFFECTIVENESS DEADLINE"), (iii) in
connection with the foregoing, (A) file all pre-effective amendments to such
Exchange Offer Registration Statement as may be necessary in order to cause it
to become effective, (B) file, if applicable, a post-effective amendment to such
Exchange Offer Registration Statement pursuant to Rule 430A under the Act and
(C) cause all necessary filings, if any, in connection with the registration and
qualification of the Series B Notes to be made under the Blue Sky laws of such
jurisdictions as are necessary to permit Consummation of the Exchange Offer, and
(iv) upon the effectiveness of such Exchange Offer Registration Statement,
commence and Consummate the Exchange Offer. The Exchange Offer shall be on the
appropriate form permitting (i) registration of the Series B Notes to be offered
in exchange for the Series A Notes that are Transfer Restricted Securities and
(ii) resales of Series B Notes by Broker-Dealers that tendered into the Exchange
Offer Series A Notes that such Broker-Dealer acquired for its own account as a
result of market making activities or other trading activities (other than
Series A Notes acquired directly from the Company or any of its Affiliates) as
contemplated by Section 3(c) below.
(b) The Company and the Guarantors shall use their respective
reasonable best efforts to cause the Exchange Offer Registration Statement to be
declared effective, and to keep the Exchange Offer open for a continuous period
of not less than the minimum period required under applicable federal and state
securities laws to Consummate the Exchange Offer; provided, however, that in no
event shall such period be less than 20 Business Days. The Company and the
Guarantors shall cause the Exchange Offer to comply with all applicable federal
and state securities laws. No securities other than the Series B Notes shall be
included in the Exchange Offer Registration Statement. The Company and the
Guarantors shall use their respective best efforts to cause the Exchange Offer
to be Consummated on the earliest practicable date after the Exchange Offer
Registration Statement has become effective, but in no event later than 30
business days thereafter (such 30th day being the "CONSUMMATION DEADLINE").
(c) The Company shall include a "Plan of Distribution" section in the
Prospectus contained in the Exchange Offer Registration Statement and indicate
therein that any Broker-Dealer who holds Transfer Restricted Securities that
were acquired for the account of such Broker-Dealer as a result of market-making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any Affiliate of the Company), may exchange such
Transfer Restricted Securities pursuant to the Exchange
- 3 -
<PAGE> 5
Offer. Such "Plan of Distribution" section shall also contain all other
information with respect to such sales by such Broker-Dealers that the
Commission may require in order to permit such sales pursuant thereto, but such
"Plan of Distribution" shall not name any such Broker-Dealer or disclose the
amount of Transfer Restricted Securities held by any such Broker-Dealer, except
to the extent required by the Commission as a result of a change in policy,
rules or regulations after the date of this Agreement.
Because such Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Act and must, therefore, deliver a prospectus meeting
the requirements of the Act in connection with its initial sale of any Series B
Notes received by such Broker-Dealer in the Exchange Offer, the Company and the
Guarantors shall permit the use of the Prospectus contained in the Exchange
Offer Registration Statement by such Broker-Dealer to satisfy such prospectus
delivery requirement. To the extent necessary to ensure that the prospectus
contained in the Exchange Offer Registration Statement is available for sales of
Series B Notes by Broker-Dealers, the Company and the Guarantors agree to use
their respective reasonable best efforts to keep the Exchange Offer Registration
Statement continuously effective, supplemented, amended and current as required
by and subject to the provisions of Sections 6(a) and (c) hereof and in
conformity with the requirements of this Agreement, the Act and the policies,
rules and regulations of the Commission as announced from time to time, for a
period ending two years after the Closing Date or such shorter period as will
terminate when all Transfer Restricted Securities covered by such Registration
Statement have been sold pursuant thereto. The Company and the Guarantors(s)
shall provide sufficient copies of the latest version of such Prospectus to such
Broker-Dealers, promptly upon request, and in no event later than one day after
such request, at any time during such period.
The Exchange Offer shall not be subject to any conditions, other than
(i) that the Exchange Offer, or the making of any exchange by a Holder, does not
violate applicable law or any applicable interpretation of the staff of the SEC,
(ii) the due tendering of Transfer Restricted Securities in accordance with the
Exchange Offer and (iii) that each Holder of Transfer Restricted Securities
exchanged in the Exchange Offer shall have made the representations required to
be made be it pursuant to this Agreement. The Company shall inform the Initial
Purchasers of the names and addresses of the Holders to whom the Exchange Offer
is made, and the Initial Purchasers shall have the right to contact such Holders
and otherwise facilitate the tender of Transfer Restricted Securities in the
Exchange Offer.
SECTION 4. SHELF REGISTRATION
(a) Shelf Registration. If (i) the Exchange Offer is not permitted by
applicable law (after the Company and the Guarantors have complied with the
procedures set forth in Section 6(a)(i) below) or (ii) any Holder of Transfer
Restricted Securities shall notify the Company within 20 Business Days following
the Consummation Deadline that (A) such Holder was prohibited by law or
Commission policy from participating in the Exchange Offer or (B) such Holder
may not resell the Series B Notes acquired by it in the Exchange Offer to the
public without delivering a prospectus and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales by such Holder or (C) such Holder is a Broker-Dealer and holds Series A
Notes acquired directly from the Company or any of its Affiliates or (iii) upon
the request on any Initial Purchaser, then the Company and the Guarantors shall:
(x) cause to be filed, on or prior to 45 days after the earlier of (i)
the date on which the Company determines that the Exchange Offer Registration
Statement cannot be filed as a result of clause (a)(i) above and (ii) the date
on which the Company receives the notice specified in clause (a)(ii) above, or
(iii) the date of the receipt of the request pursuant to clause (a) (iii) above
(such earlier date, the "FILING DEADLINE"), a shelf registration statement
pursuant to Rule 415 under the Act (which may be an amendment to the
- 4 -
<PAGE> 6
Exchange Offer Registration Statement (the "SHELF REGISTRATION STATEMENT")),
relating to all Transfer Restricted Securities, and
(y) shall use their respective reasonable best efforts to cause such Shelf
Registration Statement to become effective on or prior to the later of (i) 60
days after the Filing Deadline for the Shelf Registration Statement or (ii) 120
days after the Closing Date (such day the "EFFECTIVENESS DEADLINE").
If, after the Company has filed an Exchange Offer Registration
Statement that satisfies the requirements of Section 3(a) above, the Company is
required to file and make effective a Shelf Registration Statement solely
because the Exchange Offer is not permitted under applicable federal law (i.e.,
clause (a)(i) above), then the filing of the Exchange Offer Registration
Statement shall be deemed to satisfy the requirements of clause (x) above;
provided that, in such event, the Company shall remain obligated to meet the
Effectiveness Deadline set forth in clause (y).
To the extent necessary to ensure that the Shelf Registration
Statement is available for sales of Transfer Restricted Securities by the
Holders thereof entitled to the benefit of this Section 4(a) and the other
securities required to be registered therein pursuant to Section 6(b)(ii)
hereof, the Company and the Guarantors shall use their respective best efforts
to keep any Shelf Registration Statement required by this Section 4(a)
continuously effective, supplemented, amended and current as required by and
subject to the provisions of Sections 6(b) and (c) hereof and in conformity with
the requirements of this Agreement, the Act and the policies, rules and
regulations of the Commission as announced from time to time, for a period of at
least two years (as extended pursuant to Section 6(d)) following the Closing
Date, or such shorter period as will terminate when all Transfer Restricted
Securities covered by such Shelf Registration Statement have been sold pursuant
thereto; provided, however that the effectiveness period shall be extended to
the extent required to permit dealers to comply with the applicable prospectus
delivery requirements of Rule 174 under the Act otherwise provided herein.
(b) Provision by Holders of Certain Information in Connection with
the Shelf Registration Statement. No Holder of Transfer Restricted Securities
may include any of its Transfer Restricted Securities in any Shelf Registration
Statement pursuant to this Agreement unless and until such Holder furnishes to
the Company, such information regarding such Holder and such Holder's intended
method of distribution of the applicable Transfer Restricted Securities as the
Company may from time to time reasonably request in writing, within 20 days, but
only to the extent that such information is required in order to comply with the
Act. No Holder of Transfer Restricted Securities shall be entitled to liquidated
damages pursuant to Section 5 hereof unless and until such Holder shall have
provided all such information. Each such Holder agrees to notify the Company as
promptly as practicable of (i) any inaccuracy or change in information
previously furnished by such Holder to the Company, or (ii) the occurrence of
any event, in either case, as a result of which any prospectus relating to such
registration contains or would contain an untrue statement of a material fact
regarding such Holder or Holder's intended method of distribution of the
applicable Transfer Restricted Securities or omits to state any material fact
regarding such Holder or such Holder's intended method of distribution of the
applicable Transfer Restricted Securities required to be stated therein or
necessary to make the statements therein not misleading and promptly to furnish
to the Company any additional information required to correct and update any
previously furnished information or required so that such Prospectus shall not
contain, with respect to such Holder or the distribution of the applicable
Transfer Restricted Securities an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
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<PAGE> 7
SECTION 5. LIQUIDATED DAMAGES
If (i) any Registration Statement required by this Agreement is not
filed with the Commission on or prior to the applicable Filing Deadline, (ii)
any such Registration Statement has not been declared effective by the
Commission on or prior to the applicable Effectiveness Deadline, (iii) the
Exchange Offer has not been Consummated on or prior to the Consummation Deadline
or (iv) any Registration Statement required by this Agreement is filed and
declared effective but shall thereafter cease to be effective or fail to be
usable for its intended purpose without being succeeded immediately by a
post-effective amendment to such Registration Statement that cures such failure
and that is itself declared effective immediately each such event referred to in
clauses (i) through (iv), a "REGISTRATION DEFAULT"), then the Company and the
Guarantors hereby jointly and severally agree to pay to each Holder of Transfer
Restricted Securities affected thereby liquidated damages in an amount equal to
$.05 per week per $1,000 in principal amount of Transfer Restricted Securities
held by such Holder for each week or portion thereof that the Registration
Default continues for the first 90-day period immediately following the
occurrence of such Registration Default. The amount of the liquidated damages
shall increase by an additional $.05 per week per $1,000 in principal amount of
Transfer Restricted Securities with respect to each subsequent 90-day period
until all Registration Defaults have been cured, up to a maximum amount of
liquidated damages of $.30 per week per $1,000 in principal amount of Transfer
Restricted Securities; provided that the Company and the Guarantors shall in no
event be required to pay liquidated damages for more than one Registration
Default at any given time. Notwithstanding anything to the contrary set forth
herein, (1) upon filing of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (i) above, (2)
upon the effectiveness of the Exchange Offer Registration Statement (and/or, if
applicable, the Shelf Registration Statement), in the case of (ii) above, (3)
upon Consummation of the Exchange Offer, in the case of (iii) above, or (4) upon
the filing of a post-effective amendment to the Registration Statement or an
additional Registration Statement that causes the Exchange Offer Registration
Statement (and/or, if applicable, the Shelf Registration Statement) to again be
declared effective or made usable in the case of (iv) above, the liquidated
damages payable with respect to the Transfer Restricted Securities as a result
of such clause (i), (ii), (iii) or (iv), as applicable, shall cease.
All accrued liquidated damages shall be paid to the Holders entitled
thereto, in the manner provided for the payment of interest in the Indenture, on
each Interest Payment Date, as more fully set forth in the Indenture and the
Notes. Notwithstanding the fact that any securities for which liquidated damages
are due cease to be Transfer Restricted Securities, all obligations of the
Company and the Guarantors to pay liquidated damages with respect to securities
shall survive until such time as such obligations with respect to such
securities shall have been satisfied in full.
SECTION 6. REGISTRATION PROCEDURES
(a) Exchange Offer Registration Statement. In connection with the
Exchange Offer, the Company and the Guarantors shall (x) comply with all
applicable provisions of Section 6(c) below, (y) use their respective best
efforts to effect such exchange and to permit the resale of Series B Notes by
Broker-Dealers that tendered in the Exchange Offer Series A Notes that such
Broker-Dealer acquired for its own account as a result of its market making
activities or other trading activities (other than Series A Notes acquired
directly from the Company or any of its Affiliates) being sold in accordance
with the intended method or methods of distribution thereof, and (z) comply with
all of the following provisions:
(i) If, following the date hereof there has been announced a
change in Commission policy with respect to exchange offers such as the
Exchange Offer, that in the reasonable opinion of counsel to the Company
raises a substantial question as to whether the Exchange Offer is
permitted by
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<PAGE> 8
applicable federal law, the Company and the Guarantors hereby agree to
seek a no-action letter or other favorable decision from the Commission
allowing the Company and the Guarantors to Consummate an Exchange Offer
for such Transfer Restricted Securities. The Company and the Guarantors
hereby agree to pursue the issuance of such a decision to the Commission
staff level. In connection with the foregoing, the Company and the
Guarantors hereby agree to take all such other actions (other than
commercially unreasonable actions) as may be requested by the Commission
or otherwise required in connection with the issuance of such decision,
including without limitation (A) participating in telephonic conferences
with the Commission, (B) delivering to the Commission staff an analysis
prepared by counsel to the Company setting forth the legal bases, if any,
upon which such counsel has concluded that such an Exchange Offer should
be permitted and (C) diligently pursuing a resolution (which need not be
favorable) by the Commission staff.
(ii) As a condition to its participation in the Exchange Offer,
each Holder of Transfer Restricted Securities (including, without
limitation, any Holder who is a Broker Dealer) shall furnish, upon the
request of the Company, prior to the Consummation of the Exchange Offer, a
written representation to the Company and the Guarantors (which may be
contained in the letter of transmittal contemplated by the Exchange Offer
Registration Statement) to the effect that (A) it is not an Affiliate of
the Company, (B) it is not engaged in, and does not intend to engage in,
and has no arrangement or understanding with any person to participate in,
a distribution of the Series B Notes to be issued in the Exchange Offer
and (C) it is acquiring the Series B Notes in its ordinary course of
business. As a condition to its participation in the Exchange Offer each
Holder using the Exchange Offer to participate in a distribution of the
Series B Notes shall acknowledge and agree that, if the resales are of
Series B Notes obtained by such Holder in exchange for Series A Notes
acquired directly from the Company or an Affiliate thereof, it (1) could
not, under Commission policy as in effect on the date of this Agreement,
rely on the position of the Commission enunciated in Morgan Stanley and
Co., Inc. (available June 5, 1991) and Exxon Capital Holdings Corporation
(available May 13, 1988), as interpreted in the Commission's letter to
Shearman & Sterling dated July 2, 1993, and similar no-action letters
(including, if applicable, any no-action letter obtained pursuant to
clause (i) above), and (2) must comply with the registration and
prospectus delivery requirements of the Act in connection with a secondary
resale transaction and that such a secondary resale transaction must be
covered by an effective registration statement containing the selling
security holder information required by Item 507 or 508, as applicable, of
Regulation S-K.
(iii) To the extent required by the Commission, prior to
effectiveness of the Exchange Offer Registration Statement, the Company
and the Guarantors shall provide a supplemental letter to the Commission
(A) stating that the Company and the Guarantors are registering the
Exchange Offer in reliance on the position of the Commission enunciated in
Exxon Capital Holdings Corporation (available May 13, 1988), Morgan
Stanley and Co., Inc. (available June 5, 1991) as interpreted in the
Commission's letter to Shearman & Sterling dated July 2, 1993, and, if
applicable, any no-action letter obtained pursuant to clause (i) above,
(B) including a representation that neither the Company nor any Guarantors
has entered into any arrangement or understanding with any Person to
distribute the Series B Notes to be received in the Exchange Offer and
that, to the best of the Company's and each Guarantors's information and
belief, each Holder participating in the Exchange Offer is acquiring the
Series B Notes in its ordinary course of business and has no arrangement
or understanding with any Person to participate in the distribution of the
Series B Notes received in the Exchange Offer and (C) any other
undertaking or representation required by the Commission as set forth in
any no-action letter obtained pursuant to clause (i) above, if applicable.
(b) Shelf Registration Statement. In connection with the Shelf
Registration Statement, the Company and the Guarantors shall:
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<PAGE> 9
(i) comply with all the provisions of Section 6(c) below and use
their respective best efforts to effect such registration to permit the sale of
the Transfer Restricted Securities being sold in accordance with the intended
method or methods of distribution thereof (as indicated in the information
furnished to the Company pursuant to Section 4(b) hereof), and pursuant thereto
the Company and the Guarantors will prepare and file with the Commission a
Registration Statement relating to the registration on any appropriate form
under the Act, which form shall be available for the sale of the Transfer
Restricted Securities in accordance with the intended method or methods of
distribution thereof within the time periods and otherwise in accordance with
the provisions hereof.
(ii) issue, upon the request of any Holder or purchaser of
Series A Notes covered by any Shelf Registration Statement contemplated by this
Agreement, Series B Notes having an aggregate principal amount equal to the
aggregate principal amount of Series A Notes sold pursuant to the Shelf
Registration Statement and surrendered to the Company for cancellation; the
Company shall register Series B Notes on the Shelf Registration Statement for
this purpose and issue the Series B Notes to the purchaser(s) of securities
subject to the Shelf Registration Statement in the names as such purchaser(s)
shall designate.
(c) General Provisions. In connection with any Registration Statement
and any related Prospectus required by this Agreement, the Company and the
Guarantors shall:
(i) use their respective reasonable best efforts to keep such
Registration Statement continuously effective and provide all requisite
financial statements for the period specified in Section 3 or 4 of this
Agreement, as applicable. Upon the occurrence of any event that would
cause any such Registration Statement or the Prospectus contained therein
(A) to contain an untrue statement of material fact or omit to state any
material fact necessary to make the statements therein not misleading or
(B) not to be effective and usable for resale of Transfer Restricted
Securities during the period required by this Agreement, the Company and
the Guarantors shall, subject to Section (c)(ii) hereof, file promptly an
appropriate amendment to such Registration Statement curing such defect,
and, if Commission review is required, use their respective best efforts
to cause such amendment to be declared effective as soon as practicable.
(ii) in the case of a Shelf Registration Statement, upon the
occurrence of any event or the discovery of any facts, each as
contemplated by Sections 6(c)(iv)(C) and 6(c)(iv)(D) hereof, use its
reasonable best efforts to prepare a supplement or post-effective
amendment to the Registration Statement or the related Prospectus or any
document incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of the
Transfer Restricted Securities or Broker-Dealers, such Prospectus will not
contain at the time of such delivery an untrue statement of a material
fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that once the Shelf Registration Statement
has been declared effective the Company may delay effecting or causing to
be effected a supplement or post-effective amendment to the Registration
Statement or the related Prospectus, for a period (the "Delay Period") not
to exceed 60 days during any 365 consecutive day period beginning 121 days
after the original issue of the Transfer Restricted Securities; provided,
further, that the Company shall notify the Holders in writing both of its
intention to effect such delay and of the date on which such supplement or
post-effective amendment has been filed with the Commission or declared
effective, as the case may be;
(iii) prepare and file with the Commission such amendments and
post-effective amendments to the applicable Registration Statement as may
be necessary to keep such Registration Statement
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<PAGE> 10
effective for the applicable period set forth in Section 3 or 4 hereof, as
the case may be or such shorter period as will terminate when all Transfer
Restricted Securities covered by such Registration Statement have been
sold; cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under
the Act, and to comply fully with Rules 424, 430A and 462, as applicable,
under the Act in a timely manner; and comply with the provisions of the
Act with respect to the disposition of all securities covered by such
Registration Statement during the applicable period in accordance with the
intended method or methods of distribution by the sellers thereof set
forth in such Registration Statement or supplement to the Prospectus;
(iv) advise each Holder promptly and, if requested by such
Holder, confirm such advice in writing, (A) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and,
with respect to any applicable Registration Statement or any
post-effective amendment thereto, when the same has become effective, (B)
of any request by the Commission for amendments to the Registration
Statement or amendments or supplements to the Prospectus or for additional
information relating thereto, (C) of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement
under the Act or of the suspension by any state securities commission of
the qualification of the Transfer Restricted Securities for offering or
sale in any jurisdiction, or the initiation of any proceeding for any of
the preceding purposes, and (D) of the existence of any fact or the
happening of any event that makes any statement of a material fact made in
the Registration Statement, the Prospectus, any amendment or supplement
thereto or any document incorporated by reference therein untrue, or that
requires the making of any additions to or changes in the Registration
Statement in order to make the statements therein not misleading, or that
requires the making of any additions to or changes in the Prospectus in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. If at any time the Commission
shall issue any stop order suspending the effectiveness of the
Registration Statement, or any state securities commission or other
regulatory authority shall issue an order suspending the qualification or
exemption from qualification of the Transfer Restricted Securities under
state securities or Blue Sky laws, the Company and the Guarantors shall
use their respective best efforts to obtain the withdrawal or lifting of
such order at the earliest possible time;
(v) subject to Section 6(c)(i), if any fact or event
contemplated by Section 6(c)(iv)(D) above shall exist or have occurred,
prepare a supplement or post-effective amendment to the Registration
Statement or related Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter
delivered to the purchasers of Transfer Restricted Securities, the
Prospectus will not contain an untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading;
(vi) furnish to each Holder (and counsel thereto) in connection
with such exchange or sale, if any, before filing with the Commission,
copies of any Registration Statement or any Prospectus included therein or
any amendments or supplements to any such Registration Statement or
Prospectus (including all documents incorporated by reference after the
initial filing of such Registration Statement), which documents will be
subject to the review and comment of such Holders in connection with such
sale, if any, for a period of at least five Business Days, and the Company
will not file any such Registration Statement or Prospectus or any
amendment or supplement to any such Registration Statement or Prospectus
(including all such documents incorporated by reference) to which such
Holders shall reasonably object within five Business Days after the
receipt thereof. A Holder shall be deemed to have reasonably objected to
such filing if such Registration Statement, amendment, Prospectus or
supplement, as applicable, as proposed to be filed, contains an untrue
statement of a
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<PAGE> 11
material fact or omit to state any material fact necessary to make the
statements therein not misleading or fails to comply with the applicable
requirements of the Act;
(vii) promptly prior to the filing of any document that is to be
incorporated by reference into a Registration Statement or Prospectus,
provide copies of such document to each Holder in connection with such
exchange or sale, if any, make the Company's and the Guarantors'
representatives available for discussion of such document and other
customary due diligence matters, and include such information in such
document prior to the filing thereof as such Holders may reasonably
request;
(viii) make available, at reasonable times, for inspection by
each and any attorney or accountant retained by such Holders, all
financial and other records, pertinent corporate documents of the Company
and the Guarantors and cause the Company's and the Guarantors officers,
directors and employees to supply all information reasonably requested by
any such Holder, attorney or accountant in connection with such
Registration Statement or any post-effective amendment thereto subsequent
to the filing thereof and prior to its effectiveness;
(ix) if requested by any Holders in connection with such
exchange, promptly include in any Registration Statement or Prospectus,
pursuant to a supplement or post-effective amendment if necessary, such
information as such Holders may reasonably request to have included
therein, including, without limitation, information relating to the "Plan
of Distribution" of the Transfer Restricted Securities; and make all
required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after the Company is notified of the matters to be
included in such Prospectus supplement or post-effective amendment;
(x) furnish to each Holder in connection with such exchange or
sale without charge, at least one copy of the Registration Statement, as
first filed with the Commission, and of each amendment thereto, including
all documents incorporated by reference therein and all exhibits
(including exhibits incorporated therein by reference);
(xi) deliver to each Holder without charge, as many copies of
the Prospectus (including each preliminary prospectus) and any amendment
or supplement thereto as such Persons reasonably may request; the Company
and the Guarantors hereby consent to the use (in accordance with law) of
the Prospectus and any amendment or supplement thereto by each selling
Holder in connection with the offering and the sale of the Transfer
Restricted Securities covered by the Prospectus or any amendment or
supplement thereto;
(xii) upon the request of any Holder, enter into such agreements
(including underwriting agreements, which underwriting agreement shall
contain indemnification provisions of the type customarily provided to the
underwriters party thereto) and make such representations and warranties
and take all such other actions in connection therewith in order to
expedite or facilitate the disposition of the Transfer Restricted
Securities pursuant to any applicable Registration Statement contemplated
by this Agreement as may be reasonably requested by any Holder in
connection with any sale or resale pursuant to any applicable Registration
Statement. In such connection, and also in connection with market making
activities by any, the Company and the Guarantors shall:
(A) upon request of any Holder, furnish (or in the case of
paragraphs (2) and (3), use its best efforts to cause to be
furnished) to each Holder and to the Initial Purchasers on behalf of
the Holders, upon Consummation of the Exchange Offer or upon the
effectiveness of the Shelf Registration Statement, as the case may
be:
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<PAGE> 12
(1) a certificate, dated such date, signed on behalf of
the Company and each Guarantors by (x) the President or any Vice
President and (y) a principal financial or accounting officer of
the Company and such Guarantors, confirming, as of the date
thereof, the matters set forth in Sections 6(y), 9(a) and 9(b)
of the Purchase Agreement and such other similar matters as such
Holders may reasonably request;
(2) an opinion, dated the date of Consummation of the
Exchange Offer or the date of effectiveness of the Shelf
Registration Statement, as the case may be, of counsel for the
Company and the Guarantors covering matters similar to those set
forth in paragraph (e) of Section 9 of the Purchase Agreement
and such other matter as such Holder may reasonably request, and
in any event including a statement to the effect that such
counsel has participated in conferences with officers and other
representatives of the Company and the Guarantors,
representatives of the independent public accountants for the
Company and the Guarantors and have considered the matters
required to be stated therein and the statements contained
therein, although such counsel has not independently verified
the accuracy, completeness or fairness of such statements; and
that such counsel advises that, on the basis of the foregoing,
no facts came to such counsel's attention that caused such
counsel to believe that the applicable Registration Statement,
at the time such Registration Statement or any post-effective
amendment thereto became effective and, in the case of the
Exchange Offer Registration Statement, as of the date of
Consummation of the Exchange Offer, contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading, or that the Prospectus
contained in such Registration Statement as of its date and, in
the case of the opinion dated the date of Consummation of the
Exchange Offer, as of the date of Consummation, contained an
untrue statement of a material fact or omitted to state a
material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made,
not misleading. Without limiting the foregoing, such counsel may
state further that such counsel assumes no responsibility for,
and has not independently verified, the accuracy, completeness
or fairness of the financial statements, notes and schedules and
other financial data included in any Registration Statement
contemplated by this Agreement or the related Prospectus; and
(3) Make such representations and warranties to the
Holders of the Transfer Restricted Securities and the
underwriters, if any, in form, substance and scope as are
customarily made by issuers to underwriters in underwriting
offerings as may be reasonably requested by the underwriters or
the Holders;
(4) a customary comfort letter, dated the date of
Consummation of the Exchange Offer, or as of the date of
effectiveness of the Shelf Registration Statement, as the case
may be, from the Company's independent accountants and any other
accountants who have audited or reviewed financial statements
included in the Registration Statement, in the customary form
and covering matters of the type customarily covered in comfort
letters to underwriters in connection with underwritten
offerings, and affirming the matters set forth in the comfort
letters delivered pursuant to Section 9(g) of the Purchase
Agreement and addressed to the underwriters, if any, and the
Holders (to the extent permitted in accordance with accounting
standards); and
(B) deliver such other documents and certificates as may be
reasonably requested by the selling Holders to evidence compliance
with the matters covered in clause (A) above and with any
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<PAGE> 13
customary conditions contained in any agreement entered into by the
Company and the Guarantors pursuant to this clause (xii);
(xiii) prior to any public offering of Transfer Restricted
Securities, cooperate with the selling Holders and their counsel in
connection with the registration and qualification of the Transfer
Restricted Securities under the securities or Blue Sky laws of such
jurisdictions as the selling Holders may request and do any and all other
acts or things necessary or advisable to enable the disposition in such
jurisdictions of the Transfer Restricted Securities covered by the
applicable Registration Statement; provided, however, that neither the
Company nor any Guarantors shall be required to register or qualify as a
foreign corporation where it is not now so qualified or to take any action
that would subject it to the service of process in suits or to taxation,
other than as to matters and transactions relating to the Registration
Statement, in any jurisdiction where it is not now so subject;
(xiv) in connection with any sale of Transfer Restricted
Securities that will result in such securities no longer being Transfer
Restricted Securities, cooperate with the Holders to facilitate the timely
preparation and delivery of certificates representing Transfer Restricted
Securities to be sold and not bearing any restrictive legends; and to
register such Transfer Restricted Securities in such denominations and
such names as the selling Holders may request at least two Business Days
prior to such sale of Transfer Restricted Securities;
(xv) use their reasonable respective best efforts to cause the
disposition of the Transfer Restricted Securities covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the
seller or sellers thereof to consummate the disposition of such Transfer
Restricted Securities, subject to the proviso contained in clause (xiii)
above;
(xvi) provide a CUSIP number for all Transfer Restricted
Securities not later than the effective date of a Registration Statement
covering such Transfer Restricted Securities and provide the Trustee under
the Indenture with printed certificates for the Transfer Restricted
Securities which are in a form eligible for deposit with the Depository
Trust Company;
(xvii) otherwise use their reasonable respective best efforts to
comply with all applicable rules and regulations of the Commission, and
make generally available to its security holders with regard to any
applicable Registration Statement, as soon as practicable, a consolidated
earnings statement meeting the requirements of Rule 158 (which need not be
audited) covering a twelve-month period beginning after the effective date
of the Registration Statement (as such term is defined in paragraph (c) of
Rule 158 under the Act);
(xviii) cause the Indenture to be qualified under the TIA not
later than the effective date of the first Registration Statement required
by this Agreement and, in connection therewith, cooperate with the Trustee
and the Holders to effect such changes to the Indenture as may be required
for such Indenture to be so qualified in accordance with the terms of the
TIA; and execute and use its best efforts to cause the Trustee to execute,
all documents that may be required to effect such changes and all other
forms and documents required to be filed with the Commission to enable
such Indenture to be so qualified in a timely manner; and
(xix) use their reasonable best efforts to cause the Transfer
Restricted Securities to be rated by the appropriate rating agencies, if so
requested by the Holders of a majority in principal amount of the Transfer
Restricted Securities, or if requested by the underwriter or underwriters of an
underwritten offering of Transfer Restricted Securities, if any;
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<PAGE> 14
(xx) provide promptly to each upon request, each document filed
with the Commission pursuant to the requirements of Section 13 or Section
15(d) of the Exchange Act.
(d) Restrictions on Holders. Each Holder agrees by acquisition of a
Transfer Restricted Security that, upon receipt of the notice referred to in
Section 6(c)(iv)(C) or any notice from the Company of the existence of any fact
of the kind described in Section 6(c)(iv)(D) hereof (in each case, a "SUSPENSION
NOTICE"), such Holder will forthwith discontinue disposition of Transfer
Restricted Securities pursuant to the applicable Registration Statement until
(i) such Holder has received copies of the supplemented or amended Prospectus
contemplated by Section 6(c)(v) hereof, or (ii) such Holder is advised in
writing by the Company that the use of the Prospectus may be resumed, and has
received copies of any additional or supplemental filings that are incorporated
by reference in the Prospectus (in each case, the "RECOMMENCEMENT DATE"). Each
Holder receiving a Suspension Notice hereby agrees that it will either (i)
destroy any Prospectuses, other than permanent file copies, then in such
Holder's possession which have been replaced by the Company with more recently
dated Prospectuses or (ii) deliver to the Company (at the Company's expense) all
copies, other than permanent file copies, then in such Holder's possession of
the Prospectus covering such Transfer Restricted Securities that was current at
the time of receipt of the Suspension Notice. The time period regarding the
effectiveness of such Registration Statement set forth in Section 3 or 4 hereof,
as applicable, shall be extended by a number of days equal to the number of days
in the period from and including the date of delivery of the Suspension Notice
to the date of delivery of the Recommencement Date.
(e) If any of the Transfer Restricted Securities covered by any Shelf
Registration Statement are to be sold in an underwritten offering, the
underwriter or underwriters and manager or managers that will manage such
offering will be selected by the Holders of a majority or in principal amount of
the Transfer Restricted Securities included in such offering and provided that
said underwriter shall be acceptable to the Company.
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<PAGE> 15
SECTION 7. REGISTRATION EXPENSES
(a) All expenses incident to the Company's and the Guarantors'
performance of or compliance with this Agreement will be borne by the Company,
regardless of whether a Registration Statement becomes effective, including
without limitation: (i) all Commission and National Association of Securities
Dealers, Inc. (the "NASD") registration and filing fees and expenses; (ii) all
fees and expenses of compliance with federal securities and state Blue Sky or
securities laws including, if applicable, the fees and expenses of any
"qualified independent underwriter" (and its counsel) that is required to be
retained by any Holder in accordance with the rules of the NASD; (iii) all
expenses of printing (including printing certificates for the Series B Notes to
be issued in the Exchange Offer and printing of Prospectuses whether for
exchanges, sales, market making or otherwise, messenger and delivery services
and telephone; (iv) all fees and disbursements of counsel for the Company, the
Guarantors and the Holders of Transfer Restricted Securities; (v) all
application and filing fees in connection with listing the Series B Notes on a
national securities exchange or automated quotation system pursuant to the
requirements hereof; (vi) any fees charged by rating agencies for the rating of
the Series B Notes; and (vii) all fees and disbursements of independent
certified public accountants of the Company and the Guarantors (including the
expenses of any special audit and comfort letters required by or incident to
such performance).
The Company will, in any event, bear its and the Guarantors internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expenses of
any annual audit and the fees and expenses of any Person, including special
experts, retained by the Company or the Guarantors.
(b) In connection with any Registration Statement required by this
Agreement (including, without limitation, the Exchange Offer Registration
Statement and the Shelf Registration Statement), the Company and the Guarantors
will reimburse the Initial Purchasers and the Holders of Transfer Restricted
Securities who are tendering Series A Notes in the Exchange Offer and/or selling
or reselling Series A Notes or Series B Notes pursuant to the "Plan of
Distribution" contained in the Exchange Offer Registration Statement or the
Shelf Registration Statement, as applicable, for the reasonable fees and
disbursements of not more than one counsel, who shall be Fried, Frank, Harris,
Shriver & Jacobson , unless another firm shall be chosen by the Holders of a
majority in principal amount of the Transfer Restricted Securities for whose
benefit such Registration Statement is being prepared.
SECTION 8. INDEMNIFICATION
(a) The Company and the Guarantors agree jointly and severally, to
indemnify and hold harmless each Holder, its directors, officers and each
Person, if any, who controls such Holder (within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act), from and against any and all losses,
claims, damages, liabilities, judgments, (including without limitation, any
reasonable legal or other expenses incurred in connection with investigating or
defending any matter, including any action that could give rise to any such
losses, claims, damages, liabilities or judgments) caused by any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, preliminary prospectus or Prospectus (or any amendment
or supplement thereto) provided by the Company to any Holder or any prospective
purchaser of Series B Notes or registered Series A Notes, or caused by any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages, liabilities or judgments are
caused by an untrue statement or omission or alleged untrue statement or
omission that is based upon information relating to any of the Holders furnished
in writing to the Company by any of the Holders.
- 14 -
<PAGE> 16
(b) Each Holder of Transfer Restricted Securities agrees, severally
and not jointly, to indemnify and hold harmless the Company and the Guarantors,
and their respective directors and officers, and each person, if any, who
controls (within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act) the Company, or the Guarantors to the same extent as the foregoing
indemnity from the Company and the Guarantors set forth in Section 8(a) above,
but only with reference to information relating to such Holder furnished in
writing to the Company by such Holder expressly for use in any Registration
Statement. In no event shall any Holder, its directors, officers or any Person
who controls such Holder be liable or responsible for any amount in excess of
the amount by which the total amount received by such Holder with respect to its
sale of Transfer Restricted Securities pursuant to a Registration Statement
exceeds (i) the amount paid by such Holder for such Transfer Restricted
Securities and (ii) the amount of any damages that such Holder, its directors,
officers or any Person who controls such Holder has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PERSON") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all reasonable fees and expenses of such counsel, as incurred
(except that in the case of any action in respect of which indemnity may be
sought pursuant to both Sections 8(a) and 8(b), a Holder shall not be required
to assume the defense of such action pursuant to this Section 8(c), but may
employ separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
the Holder). Any indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of the indemnified party
unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys (in
addition to any local counsel) for all indemnified parties and all such fees and
expenses shall be reimbursed as they are incurred. Such firm shall be designated
in writing by a majority of the Holders, in the case of the parties indemnified
pursuant to Section 8(a), and by the Company and Guarantors, in the case of
parties indemnified pursuant to Section 8(b). The indemnifying party shall
indemnify and hold harmless the indemnified party from and against any and all
losses, claims, damages, liabilities and judgments by reason of any settlement
of any action (i) effected with its written consent or (ii) effected without its
written consent if the settlement is entered into more than twenty business days
after the indemnifying party shall have received a request from the indemnified
party for reimbursement for the fees and expenses of counsel (in any case where
such fees and expenses are at the expense of the indemnifying party) and, prior
to the date of such settlement, the indemnifying party shall have failed to
comply with such reimbursement request. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from all
liability on claims that are or could have been the subject matter of such
action and (ii) does not
- 15 -
<PAGE> 17
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of the indemnified party.
(d) To the extent that the indemnification provided for in this
Section 8 is unavailable to an indemnified party in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities or judgments (i) in such proportion
as is appropriate to reflect the relative fault of the Company and the
Guarantors, on the one hand, and the Holders on the other hand, in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or judgments, as well as any other relevant equitable
considerations. The relative fault of the Company and the Guarantors, on the one
hand, and of the Holder, on the other hand, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates to
information supplied by the Company or such Guarantors, on the one hand, or by
the Holder, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company, the Guarantors and each Holder agree that it would not
be just and equitable if contribution pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
indemnified party in connection with investigating or defending any matter,
including any action that could have given rise to such losses, claims, damages,
liabilities or judgments. Notwithstanding the provisions of this Section 8, no
Holder, its directors, its officers or any Person, if any, who controls such
Holder shall be required to contribute, in the aggregate, any amount in excess
of the amount by which the total received by such Holder with respect to the
sale of Transfer Restricted Securities pursuant to a Registration Statement
exceeds (i) the amount paid by such Holder for such Transfer Restricted
Securities and (ii) the amount of any damages which such Holder has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Holders' obligations to contribute pursuant to this
Section 8(d) are several in proportion to the respective principal amount of
Transfer Restricted Securities held by each Holder hereunder and not joint.
(e) The Company and the Guarantors agree that the indemnity and
contribution provisions of this Section 8 shall apply to the Initial Purchasers
to the same extent and on the same conditions, as it applies to Holders.
- 16 -
<PAGE> 18
SECTION 9. RULE 144A AND RULE 144
The Company and each Guarantor agrees with each Holder, for so long
as any Transfer Restricted Securities remain outstanding and during any period
in which the Company or such Guarantors (i) is not subject to Section 13 or
15(d) of the Exchange Act, to make available, upon request of any Holder, to
such Holder or beneficial owner of Transfer Restricted Securities in connection
with any sale thereof and any prospective purchaser of such Transfer Restricted
Securities designated by such Holder or beneficial owner, the information
required by Rule 144A(d)(4) under the Act in order to permit resales of such
Transfer Restricted Securities pursuant to Rule 144A, and (ii) is subject to
Section 13 or 15 (d) of the Exchange Act, to make all filings required thereby
in a timely manner in order to permit resales of such Transfer Restricted
Securities pursuant to Rule 144.
SECTION 10. MISCELLANEOUS
(a) Remedies. The Company and the Guarantors acknowledge and agree
that any failure by the Company and/or the Guarantors to comply with their
respective obligations under Sections 3 and 4 hereof may result in material
irreparable injury to the Initial Purchasers or the Holders for which there is
no adequate remedy at law, that it will not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, the Initial
Purchasers or any Holder may obtain such relief as may be required to
specifically enforce the Company's and the Guarantors' obligations under
Sections 3 and 4 hereof. The Company and the Guarantors further agree to waive
the defense in any action for specific performance that a remedy at law would be
adequate.
(b) No Inconsistent Agreements. Neither the Company nor any
Guarantors will, on or after the date of this Agreement, enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the Holders in this Agreement or otherwise conflicts with the
provisions hereof. Neither the Company nor any Guarantors has previously entered
into any agreement granting any registration rights with respect to its
securities to any Person. The rights granted to the Holders hereunder do not in
any way conflict with and are not inconsistent with the rights granted to the
holders of the Company's and the Guarantors' securities under any agreement in
effect on the date hereof.
(c) Amendments and Waivers. The provisions of this Agreement may not
be amended, modified or supplemented, and waivers or consents to or departures
from the provisions hereof may not be given unless (i) in the case of Section 5
hereof and this Section 10(c)(i), the Company has obtained the written consent
of Holders of all outstanding Transfer Restricted Securities and (ii) in the
case of all other provisions hereof, the Company has obtained the written
consent of Holders of a majority of the outstanding principal amount of Transfer
Restricted Securities (excluding Transfer Restricted Securities held by the
Company or its Affiliates). Notwithstanding the foregoing, a waiver or consent
to departure from the provisions hereof that relates exclusively to the rights
of Holders whose Transfer Restricted Securities are being tendered pursuant to
the Exchange Offer, and that does not affect directly or indirectly the rights
of other Holders whose Transfer Restricted Securities are not being tendered
pursuant to such Exchange Offer, may be given by the Holders of a majority of
the outstanding principal amount of Transfer Restricted Securities subject to
such Exchange Offer.
(d) Third Party Beneficiary. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company and the
Guarantors, on the one hand, and the Initial Purchasers, on the other hand, and
shall have the right to enforce such agreements directly to the extent they may
deem such enforcement necessary or advisable to protect their rights or the
rights of Holders hereunder.
(e) Notices. All notices and other communications provided for or
permitted hereunder shall be
- 17 -
<PAGE> 19
made in writing by hand-delivery, first-class mail (registered or certified,
return receipt requested), telex, telecopier, or air courier guaranteeing
overnight delivery:
(i) if to a Holder, at the address set forth on the records of
the Registrar under the Indenture, with a copy to the Registrar under the
Indenture; and
(ii) if to the Company or the Guarantors:
PharMerica, Inc.
3611 Queen Palm Drive
Tampa, FL 33619
Telecopier No.: (813) 623-1167
Attention: Chief Financial Officer
With a copy to:
Harwell Howard Hyne Gabbert & Manner, P.C.
1800 First American Center
315 Deaderick Street
Nashville, TN 37238
Telecopier No.: (615) 251-1059
Attention: Mark Manner, Esq.
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when receipt
acknowledged, if telecopied; and on the next business day, if timely delivered
to an air courier guaranteeing overnight delivery.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address specified in the Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders; provided, that nothing herein shall be deemed to permit any
assignment, transfer or other disposition of Transfer Restricted Securities in
violation of the terms hereof or of the Purchase Agreement or the Indenture. If
any transferee of any Holder shall acquire Transfer Restricted Securities in any
manner, whether by operation of law or otherwise, such Transfer Restricted
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding such Transfer Restricted Securities such Person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement, including the restrictions on resale set
forth in this Agreement and, if applicable, the Purchase Agreement, and such
Person shall be entitled to receive the benefits hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
- 18 -
<PAGE> 20
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE
CONFLICT OF LAW RULES THEREOF.
(j) Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
with respect to the registration rights granted with respect to the Transfer
Restricted Securities. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
(l) Restriction on Resales. Until the expiration of two years after
the original issuance of the Series A Notes, the Company and the Guarantors will
not, and will cause their "affiliates" (as such term is defined in Rule
144(a)(1) under the 1933 Act) not to, resell any Series A Notes which are
"restricted securities" (as such term is defined under Rule 144(a)(3) under the
1933 Act) that have been reacquired by any of them and shall immediately upon
any purchase of any such Series A Notes submit such Series A Notes to the
Trustee for cancellation.
- 19 -
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
PHARMERICA, INC.
By:
---------------------------------------
Name: James D. Shelton
Title: Executive Vice President,
Chief Financial Officer and
Secretary
Alliance Health Services, Inc.
Beverly Acquisition Acquisition Corporation
Computran Systems, Inc.
Dunnington Drug, Inc.
Healthcare Prescription Services, Inc.
Insta-Care Holdings, Inc.
Medical Health Industries, Inc.
Alliance Home Health Care, Inc.
Brownstone Pharmacy, Inc.
Omni Med B, Inc.
Dunnington Rx Services of Massachusetts, Inc.
Dunnington Rx Services of Rhode Island, Inc.
DD Wholesale, Inc.
Pharmacy Corporation of America-Massachusetts, Inc.
Insta-Care Pharmacy Services Corporation
Pharmacy Dynamics Group, Inc.
Pharmacy Corporation of America
Capstone Med., Inc.
MediDyne Corp.
PharMerica Drug Systems, Inc.
Rombro's Drug Center, Inc.
Compuscript, Inc.
Capstone Pharmacy of Delaware, Inc.
DOC Pharmacy, Inc.
Premier Pharmacy, Inc.
Hollins Manor I, LLC
Goot's Goodies, Inc.
Southwest Pharmacies, Inc.
Family Center Pharmacy, Inc.
- 20 -
<PAGE> 22
Tmesys, Inc.
Express Pharmacy Services, Inc.
Goot Westbridge Pharmacy, Inc.
Goot Nursing Home Pharmacy, Inc.
Goot's Pharmacy & Orthopedic Supply, Inc.
By:
---------------------------------------
Name: James D. Shelton
Title: Chief Financial Officer,
Treasurer and Secretary
DONALDSON LUFKIN & JENRETTE
SECURITIES CORPORATION
SALOMON BROTHERS INC
BANCAMERICA ROBERTSON STEPHENS
CHASE SECURITIES INC.
CIBC OPPENHEIMER CORP.
BY: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
--------------------------------
Name: John W. Patterson
Title:Senior Vice President
- 21 -
<PAGE> 23
Schedule A
List of Guarantors
<TABLE>
<S> <C>
1. Alliance Health Services, Inc., a Delaware corporation
2. Beverly Acquisition Corporation, a Delaware corporation
3. Computran Systems, Inc., an Oregon corporation
4. Dunnington Drug, Inc., a Delaware corporation
5. Healthcare Prescription Services, Inc., an Indiana corporation
6. Insta-Care Holdings, Inc., a Florida corporation
7. Medical Health industries, Inc., a Delaware corporation
8. Alliance Home Health Care, Inc., a Connecticut corporation
9. Brownstone Pharmacy, Inc., a Connecticut corporation
10. Omni Med. B, Inc., a Connecticut corporation
11. Dunnington Rx Services of Massachusetts, Inc., a Massachusetts corporation
12. Dunnington Rx Services of Rhode Island, Inc., a Rhode Island corporation
13. DD Wholesale, Inc., a Massachusetts corporation
14. Pharmacy Corporation of America-Massachusetts, Inc., a Delaware corporation
15. Insta-Care Pharmacy Services Corporation, a Texas corporation
16. Pharmacy Dynamics Group, Inc., a Florida corporation
17. Pharmacy Corporation of America, a California corporation
18. Capstone Med., Inc., a Delaware corporation
19. MediDyne Corp., a New Jersey corporation
20. PharMerica Drug Systems, Inc., a Maryland corporation
21. Rombro's Drug Center, Inc., a Maryland corporation
22. Compuscript, Inc., a New York corporation
23. Capstone Pharmacy of Delaware, Inc., a Maryland corporation
24. DOC Pharmacy, Inc., a Delaware corporation
25. PremierPharmacy, Inc., a Delaware corporation
26. Hollins Manor I, LLC, a Virginia corporation
27. Goot's Goodies, Inc., an Arizona corporation
28. Southwest Pharmacies, Inc., an Arizona corporation
29. Family Center Pharmacy, Inc., a Pennsylvania corporation
30. Tmesys, Inc., a Florida corporation
31. Express Pharmacy Services, Inc., a Florida corporation
32. Goot Westbridge Pharmacy, Inc., an Arizona corporation
33. Goot Nursing Home Pharmacy, Inc., an Arizona corporation
34. Goot's Pharmacy & Orthopedic Supply, Inc., an Arizona corporation
</TABLE>
- 22 -
<PAGE> 24
EXHIBIT A
NOTICE OF FILING OF
A/B EXCHANGE OFFER REGISTRATION STATEMENT
To: Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Attention: Louise Guarneri (Compliance Department)
Fax: (212) 892-7272
From: PharMerica, Inc.
8 3/8% Senior Subordinated Notes due 2008
Date: ___, 199_
For your information only (NO ACTION REQUIRED):
Today, ______, 1998, we filed [an A/B Exchange Registration Statement/a
Shelf Registration Statement] with the Securities and Exchange Commission. We
currently expect this registration statement to be declared effective within __
business days of the date hereof.
- 23 -
<PAGE> 1
EXHIBIT 5
May 14, 1998
PharMerica, Inc.
3611 Queen Palm Drive
Tampa, Florida 33619
Ladies and Gentlemen:
We have acted as legal counsel to PharMerica, Inc. (the "Company"), in
connection with the preparation of a Registration Statement on Form S-4 under
the Securities Act of 1933, as amended ("Registration Statement"), relating to
(i) the offer to exchange all outstanding 8 3/8% Senior Subordinated Notes due
2008 (the "Notes") for 8 3/8% Senior Subordinated Notes due 2008 (the "New
Notes") and (ii) the guarantees by the Guarantors (as defined in the
Registration Statement).
We have examined and are familiar with the Certificate of Incorporation and
the By-Laws of the Company, and the various corporate records and proceedings
relating to the organization of the Company and the filing of the Registration
Statement. We have also examined such other documents and proceedings as we have
considered necessary for the purpose of this opinion.
Based on the foregoing it is our opinion that (i) the New Notes have been
duly authorized by the Issuer, and (ii) the Guarantees have been duly authorized
by each of the Guarantors.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement, and with such state securities administrators as may
require such opinion of counsel for the registration of the New Notes, and the
reference to this firm under the heading "Legal Matters" in this Prospectus.
Very truly yours,
HARWELL HOWARD HYNE
GABBERT & MANNER, P.C.
<PAGE> 1
EXHIBIT 21
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION D/B/A
- ---- ---------------------- -----
<S> <C> <C>
PharMerica, Inc..................... Delaware PharMerica, Inc.
Capstone Med, Inc................... Delaware Capstone Med, Inc.
Premier Pharmacy, Inc............... Delaware Premier Pharmacy, Inc.
Compuscript, Inc.................... New York Compuscript, Inc.
DOC Pharmacy, Inc................... Delaware DOC Pharmacy, Inc.
PharMerica Drug Systems, Inc........ Maryland PharMerica Drug Systems, Inc.
Management Systems of America,
Inc............................... Delaware Management Systems of America, Inc.
Hollins Manor I, LLC................ Virginia Hollins Manor I, LLC
Goot's Goodies, Inc................. Arizona Goot's Goodies, Inc.
Southwest Pharmacies Inc............ Arizona Goot Pharmacy
Goot Nursing Home Pharmacy, Inc..... Arizona Goot Nursing Home Pharmacy, Inc.
Goot's Pharmacy & Orthopedic Supply,
Inc............................... Arizona Goot's Pharmacy & Orthopedic Supply,
Inc.
Goot Westbridge Pharmacy, Inc....... Arizona Goot Westbridge Pharmacy, Inc.
Capstone Pharmacy of Delaware,
Inc............................... Arizona Capstone Pharmacy of Delaware, Inc.
Rombro's Drug Center, Inc........... Maryland MacGillivrays Pharmacy of Paca St.
Family Center Pharmacy, Inc......... Pennsylvania Medical Arts
Pharmacy -- Institutional
Pharmacy Corporation of America..... California Pharmacy Corporation of America
Tmesys, Inc......................... Florida Tmesys, Inc.
Express Pharmacy Services, Inc...... Florida Express Pharmacy Services, Inc.
Alliance Health Services, Inc....... Delaware Alliance Health Services, Inc.
Alliance Home Health Care, Inc...... Connecticut Alliance Home Health Care, Inc.
Brownstone Pharmacy, Inc............ Connecticut Brownstone Pharmacy, Inc.
Omni Med B, Inc..................... Connecticut Omni Med B, Inc.
Beverly Acquisition Corporation..... Delaware Beverly Acquisition Corporation
Computran Systems, Inc.............. Oregon Computran Systems, Inc.
Dunnington Drug, Inc................ Delaware Dunnington Drug, Inc.
Dunnington Rx Services of Rhode
Island, Inc....................... Rhode Island Dunnington Rx Services of Rhode
Island, Inc.
Dunnington Rx Services of
Massachusetts, Inc................ Massachusetts Dunnington Rx Services of
Massachusetts
DD Wholesale, Inc................... Massachusetts DD Wholesale, Inc.
Pharmacy Corporation of America --
Massachusetts, Inc................ Delaware Pharmacy Corporation of America --
Massachusetts, Inc.
Healthcare Prescription Services,
Inc............................... Indiana Healthcare Prescription Services,
Inc.
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
NAME STATE OF INCORPORATION D/B/A
- ---- ---------------------- -----
<S> <C> <C>
Insta-Care Holdings, Inc............ Florida Insta-Care Holdings, Inc.
Insta-Care Pharmacy Services
Corporation....................... Texas Insta-Care Pharmacy Services
Corporation
Pharmacy Dynamics Group, Inc........ Florida Pharmacy Dynamics Group, Inc.
Medical Health Industries, Inc...... Delaware Medical Health Industries, Inc.
</TABLE>
<PAGE> 1
Exhibit 23.1
[ARTHUR ANDERSEN LLP Letterhead]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement.
/s/ Arthur Andersen LLP
Baltimore, Maryland,
May 14, 1998
<PAGE> 1
Exhibit 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the use of our report dated April 18, 1997, with respect to
the consolidated financial statements and schedule of PharMerica, Inc. and
subsidiaries (formerly Pharmacy Corporation of America) included in the
Registration Statement (Form S-4 No. 33-00000) and related Prospectus of
PharMerica, Inc. for the exchange of 8 3/8% of Senior Subordinated Notes due
2008.
ERNST & YOUNG LLP
May 13, 1998
Little Rock, Arkansas
